5
|
|
|
|
|
|
|
|
|
|
|
|
|
FLAMERET, INC.
|
|
(An Development Stage Company)
|
|
Statements of Cash Flows
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
|
|
on August 13,
|
|
|
|
|
|
For the Nine Months Ended
|
|
2009 Through
|
|
|
|
|
|
May 31,
|
|
May 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(5,252,172)
|
|
$
|
(398,629)
|
|
$
|
(5,759,784)
|
|
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
|
|
used by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Loss on settlement of debt
|
|
612,475
|
|
|
-
|
|
|
612,475
|
|
|
|
Stock issued for services
|
|
3,783,392
|
|
|
-
|
|
|
3,783,392
|
|
|
|
Impairment of assets
|
|
500,000
|
|
|
-
|
|
|
500,000
|
|
|
|
Expenses paid on behalf of the Company
|
|
|
|
|
|
|
|
|
|
|
|
by a related party
|
|
165,905
|
|
|
-
|
|
|
212,890
|
|
|
|
Notes payable issued for services
|
|
53,700
|
|
|
150,000
|
|
|
378,700
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(4,290)
|
|
|
-
|
|
|
(4,290)
|
|
|
|
Accounts payable
|
|
(7,676)
|
|
|
3,767
|
|
|
2,880
|
|
|
|
Accrued interest
|
|
37,583
|
|
|
19,520
|
|
|
61,551
|
|
|
|
Accrued salaries
|
|
74,795
|
|
|
-
|
|
|
164,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
(36,288)
|
|
|
(225,342)
|
|
|
(47,391)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common
|
|
|
|
|
|
|
|
|
|
|
and preferred stock
|
|
5,000
|
|
|
-
|
|
|
7,500
|
|
|
Payments toward related-party payables
|
|
(2,600)
|
|
|
-
|
|
|
(2,600)
|
|
|
Proceeds from related party payables
|
|
34,240
|
|
|
222,574
|
|
|
43,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
36,640
|
|
|
222,574
|
|
|
48,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
352
|
|
|
(2,768)
|
|
|
616
|
|
CASH AT BEGINNING OF PERIOD
|
|
264
|
|
|
3,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH AT END OF PERIOD
|
$
|
616
|
|
$
|
457
|
|
$
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Income Taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Note payable issued for purchase of assets
|
$
|
500,000
|
|
$
|
-
|
|
$
|
500,000
|
|
|
|
Preferred stock issued in conversion of debt
|
$
|
20,675
|
|
$
|
-
|
|
$
|
20,675
|
|
|
|
Common stock issued in conversion of debt
|
$
|
630,000
|
|
$
|
-
|
|
$
|
630,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
6
FLAMERET, INC.
(A Development Stage Company)
Notes to the Condensed Financial Statements
May 31, 2011 and August 31, 2010
(Unaudited)
NOTE 1 – CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at May 31, 2011, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's August 31, 2010 audited financial statements. The results of operations for the periods ended May 31, 2011 and 2010 are not necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The Company has had minimal revenues, generated a net loss totaling $5,252,172 during the nine months ended May 31, 2011 and has generated an accumulated deficit during the development stage of approximately $5,759,784 as of May 31, 2011.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification of Financial Statement Accounts
Certain amounts in the May 31, 2010 financial statements have been reclassified to conform to the presentation in the May 31, 2011 financial statements.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
7
FLAMERET, INC.
(A Development Stage Company)
Notes to the Condensed Financial Statements
May 31, 2011 and August 31, 2010
(Unaudited)
NOTE 4 – RELATED PARTY TRANSACTIONS
During the nine months ended May 31, 2011, the Company received $33,830 in additional cash loans from various related parties, and had $165,906 in expenses paid on its behalf by related parties. The Company made cash payments on these notes totaling $2,600 during the nine months ended May 31, 2011. The Company also incurred a new loan to a related party in the amount of $500,000, the proceeds of which were used to acquire certain intangible assets. Total related party payables as of May 31, 2011 were $925,397. Of this total, $56,602 accrues interest at 8.0% and is due on demand, $172,000 accrues interest at 6.0% and is due on demand, and $196,796 is non-interest bearing and due on demand. The Company’s $500,000 note bears interest at 10% per annum and is also due on demand.
