FORM
10-Q
|
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended
June 30,
2008
OR
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
to
Commission
file number 333-63432
Atlantic
Wine Agencies, Inc.
(Exact
name of registrant as specified in its charter)
|
Florida
(State
or other jurisdiction of
Identification
No.)
|
65-1102237
(I.R.S.
Employer or organization)
|
Mount
Rosier Estate (Pty) Ltd.
Farm 25
A-Sir Lowry’s Pass Village
Somerset
West, 7129, South Africa
(Address
of principal executive offices) (Zip Code)
011.27.218.581130
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
or No __
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.
Large
Accelerated Filer ___ Accelerated Filer___ Non-Accelerated
Filer ___ Smaller Reporting Company
X
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
_
or No _
X
_
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date (August 19,
2008) 5,720,953
PART
I - FINANCIAL INFORMATION
SPECIAL
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We
are including the following cautionary statement in this Form 10-Q to make
applicable and take advantage of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statement made
by, or on behalf of ,us. This 10-Q, press releases issued by us, and
certain information provided periodically in writing and orally by our
designated officers and agents contain statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The words “expect”, “believe”, “goal”, “plan”, “intend”,
“estimate”, and similar expressions and variations thereof used are intended to
specifically identify forward-looking statements. Where any such forward-looking
statement includes a statement of the assumptions or basis underlying such
forward-looking statement, we caution that assumed facts or basis almost always
vary from actual results, and the differences between assumed facts or basis and
actual results can be material, depending on the
circumstances. Where, in any forward-looking statement, we, or our
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished
Item 1. Financial
Statements
|
Description
|
Page No.
|
|
FINANCIAL
INFORMATION:
|
|
|
Financial
Statements
|
|
|
Consolidated Balance Sheets at
June 30, 2008
(unaudited) and March 31, 2008
(audited)
|
F-1
|
|
Consolidated Statement of
Operations for the Three Months Ended
June 30, 2008 and
2007
respectively
(Unaudited)
|
F-2
|
|
Consolidated Statements of Cash
Flows for the
Three
Months Ended
June 30, 2008 and
2007
respectively
(Unaudited)
|
F-3
|
|
Notes to Consolidated Financial
Statements
(Unaudited)
|
F-4
|
ATLANTIC
WINE AGENCIES, INC.
AND
SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
June
30,
|
|
|
March
31,
|
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
|
448
|
|
|
Accounts
receivable
|
|
$
|
181,529
|
|
|
|
71,948
|
|
|
Inventory
|
|
|
213,064
|
|
|
|
169,832
|
|
|
Prepaid
expenses
|
|
|
127
|
|
|
|
124
|
|
|
Total
Current Assets
|
|
|
394,720
|
|
|
|
242,352
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
|
|
|
of
$300,788 and $262,002, respectively
|
|
|
1,727,786
|
|
|
|
2,229,649
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
|
1,182
|
|
|
|
1,148
|
|
|
Total
Assets
|
|
$
|
2,123,688
|
|
|
$
|
2,473,149
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
958,787
|
|
|
$
|
887,037
|
|
|
Loans
from Sapphire Development Limited
|
|
|
|
|
|
|
345,940
|
|
|
Accounts
payable
|
|
|
174,725
|
|
|
|
126,049
|
|
|
Accrued
expenses
|
|
|
253,047
|
|
|
|
255,840
|
|
|
Loan
payable to principal officer
|
|
|
470,152
|
|
|
|
423,888
|
|
|
Advance
payment on sale of land
|
|
|
|
|
|
|
148,260
|
|
|
Deferred
revenue
|
|
|
63,565
|
|
|
|
68,411
|
|
|
Total
Liabilities
|
|
|
1,920,276
|
|
|
|
2,255,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
Common
stock authorized 150,000,000
|
|
|
|
|
|
|
|
|
|
shares;
$0.00001 par value; issued and
|
|
|
|
|
|
|
|
|
|
outstanding 4,520,953
shares at June 30 and March 31, 2008,
|
|
|
|
|
|
|
|
|
|
respectively
|
|
|
1,135
|
|
|
|
1,135
|
|
|
Paid-in
capital
|
|
|
8,363,268
|
|
|
|
8,363,268
|
|
|
Accumulated
deficit
|
|
|
(8,805,979
|
)
|
|
|
(8,511,289
|
)
|
|
Accumulated
other comprehensive income
|
|
|
644,988
|
|
|
|
364,610
|
|
|
Total
Stockholders’ Equity
|
|
|
203,412
|
|
|
|
217,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,123,688
|
|
|
$
|
2,473,149
|
|
See
accompanying notes to financial statements.
F-1
ATLANTIC
WINE AGENCIES, INC.
