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UNITED STATES
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 March 31, 2005.
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transaction Period from _______ to _______
Commission File Number: 0-27083
W3 GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 84-1108035
------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
444 Madison Avenue, Suite 2904, New York, New York 10022
--------------------------------------------------------
(Address of Principal Executive Offices)
(212) 750-7878
---------------------------
(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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 23,274,145 shares of Common Stock,
$.0001 par value, outstanding on March 31, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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W3 GROUP, INC.
Form 10-QSB Quarterly Report
For Quarterly Period Ended September 30, 2004
Table of Contents
Page
----
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Unaudited Balance Sheet at September 30, 2004 and
Audited Balance Sheet at December 31, 2003 2
Unaudited Statements of Operations
For Three and Nine Months Ended
September 30, 2004 and September 30, 2003 3
Unaudited Statements of Cash Flows
For Nine Months Ended
September 30, 2004 and September 30, 2003 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Controls and Procedures 14
PART II OTHER INFORMATION 14
SIGNATURE 16
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
W3 GROUP, INC.
BALANCE SHEETS
--------------
March 31, 2005 December 31, 2004
(Unaudited) (Audited)
------------------ -----------------
ASSETS
------
Current assets:
Cash $ 0 $ 0
----------------- -----------------
Total current assets 0 0
----------------- -----------------
Total assets $ 0 $ 0
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable & accrued expenses $ 26,625 $ 24,850
----------------- -----------------
Total Current Liabilities: $ 26,625 $ 24,850
================= =================
Shareholder loan payable $ 67,054 $ 65,854
Stockholders' equity:
Series B preferred stock,
two shares convertible to
one share of common;
non-cumulative, non-participating,
authorized 10,000,000 shares,
$.0001 par value,
issued and outstanding
1,478,901 shares at March 31, 2004
and 1,498,901 at December 31, 2004 $ 524,739 $ 531,835
----------------- -----------------
Common stock- $.0001 par value,
authorized 40,000,000 shares;
23,274,145 issued and outstanding
at March 31, 2005 and
23,264,145 at December 31, 2004 2,327 2,326
Additional paid-in-capital 1,984,436 1,977,340
Accumulated deficit (2,605,181) (2,602,205)
----------------- -----------------
Total shareholders' equity (93,679) (90,704)
----------------- -----------------
Total Liabilities &
Shareholders' Equity $ 0 $ 0
================= =================
The accompanying notes are an integral part of these financial statements.
2
W3 GROUP, INC.
STATEMENTS OF OPERATIONS
------------------------
FOR THREE MONTHS ENDED MARCH 31
-------------------------------
2005 2004
(Unaudited) (Unaudited)
----------------- -----------------
Revenues:
Gross Sales $ 0 $ 0
Less cost of sales 0 0
----------------- -----------------
Net gross profit on sales $ 0 $ 0
================= =================
General and administrative expenses:
Administration 1,776 358
----------------- -----------------
Total general &
administrative expenses 1,776 358
----------------- -----------------
Net loss from operations $ (1,776) $ (358)
================= =================
Other income and expense:
Interest (expense) (1,200) (1,200)
----------------- -----------------
Net loss before provision
for income taxes:
Provision for income taxes 0 0
----------------- -----------------
Net loss $ (2,976) $ (1,558)
================= =================
Loss per common share:
Basic & fully diluted $ 0 $ 0
================= =================
Weighted average of common shares:
Basic & fully diluted 23,274,145 10,392,163
================= =================
The accompanying notes are an integral part of these financial statements.
3
W3 GROUP, INC.
CASH FLOW STATEMENTS
--------------------
FOR THREE MONTHS ENDED MARCH 31
-------------------------------
2005 2004
(Unaudited) (Unaudited)
----------------- -----------------
Operating Activities:
Net loss $ (2,976) $ (1,558)
Adjustments to reconcile
net income items not requiring
the use of cash:
Administration expense 0 0
Changes in other operating
assets and liabilities:
Accounts payable & accrued expenses 2,976 1,558
----------------- -----------------
Net cash used by operations $ 0 $ 0
Net increase (decrease) in cash
during the period
Cash balance at
beginning of the fiscal year $ 0 $ 0
----------------- -----------------
Cash balance at
end of the fiscal year $ 0 $ 0
----------------- -----------------
Supplemental disclosures of
cash flow information:
Interest paid during the period $ 0 $ 0
Income taxes paid during the period $ 0 $ 0
The accompanying notes are an integral part of these financial statements.