As of May 31, 2011, the Company owes accrued salaries to officers and employees of $164,795.
NOTE 5 – STOCKHOLDERS’ EQUITY
Preferred Stock
On October 26, 2010, the board of directors voted to approve the re-domiciling from Nevada to Wyoming, and cancel the authorized shares of series A preferred stock of ten million (10,000,000), authorize two hundred million shares of preferred stock comprised of the following share denominations: one million (1,000,000) shares of series A preferred stock, ten million (10,000,000) shares of series B preferred stock, ten million (10,000,000) series C preferred stock, and thirty million (30,000,000) shares of series D preferred stock. The par value of all shares was changed from $0.00001 per share to $0.0001 per share. On May 24, 2011 the Company further amended its certificate of incorporation whereby it authorized an additional thirty million (30,000,000) shares of series E preferred stock, and ten million (10,000,000) shares of series F preferred stock.
On November 10, 2010, the Company issued 10 shares of series A preferred stock for services at $1,000 per share, for an aggregate value of $10,000.
On December 23, 2010, the Company issued 100,000 shares of series D preferred stock for services at $2.50 per share, for an aggregate value of $250,000.
On January 25, 2011, the Company issued 400,000 shares of series B preferred stock for services at $0.01 per share, for an aggregate value of $5,738. Additionally, the Company issued 1,775,000 shares of series B preferred stock upon conversion of debts at $0.01 per share, for an aggregate value of $20,675.
On May 15, 2011 the Company issued 500,000 shares of series F preferred stock for cash at $0.009 per share, for an aggregate value of $4,286.
Common Stock
On October 26, 2010, the board of directors voted to approve the re-domiciling from Nevada to Wyoming, and an increase in the authorized shares of common stock from ninety million (90,000,000) to one billion eight hundred million (1,800,000,000). The par value of all shares was changed from $0.00001 per share to $0.0001 per share. Stockholders’ equity and common stock activity for all periods presented have been restated to give retroactive recognition to the changes in authorized shares and par values. In addition, all references in the financial statements, to weighted average number of shares, per share amounts, and market prices of the Company’s common stock have been restated with respect to the aforementioned amendments. The State of Wyoming certified the Incorporation in Wyoming on November 29, 2010.
8
FLAMERET, INC.
(A Development Stage Company)
Notes to the Condensed Financial Statements
May 31, 2011 and August 31, 2010
(Unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY (Continued)
Common Stock (Continued)
On August 13, 2009, the Company issued 18,000,000 founder’s shares at a value of $-0-. Also on August 13, 2009, the Company received $2,500 in capital contributed from the Company’s founder and CEO.
On November 9, 2010, the Company issued 36,000,000 shares of common stock in partial settlement of debt on previously executed convertible notes payable. The shares of stock issued were recorded at $540,000, or $0.015 per share based on the quoted market price of the shares on the date of issuance, and the amount of debt that was forgiven was equal to $3,600. As such, the Company recorded a loss on settlement of debt in connection with the transaction of $536,400.
On November 30, 2010, the Company cancelled 405,000 shares of common stock erroneously issued as founders’ shares.
On December 23, 2011, the Company issued 100,000 shares of common stock for services at $0.04 per share, for total proceeds of $4,000.
On January 20, 2011, the Company issued 250,000,000 shares of common stock for services at $0.01 per share, for an aggregate total of $2,500,000.
On January 20, 2011, the Company issued 9,000,000 shares of common stock in partial settlement of debt on previously executed convertible notes payable. The shares of stock issued were recorded at $90,000, or $0.01 per share based on the quoted market price of the shares on the date of issuance, and the amount of debt that was forgiven was equal to $900. As such, the Company recorded a loss on settlement of debt in connection with the transaction of $89,100.
