UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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T
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2015
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£
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___ to ___
Commission File No. 000-55381
CODE NAVY
(Exact name of registrant as specified in its charter)
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| Wyoming
(State or other jurisdiction of incorporation or organization)
| 47-1109428
(I.R.S. Employer Identification No.)
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9891 Irvine Center Drive, Suite 200
Irvine, California
(Address of principal executive offices)
| 92618
(Zip Code)
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| (949) 545-9363
(Registrant’s telephone number, including area code)
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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 No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
| | Accelerated filer o
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Non-accelerated filer o
| | Smaller reporting company x
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant’s common stock as of February 1, 2016 was 105,191,127.
CODE NAVY
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
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ITEM 1
| Financial Statements
| 3
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ITEM 2
| Management’s Discussion and Analysis of Financial Condition and Results of Operations
| 9
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ITEM 3
| Quantitative and Qualitative Disclosures About Market Risk
| 11
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ITEM 4
| Controls and Procedures
| 11
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PART II – OTHER INFORMATION
| 12
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ITEM 1
| Legal Proceedings
| 12
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ITEM 1A
| Risk Factors
| 12
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ITEM 2
| Unregistered Sales of Equity Securities and Use of Proceeds
| 12
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ITEM 3
| Defaults Upon Senior Securities
| 12
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ITEM 4
| Mine Safety Disclosures
| 12
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ITEM 5
| Other Information
| 12
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ITEM 6
| Exhibits
| 12
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2
PART I – FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CODE NAVY
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BALANCE SHEETS
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| | | | | | |
| | | December 31,
| | | June 30,
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| 2015
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| 2015
|
| | | (unaudited)
| | | (unaudited)
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ASSETS
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Current Assets
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Cash and cash equivalents
| | $
| 13,478
| | $
| 5,575
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Total Current Assets
| | | 13,478
| | | 5,575
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Total Assets
| | $
| 13,478
| | $
| 5,575
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LIABILTITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
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Accounts payable
| | $
| 840
| | $
| 4,670
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Total Current Liabilities
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| 840
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| 4,670
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| | | | | | |
Total Liabilities
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| 840
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| 4,670
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| | | | | | |
Stockholders' Equity
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Preferred stock, no par value, unlimited
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shares authorized; no shares issued and
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outstanding
| | | -
| | | -
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Common stock, no par value, unlimited shares
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authorized; 105,191,127 and 100,191,127 shares issued
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and outstanding
| | | 84,215
| | | 35,000
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Accumulated deficit
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| (71,577)
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| (34,095)
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| | | | | | |
Total stockholders' equity
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| 12,638
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| 905
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| | | | | | |
Total Liabilities and Stockholders' Equity
| $
| 13,478
| | $
| 5,575
|
The accompanying notes are an integral part of these unaudited financial statements
4
CODE NAVY
STATEMENTS OF OPERATIONS
| | | | | | | | | | | |
| | For the
Six
| | | For the Three
| | | For the
Six
| | | For the Three
|
| | Months Ended
| | | Months Ended
| | | Months Ended
| | | Months Ended
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| | December 31,
| | | December 31,
| | | December 31,
| | | December 31,
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| 2015
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| 2015
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| 2014
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| 2014
|
| | (unaudited)
| | | (unaudited)
| | | (unaudited)
| | | (unaudited)
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| | | | | | | | | | | |
REVENUE
| $
| --
| | $
| --
| | $
| --
| | $
| --
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OPERATING EXPENSES
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General and administrative
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| 37,482
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| 35,764
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| 6,648
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| 6,040
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Total loss from operations
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| (37,482)
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| (35,764)
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| (6,648)
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| (6,040)
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| | | | | | | | | | | |
| | | | | | | | | | | |
NET LOSS
| $
| (37,482)
| | $
| (35,764)
| | $
| (6,648)
| | $
| (6,040)
|
| | | | | | | | | | | |
NET LOSS PER COMMON SHARE – BASIC AND DILUTED
| $
| (0.00)
| | $
| (0.00)
| | $
| (0.00)
| | $
| (0.00)
|
| | | | | | | | | | | |
Basic and diluted weighted average common shares outstanding
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| 100,245,475
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| 100,299,823
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| 100,191,127
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| 100,191,127
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The accompanying notes are an integral part of these unaudited financial statements
5
CODE NAVY
STATEMENTS OF CASH FLOWS
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| | For the Six
| | | For the Six
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| | Months Ended
| | | Months Ended