4
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FOR THE FIRST QUARTER ENDED MARCH 31, 2005
------------------------------------------
1. Organization of the Company and Significant Accounting Principles
W3 Group, Inc. ("the Company") was incorporated in the State of Colorado in
February 1988. The Company has no business operations at present and its
activities since inception are primarily related to its initial public offering
and merger activities.
In May 2003, the Company changed its state of incorporation to Delaware.
Use of Estimates- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make reasonable
estimates and assumptions that affect the reported amounts of the assets and
liabilities and disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses at the date of the financial statements and for
the period they include. Actual results may differ from these estimates.
Income taxes- The Company accounts for income taxes in accordance with the
Statement of Accounting Standards No.109 (SFAS No. 109), "Accounting for Income
Taxes". SFAS No. 109 requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between financial statement
and income tax bases of assets and liabilities that will result in taxable
income or deductible expenses in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets and liabilities to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period adjusted for
the change during the period in deferred tax assets and liabilities.
Development Stage Company- the Company has had no operations or revenues since
its inception and therefore qualifies for treatment as a development stage
company as per Statement of Financial Accounting Standards (SFAS) No. 7. As per
SFAS No.7, financial transactions are accounted for as per generally accepted
accounted principles. Costs incurred during the development stage are
accumulated in "losses accumulated during the development stage" and are
reported in the Stockholders' Equity section of the balance sheet.
Recent Accounting Pronouncements-
EITF 03-16: In March 2004, the EITF reached a consensus regarding Issue
No. 03-16, "Accounting for Investments in Limited Liability Companies"
("EITF 03-16"). EITF 03-16 requires investments in limited liability companies
("LLCs") that have separate ownership accounts for each investor to be accounted
for similar to a limited partnership investment under Statement of Position
No. 78-9, "Accounting for Investments in Real Estate Ventures." Investors are
required to apply the equity method of accounting to their investments at a much
lower ownership threshold than the 20% threshold applied under APB No. 18, "The
Equity Method of Accounting for Investments in Common Stock." The adoption of
EITF 03-16 did not have a material impact on the financial condition or results
of operations.
5
EITF 04-1: In September 2004, the EITF reached a consensus regarding Issue
No. 04-1, "Accounting for Preexisting Relationships Between the Parties to a
Business Combination" ("EITF 04-1"). EITF 04-1 requires an acquirer in a
business combination to evaluate any preexisting relationship with the acquiree
to determine if the business combination in effect contains a settlement of the
preexisting relationship. A business combination between parties with a
preexisting relationship should be viewed as a multiple element transaction.
EITF 04-1 is effective for business combinations after October 13, 2004, but
requires goodwill resulting from prior business combinations involving parties
with a preexisting relationship to be tested for impairment by applying the
guidance in the consensus. The adoption of EITF 04-1 did not have a material
impact on the financial condition or results of operations.
SFAS No. 123R: In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and supercedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values, beginning with the first interim or annual period after June 15, 2005,
with early adoption encouraged. In addition, SFAS No. 123R will cause
unrecognized expense (based on the amounts in our pro forma footnote disclosure)
related to options vesting after the date of initial adoption to be recognized
as a charge to results of operations over the remaining vesting period. The
adoption of SFAS No. 123R did not have a material impact on the financial
condition or results of operations.
2. Fair Value of Financial Instruments
The value of accounts payables and accrued expenses and shareholder loans
payable are estimated to approximate fair market value at March 31, 2005 and
December 31, 2004.
3. Preferred Stock
The class of preferred stock issued is as follows:
Series B Convertible Preferred Stock: Series B Convertible Preferred Stock has
a par value of $.0001 per share and is non-cumulative and non-participating.
The Series B Convertible Preferred stock is convertible into common stock at a
conversion ratio of two preferred shares for one share of common stock.