On January 25, 2011 the Company issued 1,595,000 shares of common stock for the conversion of $15,950 in debts. These shares were valued at $0.01 per share, for an aggregate value of $15,154, resulting in a gain on settlement of debt in the amount of $796.
On January 27, 2011, the Company issued 38,500,000 shares of common stock for services at $0.03 per share, for an aggregate total of $962,500.
On March 14, 2011 the Company issued 2,000,000 shares of common stock for services at $0.01 per share, for an aggregate total of $20,000.
On April 15, 2011, the Company issued 8,000,000 shares of common stock for services at $0.002 per share, for an aggregate total of $16,000.
On May 15, 2011, the Company issued 500,000 shares of common stock for cash at $0.001 per share, for an aggregate total of $714.
NOTE 6 – RESTATED FINANCIAL STATEMENTS
In April 2011 the Company discovered certain liabilities and related expenses relating to the 2010 fiscal year that had not been properly recorded. The Company has restated its financial statements to correct the errors and properly reflect the liabilities and expenses. Summarized financial statements reflecting the restatements are as follows:
9
FLAMERET, INC.
(A Development Stage Company)
Notes to the Condensed Financial Statements
May 31, 2011 and August 31, 2010
(Unaudited)
NOTE 6 – RESTATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on August 13,
|
|
|
|
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
2009 Through
|
|
|
|
|
May 31,
|
|
May 31,
|
|
May 31,
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
2011
|
|
|
|
|
|
|
(Restated)
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
-
|
|
$
|
-
|
|
$
|
4,290
|
|
$
|
-
|
|
$
|
4,290
|
|
COST OF SALES
|
|
-
|
|
|
-
|
|
|
880
|
|
|
-
|
|
|
880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
-
|
|
|
-
|
|
|
3,410
|
|
|
-
|
|
|
3,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
90,637
|
|
|
26,270
|
|
|
152,094
|
|
|
43,159
|
|
|
202,961
|
|
|
Professional fees
|
|
28,605
|
|
|
2,950
|
|
|
3,938,277
|
|
|
335,950
|
|
|
4,371,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
119,242
|
|
|
29,220
|
|
|
4,090,371
|
|
|
379,109
|
|
|
4,574,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
(119,242)
|
|
|
(29,220)
|
|
|
(4,086,961)
|
|
|
(379,109)
|
|
|
(4,570,605)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion of liability
|
|
-
|
|
|
-
|
|
|
(627,628)
|
|
|
-
|
|
|
(627,628)
|
|
|
Loss on impairment of asset
|
|
-
|
|
|
-
|
|
|
(500,000)
|
|
|
-
|
|
|
(500,000)
|
|
|
Interest expense
|
|
(19,197)
|
|
|
(4,354)
|
|
|
(37,583)
|
|
|
(19,520)
|
|
|
(61,551)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expenses
|
|
(19,197)
|
|
|
(4,354)
|
|
|
(1,165,211)
|
|
|
(19,520)
|
|
|
(1,189,179)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
(138,439)
|
|
|
(33,574)
|
|
|
(5,252,172)
|
|
|
(398,629)
|
|
|
(5,759,784)
|
|
PROVISION FOR INCOME TAXES
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
$
|
(138,439)
|
|
$
|
(33,574)
|
|
$
|
(5,252,172)
|
|
$
|
(398,629)
|
|
$
|
(5,759,784)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
$
|
(0.00)
|
|
$
|
(0.00)
|
|
$
|
(0.03)
|
|
$
|
(0.02)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON SHARES OUTSTANDING -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
|
358,686,739
|
|
|
18,000,000
|
|
|
190,834,375
|
|
|
18,000,000
|
|
|
|
10
FLAMERET, INC.