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| | December 31,
| | | December 31,
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| 2015
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| 2014
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| | (unaudited)
| | | (unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
| $
| (37,482)
| | $
| (6,648)
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Adjustments to reconcile net loss to
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net cash used in operating activities:
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Change in operating assets and liabilities:
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Decrease in accounts payable
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| (3,830)
| | | (16,397)
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Net cash used in operating activities
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| (41,312)
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| (23,045)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Issuance of common stock
| | 49,215
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Contributions to capital
|
| --
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| 30,000
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Net cash provided by financing activities
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| 49,215
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| 30,000
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Net increase in cash
| | 7,903
| | | 6,955
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Cash, at beginning of period
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| 5,575
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| --
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Cash, at end of period
| $
| 13,478
| | $
| 6,955
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Supplemental disclosure of Cash Flow Information:
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Cash paid during the period for:
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Interest
| $
| --
| | $
| --
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Income taxes
| $
| --
| | $
| --
|
The accompanying notes are an integral part of these unaudited financial statements
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CODE NAVY
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company
Code Navy, a Wyoming corporation (the "Company") was incorporated on June 9, 2014 and is the result of a holding company reorganization effected under Oklahoma law by Code Navy, a Nevada corporation formerly known as Culture Medium Holdings Corp. (“Code Navy NV”). On June 9, 2014, when the Company was a second-tier subsidiary of Code Navy NV, the Company obtained the rights to its current business plan in exchange for 100,000,000 Code Navy NV shares. Immediately prior to the issuance of the 100,000,000 shares, Code Navy NV had 190,858 shares outstanding. As a result of the holding company reorganization, Code Navy NV changed its name to Culture Medium Holdings Corp., became a wholly-owned Oklahoma subsidiary of the Company and was disposed of to a non-affiliated third party, and the former Code Navy NV shareholders became shareholders of the Company. As of 2015, and giving effect to the holding company reorganization, there were approximately 100,191,127 shares of Common Stock outstanding, including 269 shares issued in for rounding in a reverse stock split. The transaction was accounted for as a reverse merger (recapitalization) with the acquired business plan deemed to be the accounting acquirer and the Company deemed to be the legal acquirer. The financial statements presented herein are those of the accounting acquirer.
The Company is engaged in the business of developing a database of offshore programmers and intends to offer programming services in an offshore floating vessel.
Basis of Presentation of Unaudited Financial Information
The unaudited interim financial statements of the Company for the period December 31, 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Notes to the financial statements which would substantially duplicate the disclosures contained in the unaudited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted. These financial statements should be read in conjunction with the notes to the financial statements which appear in the Form 10-K.
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NOTE 2 - GOING CONCERN
The accompanying interim financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company is still in the early stage and has not yet been successful in establishing profitable operations. The Company incurred a net loss of $37,482 for the six months ended December 31, 2015. The Company has not generated any revenues to date. These factors create substantial doubt about the Company's ability to continue as a going concern. As a result, the Company’s independent registered public accounting firm has raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company's management plans to continue as a going concern revolves around its ability to achieve, as well as raise necessary capital to pay ongoing general and administrative expenses of the Company. The ability of the Company to continue as a going concern is dependent on securing additional sources of capital and the success of the Company's plan. There is no assurance that the Company will be successful in raising the additional capital or in achieving profitable operations.
NOTE 3 - STOCKHOLDERS’ EQUITY
The Company has authorized an unlimited number of shares of common stock, no par value, of which 105,191,127 and 100,191,127 shares (after giving effect to the issuance of 269 rounding shares in a reverse stock split) are outstanding as of December 31, 2015 and 2014, and an unlimited number of shares of preferred stock, no par value. The preferred stock may be issued with such rights, preferences and designation and to be issued in such series as determined by the Board of Directors. No shares of preferred stock are issued and outstanding at December 31, 2015 or 2014. On December 28, 2015, the Company issued 5,000,000 shares of common stock for $0.01 per share, less escrow and wire fees of $785, for net cash of $49,215.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statement Notice
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Code Navy, (“we”, “us”, “our” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
Critical Accounting Policies and Estimates
Use of estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.
Plan of Operations
We had a loss from operations for the six and three months ended December 31, 2015 of $37,432 and $35,764, respectively consisting of general and administrative expenses, including rent, utilities, wages, professional fees and advertising expenses. This compares to general and administrative expenses of $6,648 and $6,040 for the six and three months ended December 31, 2014, respectively. The increase in general and administrative expenses is due to our expansion of operations, including hiring of programming and operational personnel. We expect our quarterly expenses to be about $50,000 per quarter in 2016. We project we will continue to have losses from operations until such time as we have sales from operations.
We have established a series of milestones for our operating plan, as follows:
Date or
number of
Expected manner of
months after receipt
Occurrence or
of proceeds when
Event or Milestone
method of achievement
should be accomplished
1. Complete website
Programming and website
June 30, 2014
The website and the software for the programmer database were completed by June 30, 2014. We do not require any cash to complete this milestone.