In fiscal 2004, 159 shares of preferred stock were converted to 79 shares of
common stock. On February 8, 2005, 20,000 shares of Series B convertible
preferred stock were converted to 10,000 shares of common stock.
On April 14, 2005, the Board of Directors passed a resolution, which was
approved by shareholder action, to implement mandatory conversion of all of the
Company's issued and outstanding Series B Convertible Preferred Stock effective
April 25, 2005 for shareholders of record on April 20, 2005, on the basis of one
share of common stock for each two (2) shares of preferred stock.
6
4. Issuance of Common Stock
On February 8, 2005, 20,000 shares of Series B convertible preferred stock were
converted to 10,000 shares of common stock.
On January 5, 2004, 159 shares of Series B preferred stock were converted to 79
shares of common stock.
On May 18, 2004, the Company issued 5,314,216 shares of common stock valued at
$159,426 to vendors and consultants to settle unpaid debt.
On May 18, 2004, the Company issued 6,357,766 shares of common stock valued at
$190,733 to a consultant to settle unpaid debt.
On May 18, 2004, the Company issued 1,200,000 shares of common stock valued at
$36,000 to a director of the Company for services performed.
On April 14, 2005, the Board of Directors unanimously approved a reverse split
of the Company's common stock on the basis of one (1) share for each fifteen
(15) shares held on the record date, May 8, 2005, effective May 9, 2005, which
was approved by shareholders' action.
5. Addendum to the Consolidated Statement of Cash Flows
The following transactions occurring during the fiscal year ended December 31,
2004 and were excluded from the calculation of the statement of cash flows since
they did not involve a transfer of cash.
On May 18, 2004, the Company issued 5,314,216 shares of common stock valued at
$159,426 to vendors and consultants to settle unpaid debt.
On May 18, 2004, the Company issued 6,357,766 shares of common stock valued at
$190,733 to a consultant to settle unpaid debt.
On May 18, 2004, the Company issued 1,200,000 shares of common stock valued at
$36,000 to a director of the Company for services performed.
6. Net Loss per Share
The Company applies SFAS No. 128, "Earnings per Share" to calculate loss per
share. In accordance with SFAS No. 128, basic net loss per share has been
computed based on the weighted average of common shares outstanding during the
years. Fully diluted loss per share includes the dilutive effects of
outstanding common stock equivalents.
The calculation of fully diluted loss per share excludes outstanding common
stock equivalents at March 31, 2005 and March 31, 2004 because their inclusion
would be anti-dilutive.
7
Other than the Series B Convertible preferred stock discussed in Note 3, there
are no other financial instruments outstanding convertible into common stock at
March 31, 2005 and March 31, 2004.
7. Related Party Transactions
During fiscal years 2004 and 2003, Ameristar Group Incorporated, a shareholder
and corporation owned by two Directors of W3 Group, Inc. provided office space
to the Company at no cost.
At March 31, 2005 and March 31, 2004, the Company is indebted to four
shareholders, including one director of the Company for notes payable in the
amount of $40,000. The loans are unsecured and due on demand and at 12%
interest. Accordingly, the Company recorded $1,200 interest expense on the loan
for the quarters ended March 31, 2005 and 2004.
8. Concentration of Credit Risk
The president and principal shareholders of the Company provide various
administrative services on behalf of the Company in addition to committing to
provide necessary funds to pay for future administrative services. A withdrawal
of the financial support from the president and principal shareholders could
have a material adverse impact on the financial condition of the Company and its
ability to operate as a going concern.
9. Income taxes
There is no provision for federal or state income taxes for the three month
periods ended March 31, 2005 and 2004, since the Company incurred losses from
inception.
As of March 31, 2005, the Company has a net operating loss carry forward of
$2,605,181 which expires in various years through 2023. Should the Company
undergo an ownership change as defined in Section 382 of the Internal Revenue
Service Code, utilization of its tax net operating loss carry forwards may be
limited.
10. Going Concern Considerations
The accompanying financial statements have been presented in accordance with
generally accepted accounting principals, which assume the continuity of the
Company as a going concern. However, during the three months ended March 31,
2005 and during the prior several fiscal years, the Company has experienced, and
continues to experience, certain going concern issues related to profitability.