(A Development Stage Company)
Notes to the Condensed Financial Statements
May 31, 2011 and August 31, 2010
(Unaudited)
NOTE 6 – RESTATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Inception
|
|
|
|
|
|
|
|
|
|
|
|
on August 13,
|
|
|
|
|
|
For the Nine Months Ended
|
|
2009 Through
|
|
|
|
|
|
May 31,
|
|
May 31,
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(5,252,172)
|
|
$
|
(398,629)
|
|
$
|
(5,759,784)
|
|
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
|
|
used by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Loss on settlement of debt
|
|
612,475
|
|
|
-
|
|
|
612,475
|
|
|
|
Stock issued for services
|
|
3,783,392
|
|
|
-
|
|
|
3,783,392
|
|
|
|
Impairment of assets
|
|
500,000
|
|
|
-
|
|
|
500,000
|
|
|
|
Expenses paid on behalf of the Company by a related party
|
|
165,905
|
|
|
-
|
|
|
212,890
|
|
|
|
Notes payable issued for services
|
|
53,700
|
|
|
150,000
|
|
|
378,700
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(4,290)
|
|
|
-
|
|
|
(4,290)
|
|
|
|
Accounts payable
|
|
(7,676)
|
|
|
3,767
|
|
|
2,880
|
|
|
|
Accrued interest
|
|
37,583
|
|
|
19,520
|
|
|
61,551
|
|
|
|
Accrued salaries
|
|
74,795
|
|
|
-
|
|
|
164,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
(36,288)
|
|
|
(225,342)
|
|
|
(47,391)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common
|
|
|
|
|
|
|
|
|
|
|
and preferred stock
|
|
5,000
|
|
|
-
|
|
|
7,500
|
|
|
Payments toward related-party payables
|
|
(2,600)
|
|
|
-
|
|
|
(2,600)
|
|
|
Proceeds from related party payables
|
|
34,240
|
|
|
222,574
|
|
|
43,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
36,640
|
|
|
222,574
|
|
|
48,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
352
|
|
|
(2,768)
|
|
|
616
|
|
CASH AT BEGINNING OF PERIOD
|
|
264
|
|
|
3,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH AT END OF PERIOD
|
$
|
616
|
|
$
|
457
|
|
$
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Income Taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Note payable issued for purchase of assets
|
$
|
500,000
|
|
$
|
-
|
|
$
|
500,000
|
|
|
|
Preferred stock issued in conversion of debt
|
$
|
20,675
|
|
$
|
-
|
|
$
|
20,675
|
|
|
|
Common stock issued in conversion of debt
|
$
|
630,000
|
|
$
|
-
|
|
$
|
630,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
NOTE 7 – SUBSEQUENT EVENTS
In accordance with ASC 855, management evaluated subsequent events through the date these financial statements were issued and the Company had no additional material subsequent events to report.
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW AND OUTLOOK
Flameret, Inc. (“Flameret”) is a Nevada corporation that intends to manufacture and distribute a fire barrier product named, Flamex. Flamex is a liquid that is applied to textiles which are used at the production stage of products, such as mattresses, to resist ignition from smoldering cigarettes and impede ignition from open-flame heat sources. Production and distribution has not yet commenced, as such, the Company is considered to be in the development stage.
We had a net loss of $5,252,172 and $398,629 for the nine months ended May 31, 2011 and May 31, 2010, respectively. Our accumulated deficit as of May 31, 2011 was $5,759,784. These conditions raise substantial doubt about our ability to continue as a going concern over the next twelve months.
Results of Operations for the Three Months Ended May 31, 2011
Revenues and Cost of Sales
We realized no revenues during the three months ended May 31, 2011 and 2010 with cost of sales of $-0-.
General and administrative expenses
Total general and administrative expenses for the three months ended May 31, 2011 and May 31, 2010 were $90,637 and $26,270, respectively. The increase in our general and administrative expenses was due primarily to a corresponding increase in our sales efforts.
Professional fees
Professional fees for the three months ended May 31, 2011 and May 31, 2010 were $28,605 and $2,950, respectively. The increase in professional fees was the result of our efforts to get current with our SEC filings.