AND
SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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For the Three Months Ended June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
72,206
|
|
|
$
|
46,020
|
|
|
Costs
and Expenses
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
17,952
|
|
|
|
20,330
|
|
|
Selling,
general and administrative
|
|
|
266,950
|
|
|
|
157,328
|
|
|
Depreciation
and amortization
|
|
|
31,595
|
|
|
|
32,172
|
|
|
Total
Costs and Expenses
|
|
|
316,497
|
|
|
|
209,830
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Operating loss
|
|
|
(244,291
|
)
|
|
|
(163,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of assets
|
|
|
(33,119
|
)
|
|
|
|
|
|
Rent
received
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
Miscellaneous
income
|
|
|
27,029
|
|
|
|
2,960
|
|
|
Interest
expense
|
|
|
(44,309
|
)
|
|
|
(4,972
|
)
|
|
Total
Other Income (Expense)
|
|
|
(50,399
|
)
|
|
|
(2,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(294,690
|
)
|
|
$
|
(165,822
|
)
|
|
Net
Loss Per Common Share (Basic and Diluted)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
4,520,953
|
|
|
|
3,452,955
|
|
See
accompanying notes to financial statements.
F-2
ATLANTIC
WINE AGENCIES, INC.
AND
SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(294,690
|
)
|
|
$
|
(165,822
|
)
|
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
|
cash
flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of assets
|
|
|
33,119
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
31,595
|
|
|
|
32,172
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
(109,581
|
)
|
|
|
2,001
|
|
|
Decrease
(increase) in inventory
|
|
|
(43,232
|
)
|
|
|
3,761
|
|
|
Decrease
(increase) in prepaid expenses
|
|
|
(37
|
)
|
|
|
13
|
|
|
(Decrease)
in accrued payroll taxes
|
|
|
|
|
|
|
|
|
|
(Decrease)
in accounts payable
|
|
|
48,676
|
|
|
|
(42,472
|
)
|
|
(Decrease)
increase in accrued expenses
|
|
|
(2,793
|
)
|
|
|
(53,855
|
)
|
|
Net
Cash Flows Used in Operating Activities
|
|
|
(336,943
|
)
|
|
|
(224,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
Disposal
of property and equipment
|
|
|
525,930
|
|
|
|
|
|
|
Cash
paid for property and equipment
|
|
|
(24,067
|
)
|
|
|
(36,190
|
)
|
|
Net
Cash Flows Used in Operating Activities
|
|
|
501,863
|
|
|
|
(36,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
Borrowings
under bank overdraft facilities
|
|
|
71,750
|
|
|
|
274,491
|
|
|
Loans
from Sapphire Development Limited
|
|
|
(494,200
|
)
|
|
|
|
|
|
Loan
payable (repayments) to principal officer
|
|
|
46,264
|
|
|
|
|
|
|
Net
Cash Flows (Used in) Provided by Financing Activities
|
|
|
(376,186
|
)
|
|
|
274,491
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Exchange Rate Changes on Cash
|
|
|
210,818
|
|
|
|
(14,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
|
(448
|
)
|
|
|
(341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
Beginning of Period
|
|
|
448
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
End of Period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
44,309
|
|
|
|
|
|
|
Non-cash
activities:
|
|
|
|
|
|
|
|
|
|
Issuance
of stock in payment of debt
|
|
|
|
|
|
|
|
|
|
Increase
in deferred revenue for plant and equipment
|
|
|
|
|
|
|
|
|
|
acquisition
|
|
|
(4,846
|
)
|
|
|
|
|
See
accompanying notes to financial statements.
F-3
ATLANTIC
WINE AGENCIES, INC.
AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2008
(Unaudited)
NOTE A -
BASIS OF PRESENTATION
The
accompanying condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. 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, all adjustments
(consisting of normal recurring accruals) considered necessary in order to make
the financial statements not misleading have been included. Results
for the three months ended June 30, 2008 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2009. For
further information, refer to the financial statements and footnotes thereto
included in the Atlantic Wine Agencies’ Inc. annual report on Form 10-KSB for
the year ended March 31, 2008.
NOTE B
- GOING CONCERN
As
indicated in the accompanying financial statements, the Company has
an Accumulated deficit of $8,805,979 and a negative
working capital of $1,525,556 . Management’s plans include the raising of
capital through the equity markets to fund future operations and the generating
of revenue through its business. Failure to raise adequate capital and generate
adequate sales revenues could result in the Company having to curtail or cease
operations. Additionally, even if the Company does raise sufficient
capital to support its operating expenses and generate adequate revenues, there
can be no assurances that the revenue will be sufficient to enable it to develop
business to a level where it will generate profits and cash flows from
operations. These matters raise substantial doubt about the Company’s ability to
continue as a going concern. However, the accompanying financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. These financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as
a going concern.