The Company incurred a net loss of $2,605,181 since its inception and has no
cash balances and no business operations.
Management's plans with regard to this matter include the search for an
operating entity for a business combination with the Company. There can be
assurance that management will be successful in finding a candidate suitable for
a business combination or that such business combination could be successfully
consummated.
8
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
The following discussion and analysis should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I - Item 1 of
this report, and Management's Discussion and Analysis of Financial Conditions
and Results of Operations and General Risk Factors Affecting us contained in our
annual report for the year ended December 31, 2004 as filed with the Securities
and Exchange Commission on March 30, 2005.
Forward-Looking Statements
Some of the information contained in this report may constitute forward-looking
statements or statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Any such forward-looking statements are based on current
expectations and projections about future events. The words, estimate, plan,
intend, expect, anticipate and similar expressions are intended to identify
forward-looking statements which involve, and are subject to, known and unknown
risks, uncertainties and other factors which could cause our actual results,
financial or operating performance, or achievements to differ materially from
future results, financial or operating performance, or achievements expressed or
implied by such forward-looking statements. Projections and assumptions
contained and expressed herein were reasonably based on information available to
us at the time so furnished and as of the date of this filing. All such
projections and assumptions are subject to significant uncertainties and
contingencies, many of which are beyond our control, and no assurance can be
given that the projections will be realized. Readers are cautioned not to place
undue reliance on any such forward-looking statements, which speak only as of
the date hereof. Careful consideration should be given to the General Risk
Factors contained in our Form 10-KSB for the year ended December 31, 2003. We
undertake no obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
Results of Operations
We did not have any revenue during the three month period ended March 31, 2005,
or during the comparable period for the prior year, and have not had any revenue
since the first quarter of 1999.
The net loss for the three month period ended March 31, 2005 was $2,976 compared
to a net loss of $1,558 for the comparable period in the prior year, an increase
of $1,418 resulting from an increase in administration expenses.
We had no cash at March 31, 2005 and at December 31, 2004.
On January 19, 2005, the Company entered into a Letter of Intent to acquire 100
percent of the issued and outstanding capital stock of Cristina Acquisition
Corp. ("CAC"), a wholly owned subsidiary of privately held Signal Companies,
Inc. The Letter of Intent was amended on February 7, 2005 to provide CAC with
additional time to comply with the condition of completing funding arrangements
for the acquisition of an operating business in the oil and gas industry. Since
the condition was not met by the extended deadline of March 2, 2005, the Letter
of Intent expired on that date and is of no further force and effect. (Refer to
Forms 8-K filed on January 20, 2005, February 9, 2005, March 3, 2005 and
exhibits thereto).
9
We are continuing to look for suitable acquisition candidates. As of the date
of this Report, no additional acquisition candidates have been found, and there
is no assurance that any additional candidates will be found.
Present Overview
We intend to acquire, finance, and restructure operating companies that are
interested in a business combination. We are seeking to acquire companies that
would become wholly owned, or majority owned, subsidiaries of W3 and intend to
concentrate on existing companies that have proven markets, profitability, and
management.
Our approach is to develop "partnerships" with companies having exceptional
management in order to improve the long-term value of a business. The
participation of management through equity based compensation and stock
ownership is a crucial ingredient of our plan.
Liquidity and Capital Resources
At March 31, 2005, we had no cash. We have received an audit opinion, which
includes a "going concern" risk, which raises substantial doubt regarding our
ability to continue as a going concern. (See Financial Statements, "Note 10-
Going Concern Considerations".) Management is reevaluating business
opportunities and looking for a new business direction.
Risk Factors Affecting the Company
We have not had any business operations since the divestiture of our former
operating subsidiary, L'Abbigliamento, Ltd., effective March 31, 1999. Any
investment in our common stock involves a high degree of risk. You should
consider carefully the following information about the risks, together with the
other information contained in this report, before you decide to buy our common
stock. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our operations. If any of the
following risks actually occur, our business would likely suffer and our results
could differ materially from those expressed in any forward-looking statements
contained in this report. In such case, the trading price of our common stock
could decline, and you may lose all or part of the money you paid to buy our
common stock.