2. Obtain database of qualified Advertising on trade
March 31, 2016
programmers
publications
This stage will not involve the expenditure of a significant amount of cash (under $40,000). Programmers who are interested in becoming part of our database will complete information regarding their location and their qualifications such as the programming languages in which they are competent. We hope to have a minimum database of 5,000 programmers by March 31, 2016.
9
3.Market to customers
Sales representatives and trade
June 2016
shows
This milestone will require approximately $200,000, primarily in salaries of $140,000, marketing materials of $10,000, and trade show expenses of $50,000, and we expect to commence marketing efforts upon receiving proceeds from our registered offering. We intend to hire 3-5 outside sales persons and concentrate in the Western United States. Timing of these expenses will be (a) arrange for placement at industry trade shows; (b) hire one outside sales person to coordinate trade show placement and direct mailing; (c) prepare, print and mail our materials to potential customers; (d) place new media (internet etc) advertisements ( e) add additional sales representatives. We must obtain programming contracts for at least 30 programmers and for one year to commence business on the vessel.
4. Acquire and Refit Vessel
Locate, acquire and refit
Twelve
We intend to use commercial marine brokers to locate a suitable candidate for acquisition. Refit will be outsourced to marine tradesmen in a lower-cost jurisdiction such as Trinidad or Mexico. The acquisition, refit and anchoring phase is expected to require 3-6 months and the bulk of our cash requirements. Bearing in mind that not all vessels available are actively listed at any time, a search on the various websites listing vessels for sale reflects that there are many vessels available at this time.
Our operations have been limited to development of our business plan. If we cannot meet our timetable, we will not be able to obtain revenues. Delay in Milestones 2 and 3 would not seriously impact our liquidity, since we have minimal operating costs until such time as we have obtained contracts. Therefore, we have to be especially careful to acquire a vessel which does not require extensive refit for our intended use. We have cash on hand of $13,478 as of December 31, 2015, which we believe sufficient for our operating expenses until we commence marketing.
Notably, if we are unable to acquire and refit a suitable vessel, our alternative operating plan will be to offer traditional offshore programming services utilizing our database of programmers until such time as we are able to acquire a vessel and station programmers on that vessel.
There can be no assurance that our efforts to implement our business plan will be successful or that we will obtain revenues or profitability.
Information included in this report includes forward looking statements, which can be identified by the use of forward-looking terminology such as may, expect, anticipate, believe, estimate, or continue, or the negative thereof or other variations thereon or comparable terminology. The statements in "Risk Factors" and other statements and disclaimers in this report constitute cautionary statements identifying important factors, including risks and uncertainties, relating to the forward-looking statements that could cause actual results to differ materially from those reflected in the forward-looking statements.
Our activities have mostly been devoted to seeking capital; seeking supply contracts and development of a business plan. Our auditors have included an explanatory paragraph in their report on our financial statements, relating to the uncertainty of our business as a going concern, due to our lack of operating history or current revenues, its nature as a start up business, management's limited experience and limited funds. We do not believe that conventional financing, such as bank loans, is available to us due to these factors. We have no bank line of credit available to us. Management believes that it will be able to raise the required funds for operations from one or more future offerings, in order to effect our business plan.
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Our future operating results are subject to many facilities, including:
o our success in entering into favorable business partnerships with pharmaceutical distributors;
o the success of any joint marketing agreements;
o our ability to obtain additional financing; and
o other risks which we identify in future filings with the SEC.
Any or all of our forward looking statements in this prospectus and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward looking statement can be guaranteed. In addition, we undertake no responsibility to update any forward-looking statement to reflect events or circumstances which occur after the date of this report.
Contractual Obligations and Off-Balance Sheet Arrangements
We do not have any contractual obligations or off balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s principal executive officer and its principal financial officer, performed an evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d -14 (c) as of December 31, 2015. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective to enable us to accurately record, process, summarize and report certain information required to be included in the Company’s periodic SEC filings within the required time periods, and to accumulate and communicate to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting during the period ended December 31, 2015 that have materially affected or are reasonably likely to materially affect our internal controls.
11
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to or otherwise involved in any legal proceedings.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
There have been no events which are required to be reported under this Item.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Financial Statement Schedules
31. Certification of CEO and CFO. Filed herewith.
32. Certification pursuant to 18 U.S.C. Section 1350 of CEO and CFO. Filed herewith.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CODE NAVY
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Dated: February 3, 2016
| By:
| /s/ Tamara Semenova
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| Tamara Semenova
|
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| President and Chief Financial Officer (chief financial and accounting officer and duly authorized officer)
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13