NOTE C –
OVERDRAFT FACILITY
The
Company has an additional facility arrangement with ABSA, a South African Bank
for R 8,000,000 (U.S. $1,250,000). The loan is secured by the assets of the
South African Winery and bears interest at the South African prime rate 12.5%
per annum. The balance at June 30, 2008 is $958,787.
NOTE D -
DEBT RESTRUCTURING
On
January 11, 2008, Atlantic Wine Agencies, Inc. (the “Company”) entered into an
agreement with Sapphire Developments Limited (“Sapphire”) and
Fairhurst Properties S.A. (“Fairhurst”) to restructure certain debt held by
Sapphire (the “Debt Restructuring Agreement”). The Debt Restructuring Agreement
was executed to address a November 16, 2005 loan to the Company by Sapphire of
One Million Two Hundred Fifty-Nine Thousand Eight Hundred Sixty-Three U.S.
Dollars (US $1,259,863). Sapphire agreed to terminate the Promissory
Note and restructure its debt in exchange for the following consideration
articulated in the Debt Restructuring Agreement:
|
·
|
The
Company agreed to pay Three Million Two Hundred Thousand South African
Rand (R $3,200,000) to Sapphire, an amount approximately equal to Four
Hundred Sixty-Eight Thousand and Ninety Two U.S. Dollars (US $468,092), in
two installments. The first installment of One Million Two
Hundred Thousand South African Rand (R1,200,000) was paid by the Company
on January 11, 2008. The second installment of
Two Million South African Rand (R$2,000,000) will be
paid on or before January 31, 2008.
|
|
·
|
The
Company issued 26,699,950 restricted shares of the Company’s common stock
(the “Shares”) to Sapphire in exchange for relief from $533,999 of the
debt underlying the Promissory
Note.
|
|
·
|
The
Company, Sapphire, and Fairhurst entered into a voting agreement
concurrent with the Debt Restructuring Agreement (“Voting
Agreement”).
|
|
·
|
The
Company issued a promissory note to Fairhurst for approximately $400,000
without interest to mature on January 11,
2009.
|
|
·
|
Each
of Sapphire and Fairhurst executed mutual
releases.
|
|
·
|
Fairhurst
will ensure that Adam Mauerberger remain as the Chief Executive Officer of
the Company until such time that a material merger or share exchange
occurs (“Atlantic Corporate
Event”).
|
|
·
|
19,960,000
shares of the Company’s common stock owned by Fairhurst (“Fairhurst
Shares”) shall be transferred to Sapphire upon the earlier of the
six-month anniversary date of the Debt Restructuring Agreement or the
completion of an Atlantic Corporate
Event.
|
NOTE E -
STOCKHOLDERS’ EQUITY
On May 5,
2008, the Board of Directors approved a 25:1 reverse stock split, which became
effective May 19, 2008. Accordingly, all per share figures have been
restated.
F-3
Item
2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations.
RESULTS OF
OPERATIONS
Our net
sales in the three-month period ended June 30, 2008 were $72,206 representing a
$26,186 increase from our net sales for the three-month period ended June 30,
2007. Despite an increase in our net sales, we experienced an
increase in our net operating loss of $80,481 in the three-month period ended
June 30, 2008 ($244,291) as compared to the three-month period ended June 30,
2007 ($163,810). This increase in our net operating loss is primarily
attributable to an increase in our selling, general and administrative expenses
to $266,950 for the three-month period ended June 30, 2008 from $157,328 for the
three-month period ended June 30, 2007.
LIQUIDITY AND CAPITAL
RESOURCES
For the
three
months ended
June 30, 2008,
net cash used to fund operating
activities aggregated $
403,181 as compared to $224,202 for
the three months ended June 30, 2007. This increase is
attributable to an increase in net loss to $294,690 from $165,822, a decrease in
accounts receivable to ($109,581) from $2,001, an increase in the loss on a sale
of assets to $33,119 from $0 and a decrease in inventory to ($43,332) from
$3,761 over the same periods.
For the three months ended June 30,
2008,
net cash utilized by
investing activities aggregated $
501,863 as compared to ($36,190) for the
three months ended June 30, 2007. This increase is primarily due to
the disposal of certain property and equipment.
N
et cash provided by financing activities
decreased in the three
months ended June 30, 2008 to (
$
376,186) from $274,491 for the three
months ended June 20, 2007
.
This decrease is primarily attributable
to a loan from Sapphire Development Limited of $494,200 on January 11,
2008.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Our
discussion and analysis of its
financial condition and results of operations are based upon
our
financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
us
to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our
estimates, including those related to
bad debts, income taxes and contingencies and litigation.