1. We have no operations and no revenue.
We have no operations or revenue and therefore are subject to all the risks
inherent in such a business venture, many of which are beyond our control,
including the inability to implement successful operations, lack of capital to
finance acquisitions and failure to achieve market acceptance. In addition, we
face significant competition from many companies virtually all of which are
larger, better financed and have significantly greater market recognition than
us.
10
2. The ability to attract and retain highly qualified personnel to operate and
manage our business is extremely important and our failure to do so could
adversely affect us.
Presently, we are totally dependent upon the personal efforts of our current
management. The loss of any of our officers or directors could have a material
adverse effect upon our business and future prospects. We do not presently have
key-person life insurance upon the life of any of our officers or directors.
Further, all decisions with respect to management of our affairs will be made
exclusively by current management. We may also employ independent consultants
to provide business and marketing advice. Such consultants have no fiduciary
duty to us or our stockholders, and may not perform as expected. Our success
will, in significant part, depend upon the efforts and abilities of management,
including such consultants as may be engaged in the future. Additionally, as we
implement our planned acquisition of commercial operations, we will require the
services of additional skilled personnel. There can be no assurance that we can
attract persons with the requisite skills and training to meet our future needs
or, even if such persons are available, that they can be hired on terms
favorable to us.
3. Our financial statements contain a "going concern" qualification and our
operations are dependent upon our ability to raise additional working capital.
We may not be able to operate as a going concern. The independent auditor's
report accompanying our financial statements contains an explanation that our
financial statements have been prepared assuming that we will continue as a
going concern. We are in need to raise funds to implement our plans. As of
March 31, 2005, we had no cash and a total deficit of $2,605,181. This condition
raises substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. As a result, our ability to continue to operate as
a going concern will depend upon our ability to raise additional working
capital. Our failure to raise funds would materially and adversely affect our
ability to continue as a going concern.
4. Our ability to execute our acquisition strategy will require us to obtain
additional working capital.
Our business strategy will require that substantial capital investment and
adequate financing be available to us for the completion of acquisitions,
development and integration of operations and technology as needed. In the
event that we cannot obtain the necessary capital to fund our operations as
planned, we may need to limit our operations and activities. We cannot
guarantee that such capital investment will be available to us at all or on
terms that are acceptable to us. Our failure to obtain the necessary amount of
capital to fund our operations as currently anticipated could have a material,
adverse effect upon our capacity to continue operations.
5. The means by which we raise capital could cause substantial dilution to
stockholders or result in significant interest expense or restrictive covenants.
Our ability to operate as a going concern and to fund our planned acquisition
activities will require that we obtain substantial capital. We may raise these
funds by selling additional shares of our common stock or by incurring
additional debt. Depending on the terms negotiated with potential investors,
such shares of common stock may be issued at a price per share less than the
trading prices listed for our common stock on the OTC Bulletin Board and thus
11
may be significantly dilutive to our current stockholders. In addition, such
dilution could likely have a depressive effect on the market price of our common
stock, should a public market continue for our shares of common stock. In
addition, any debt financing that we are able to obtain, if any, may involve
significant interest expense or restrictive covenants that may limit our
activities.
6. Our business strategy depends upon our ability to acquire operating companies
and our failure to successfully do so would have a material adverse affect upon
our business.
Our acquisition plan depends on our ability to identify suitable acquisition
candidates, effectively integrate acquired companies into our organization,
retain personnel and customers in the acquired companies and obtain necessary
financing on acceptable terms. There can be no assurances that any transactions
will be consummated on the terms proposed. Our failure to consummate such
transactions on the terms proposed could have a material, adverse effect on our
business.
7. Our failure to successfully integrate any companies that we acquire would
materially and adversely affect our business.