We base
our
estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
In June 2006, the Financial
Accounting Standards Board (“FASB”) issued Interpretation 48, “Accounting
for Income Tax Uncertainties” (“FIN 48”). FIN 48 defines the threshold for
recognizing the benefits of tax return positions in the financial statements as
“more-likely-than-not” to be sustained by the taxing authority. Recently issued
literature also provides guidance on the derecognition, measurement and
classification of income tax uncertainties, along with any related interest and
penalties. FIN 48 also includes guidance concerning accounting for income tax
uncertainties in interim periods and increases the level of disclosures
associated with any recorded income tax uncertainties. FIN 48 is effective for
fiscal years beginning after December 15, 2006.
We expect
to adopt the provisions of FIN 48
beginning in the first quarter of 2007.
We are
currently in the process of determining
the impact, if any, of adopting the provisions of FIN 48 on its financial
position, results of operations and liquidity.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements,” which defines fair value, establishes a
framework for measuring fair value under other accounting pronouncements that
permit or require fair value measurements, changes the methods used to measure
fair value and expands disclosures about fair value measurements. In particular,
disclosures are required to provide information on the extent to which fair
value is used to measure assets and liabilities; the inputs used to develop
measurements; and the effect of certain of the measurements on earnings (or
changes in net assets).
SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years. Early adoption, as of the beginning of an entity’s fiscal year, is also
permitted, provided interim financial statements have not yet been
issued.
We
are
currently evaluating
the potential impact, if any, that the adoption of SFAS No. 157 will have on
our
consolidated financial
statements.
In September 2006, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements” (“SAB No. 108”). SAB No. 108 provides guidance on how
prior year misstatements should be considered when quantifying misstatements in
the current year financial statements. SAB No. 108 requires registrants to
quantify misstatements using both a balance sheet and an income statement
approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB No. 108 does not change the guidance in SAB No. 99,
“Materiality,” when evaluating the materiality of misstatements. SAB No. 108 is
effective for fiscal years ending after November 15, 2006. Upon initial
application, SAB No. 108 permits a one-time cumulative effect adjustment to
beginning retained earnings.
We
adopted SAB No. 108 for the fiscal year
ended March 31, 2007. Adoption of SAB No. 108 did not have a material
impact on the consolidated financial statements.
In February 2007, the FASB issued SFAS
No. 159,
The Fair Value
Option for Financial Assets and Financial Liabilities
(“SFAS 159”). SFAS 159
allows entities to measure at fair value many financial instruments and certain
other assets and liabilities that are not otherwise required to be measured at
fair value. SFAS 159 is effective for fiscal years beginning after
November 15, 2007.
We
have
not determined what
impact, if any, that adoption will have on our results of operations, cash flows
or financial position.
Item
3. Quantitative and Qualitative Disclosure About Market Risk.
Not
applicable
Item 4/4T.
– Controls and
Procedures
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(a)
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Disclosure
Controls and Procedures.
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As of the end of the period covering
this
Form 10-
Q
, we evaluated the effectiveness of the
design and operation of our “disclosu
re controls and procedures”.
We
conducted this
evaluation under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial
Officer.
(i) Definition of
Disclosure Controls and Procedures
.
Disclosure controls and procedures are
controls and other procedures that are designed with the objective of ensuring
that information required to be disclosed in our periodic reports filed under
the Exchange Act, such as this report, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. As
defined by the SEC, such disclosure controls and procedures are also designed
with the objective of ensuring that such information is accumulated and
communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, in such a manner as to allow timely disclosure
decisions.
(ii) Limitations on the Effectiveness of
Disclosure Controls and Procedures and Internal Controls.
We recognize
that a system of disclosure controls
and procedures (as well as a system of internal controls), no matter how well
conceived and operated, cannot provide absolute assurance that the objectives of
the system are met. Further, the design of such a 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 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 in a number of ways. Because of the inherent limitations in a
cost-effective control system, system failures may occur and not be
detected.
(iii) Conclusions with Respect to Our
Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer
and Chief Financial Officer determined that, as of the end of the
period covered by this report, these controls and
procedures are adequate and effective in alerting them in a timely manner
to material information relating to us required to be included in our periodic
SEC filings
.
(b) Changes in
Internal Controls
.
There have been no changes in
our
internal controls over financial
reporting
that could
significantly affect these controls subsequent to the date of their
evaluation.
PART
II - OTHER INFORMATION
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|
Item
1. Legal Proceedings.
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|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
On May 14, 2008, the
Company entered into a conversion agreement with Fairhust Properties S.A.
("Fairhurst") to convert $50,000 of principal on a promissory note issued
by the Company to Fairhurst on January 11, 2008 with a face amount of $400,000
(the "Promissory Note") into 5,000,000 shares of the Company's common stock
(the "Conversion Agreement"). Subsequent to the Conversion Agreement, the
Company amended the Promissory Note so that the face amount was reduced to
$350,000. On August 14, 2008, pursuant to the Conversion Agreement,
the Company issued 200,000 shares to Fairhurst, which is equal to the
5,000,000 shares it was owed before the reverse split became effective on May
19, 2008.