Any acquisition that we complete or will contemplate, is accompanied by risks
which include difficulty assimilating the operations and personnel of acquired
businesses, maximizing our financial and strategic position through the
successful incorporation and integration of acquired personnel and customers,
maintaining uniform standards and preventing the impairment of relationships
with employees and customers. Additionally, as we implement our plan, there can
be no assurance that there will not be substantial unanticipated costs and
expenses associated with the start-up and implementation of such acquisition
plan. Our failure to integrate these businesses satisfactorily or to consummate
such transactions on the terms proposed could have a material, adverse effect on
our business.
8. The successful implementation of our business strategy depends upon the
ability of our management to monitor and control costs.
With respect to our planned operations, management cannot accurately project or
give any assurance with respect to our ability to control development and
operating costs and/or expenses in the future. Consequently, even if we are
successful in implementing our acquisition plan, of which there can be no
assurance, management still may not be able to control costs and expenses
adequately, and such operations may generate losses.
9. We may become subject to governmental regulations and oversight, which could
adversely affect our ability to continue or expand our business strategy.
Although our acquisition plans are currently not subject to any regulations, it
is possible that, in the future, such regulations may be legislated. Although we
cannot predict the extent of any such future regulations, a possibility exists
that future or unforeseen changes may have an adverse impact upon our ability to
continue or expand our business as presently planned.
12
10. We do not foresee issuing any cash dividends.
We have not paid any dividends to date nor, by reason of our present financial
status and contemplated financial requirements, do we anticipate paying any
dividends in the foreseeable future.
11. There is a lack of an active public market for our common stock.
Our Common Stock trades under the symbol "WWWG" and the Series B Convertible
Preferred Stock trades under the symbol "WWWGP" on the OTC Electronic Bulletin
Board. There can be no assurances, however, that a market will develop or
continue for our common stock. Our common stock may be thinly traded, if traded
at all, even if we achieve full operation and generate significant revenue. In
addition, our stock is defined as a "penny stock" under Rule 3a51-1 adopted by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended. In general, a "penny stock" includes securities of companies
which are not listed on the principal stock exchanges or the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or
National Market System ("NASDAQ NMS") and have a bid price in the market of less
than $5.00; and companies with net tangible assets of less than $2,000,000
($5,000,000 if the issuer has been in continuous operation for less than three
years), or which have recorded revenues of less than $6,000,000 in the last
three years. "Penny stocks" are subject to rule 15g-9, which imposes additional
sales practice requirements on broker-dealers that sell such securities to
persons other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses, or individuals who are
officers or directors of the issuer of the securities). For transactions covered
by Rule 15g-9, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, this rule may adversely affect the
ability of broker-dealers to sell our common stock, and therefore, may adversely
affect the ability of our stockholders to sell common stock in the public
market.
12. Sales by our existing stockholders of shares of our common stock could cause
our stock price to decline.
A total of 23,274,145 shares of common stock were issued and outstanding as of
March 31, 2005, of which 21,030,748 shares thereof were "restricted securities"
as that term is defined under the Securities Act of 1933, as amended. All such
restricted shares must be held indefinitely unless subsequently registered under
the Securities Act or an exemption from registration becomes available. One
exemption which may be available in the future is Rule 144 adopted under the
Securities Act. Generally, under Rule 144 any person holding restricted
securities for at least one year may publicly sell in ordinary brokerage
transactions, within a 3 month period, the greater of one (1%) percent of the
total number of a company's shares outstanding or the average weekly reported
volume during the four weeks preceding the sale, if certain conditions of Rule
144 are satisfied by the company and the seller. Furthermore, with respect to
sellers who are "non-affiliates" of the company, as that term is defined in Rule
144, the volume sale limitation does not apply and an unlimited number of shares
may be sold, provided the seller meets a holding period of 2 years.
13
Item 3. Controls and Procedures
Based on his evaluation, as of a date within 90 days of the filing of this Form
10-QSB, the Company's Chief Executive Officer and Chief Financial Officer has
concluded the Company's disclosure controls and procedures (as defined in Rules
13a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective.
There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of his
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Change in Securities. None
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Subsequent to the period covered by this Report, the following occurred:
Conversion of Preferred Stock
-----------------------------
On April 14, 2005 the Registrant's Board of Directors determined to implement
mandatory conversion of all the Company's issued and outstanding Series B
Preferred Stock upon expiration of the Preferred Stock conversion preference, on
the preference basis, one (1) share of Common Stock for each two (2) shares of
Preferred Stock issued and outstanding, on the record date, April 20, 2005;
effective April 25, 2005 (the "Effective Date"). The mandatory conversion was
approved by shareholder action without a meeting pursuant to Section 228 of the
Delaware General Corporation Law with the written consent of shareholders owning
in the aggregate 800,000, shares or approximately 54% of the 1,478,901 shares of
issued and outstanding on the record date. Upon conversion there will be a total
of 24, 013, 596 shares of the Issuer's Common Stock issued and outstanding, pre-
reverse split. See Split of Common Stock below.
Reverse Split of Common Stock
-----------------------------
Also on April 14, 2005, the Registrant's Board of Directors unanimously approved
a reverse split of the Company's Common Stock on the basis of one (1) post-
reverse split share for each fifteen (15) pre-reverse split shares held on the
record date, May 8, 2005, effective May 9, 2005. The reverse split, as proposed
by the Board of Directors, was approved by shareholders action without a meeting
pursuant to Section 228 of the Delaware General Corporation Law and with the
written consent of shareholders owning in the aggregate 19,930,749 shares, or
approximately 83% of the Registrant's issued and outstanding Common Stock. As an
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aspect of the shareholder action, the Company's management was authorized and
directed to, establish the effective date for the reverse split as May 9, 2005,
maintain the post-reverse split par value of the Registrant's Common Stock at
$0.0001 per share and amend the Company's Amended Certificate of Incorporation
to increase the total number of shares of stock which the Registrant is
authorized to issue to 110,000,000 shares, consisting of 100,000,000 shares of
post-reverse split Common Stock, par value $0.0001 per share, and 10,000,000 of
Preferred Stock, par value $0.0001 per share. Following amendment of the
Registrant's Certificate of Incorporation, future shares of Preferred Stock may
be issued from time to time in one or more series as may be established from
time to time by further resolution of the Board of Directors of the Registrant.
Each such series, if any, shall consist of such number of shares and have such
distinctive designation or title as shall be fixed by future resolution of the
Board of Directors prior to the issuance of any shares in any such series. Each
class or series of Preferred Stock shall have voting powers full or limited, or
no voting powers, and such preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions,
thereof, as shall be stated in such future resolution of the Board, if any,
providing for issuance of such series of Preferred Stock.
On the effective date, that is May 9, 2005, based on the number of shares of the
Registrant's Common Stock issued and outstanding at date, there will be
1,600,907 shares of post-reverse split Common Stock issued and outstanding.
Increase in Authorized Common Stock
-----------------------------------
As indicated above, the Registrant's Board of Directors, and Shareholders owning
approximately 83% of the Registrant's issued and outstanding Common Stock,
approved an increase in the shares of Common Stock which the Company may issue
to 100,000,000 shares, par value $0.0001 per share. The Registrant will file a
corresponding amendment to its Amended Certificate of Incorporation in the State
of Delaware reflecting the increase in its authorized Common Stock to
100,000,000 post-reverse split shares, accordingly.
Item 5. Other Information. None
Item 6. Exhibits and Reports of Form 8-K. None
(a) Exhibits
Exhibit No. Description
31 Certification Pursuant to Rule 13a-14 and 15d-14
Under the Securities Exchange Act of 1934, As Amended
32 Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
15
(b) Reports on Form 8-K.
Form 8-K filed on January 20, 2005 Re: Letter of Intent executed to
acquire Cristina Acquisition Corp.
Form 8-K filed on February 9, 2005 Re: amendment to the Letter of
Intent signed on January 19, 2005.
Form 8-K filed on March 3, 2005 Re: expiration of Letter of Intent.
Form 8-K filed on April 20, 2005 Re: Material Modification of Rights
and Securities Holders, Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year and Exhibit 20, Information Statement.
SIGNATURE
Pursuant to the requirements of Section 13 of 15(d) 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.
Date: April 21, 2004 By: /s/ Robert Gordon
-----------------------------------
Robert Gordon
Acting President
Principal Financial Officer
16