Net loss
Our net loss for the three months ended May 31, 2011 and May 31, 2010 was $138,439 and $33,574, respectively. Our net operating loss consisted primarily of consulting fees, professional fees and stocks services expense incurred by the entity in anticipation of developing our flame-retardant products.
Results of Operations for the Nine Months Ended May 31, 2011
Revenues and Cost of Sales
We realized our first revenues of $4,290 during the nine months ended May 31, 2011 with cost of sales of $880. We had no revenues or cost of sales as of May 31, 2010.
General and administrative expenses
Total general and administrative expenses for the nine months ended May 31, 2011 and May 31, 2010 were $152,094 and $43,159, respectively. The increase in our general and administrative expenses was due primarily to a corresponding increase in our sales efforts.
Professional fees
Professional fees for the nine months ended May 31, 2011 and May 31, 2010 were $3,938,277 and $335,950, respectively. The increase in professional fees was primarily the result of shares of common and preferred stock issued to our new management and other consultants as we commenced our new business operations. These shares were valued at $3,768,238.
Loss on settlement of debt
During the nine months ended May 31, 2011 we issued shares of common stock for debt. Accordingly, we recognized a loss of $627,628 for the difference between the value of the shares and the amount of debt converted.
12
Net loss
The net operating loss for the nine months ended May 31, 2011 and May 31, 2010 was $5,252,172 and $398,629, respectively. Our net operating loss consisted primarily of consulting fees, professional fees and stocks services expense incurred by the entity in anticipation of developing our flame retardant products.
Liquidity and Capital Resources
While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development of alternative revenue sources. As of May 31, 2011, we had a working capital deficit of $1,318,217. Our poor financial condition raises substantial doubt about our ability to continue as a going concern and we have incurred losses since inception and may incur future losses. We used $36,288 of cash in our operating activities during the nine months ending May 31, 2011. We received $34,2400 of cash as a loan from a related party and $5,000 from the sale of common stock during those nine months to fund our operations.
Should we not be able to continue to secure additional financing when needed, we may be required to slow down or suspend our growth or reduce the scope of our current operations, any of which would have a material adverse effect on our business.
Our future capital requirements will depend on many factors, including the development of our flame retardant products; the cost and availability of third-party financing for development; and administrative and legal expenses.
We anticipate that we will incur operating losses in the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model; recognition of revenue sources; and the management of growth. To address these risks, we must, among other things, expand our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Satisfaction of our cash obligations for the next 12 months.
As of May 31, 2011, our cash balance was $616. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, sale of shares of our common stock, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient amounts of revenues to meet our working capital requirements. Consequently, we intend to make appropriate plans to secure sources of additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities.
Going concern.
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $5,759,784 and a working capital deficit of $1,318,217 at May 31, 2011, and have reported negative cash flows from operations since inception. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.
Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance, however, that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our future operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.
Summary of product and research and development that we will perform for the term of our plan.
We are not anticipating significant research and development expenditures in the near future.
13
Expected purchase or sale of plant and significant equipment.
We do not anticipate the purchase or sale of any plant or significant equipment as such items are not required by us at this time.
Significant changes in the number of employees.
As of May 31, 2011, we had no employees, other than our non-paid CEO, Christopher Glover. Currently, there are no organized labor agreements or union agreements and we do not anticipate any in the future.
Assuming we are able to pursue revenue through the commencement of sales of our flame retardant products, we anticipate an increase of personnel and may need to hire employees. In the interim, we intend to use the services of independent consultants and contractors to perform various professional services when appropriate. We believe the use of third-party service providers may enhance our ability to control general and administrative expenses and operate efficiently.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that are material to investors.
Recently Issued Accounting Standards
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
This item in not applicable as we are currently considered a smaller reporting company.
Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, Christopher Glover, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on the evaluation, Mr. Glover concluded that our disclosure controls and procedures are not effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings and ensuring that information required to be disclosed by us in the reports we file or submit under the Act is accumulated and communicated to our management, including our chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure, for the following reasons:
|
|
|
|
|
●
|
The Company does not have an independent board of directors or audit committee or adequate segregation of duties;
|
|
|
●
|
All of our financial reporting is carried out by our financial consultant;
|
|
|
●
|
We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company.
|
We plan to rectify these weaknesses by implementing an independent board of directors and hiring additional accounting personnel once we have additional resources to do so.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material pending legal proceedings to which our company or subsidiary is a party or of which any of their property is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any director, officer or affiliate of our company, or any registered or beneficial stockholder of our company, or any associate of any such director, officer, affiliate, or stockholder is a party adverse to our company or subsidiary or has a material interest adverse to our company or subsidiary.
Item 1A. Risk Factors.
In addition to other information in this quarterly report, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment.
A) RISKS RELATED TO OUR BUSINESS AND THIS OFFERING
THE COMPANY HAS A LIMITED DEVELOPMENT STAGE OPERATING HISTORY UPON WHICH TO BASE AN EVALUATION OF ITS BUSINESS AND PROSPECTS. WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO GROW OUR BUSINESS AND TO EARN INCREASED REVENUES. AN INVESTMENT IN OUR SECURITIES REPRESENTS SIGNIFICANT RISK AND YOU MAY LOSE ALL OR PART OF YOUR ENTIRE INVESTMENT
.
We have a limited history of development stage operations and we may not be successful in our efforts to grow our business and to earn revenues. Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies providing services to a rapidly evolving market such as fire retardants. As a result, management may be unable to adjust its spending in a timely manner to compensate for any unexpected revenue shortfall. This inability could cause net losses in a given period to be greater than expected. An investment in our securities represents significant risk and you may lose all or part of your entire investment.
WE HAVE A HISTORY OF LOSSES. FUTURE LOSSES AND NEGATIVE CASH FLOW MAY LIMIT OR DELAY OUR ABILITY TO BECOME PROFITABLE. IT IS POSSIBLE THAT WE MAY NEVER ACHIEVE PROFITABILITY. AN INVESTMENT IN OUR SECURITIES REPRESENTS SIGNIFICANT RISK AND YOU MAY LOSE ALL OR PART OF YOUR ENTIRE INVESTMENT.
We have yet to establish profitable development stage operations or a history of profitable development stage operations. We anticipate that we will continue to incur substantial development stage operating losses for an indefinite period of time due to the significant costs associated with the development of our business.
Since incorporation, we have expended financial resources on the development of our business. As a result, losses have been incurred since incorporation. Management expects to experience development stage operating losses and negative cash flow for the foreseeable future. Management anticipates that losses will continue to increase from current levels because the Company expects to incur additional costs and expenses related to: marketing and promotional activities; the possible addition of new personnel; and the development of relationships with strategic business partners.
The Company’s ability to become profitable depends on its ability to generate and sustain sales while maintaining reasonable expense levels. If the Company does achieve profitability, it cannot be certain that it would be able to sustain or increase profitability on a quarterly or annual basis in the future. An investment in our securities represents significant risk and you may lose all or part of your entire investment.
15
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS WILL FAIL.
We will need to obtain additional financing in order to complete our business plan because we currently do not have any income. We do not have any arrangements for financing and we may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor acceptance. These factors may adversely affect the timing, amount, terms, or conditions of any financing that we may obtain or make any additional financing unavailable to us. If we do not obtain additional financing our business will fail.
OUR DEVELOPMENT STAGE OPERATING RESULTS WILL BE VOLATILE AND DIFFICULT TO PREDICT. IF THE COMPANY FAILS TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE SIGNIFICANTLY.
Management expects both quarterly and annual development stage operating results to fluctuate significantly in the future. Because our development stage operating results will be volatile and difficult to predict, in some future quarter our development stage operating results may fall below the expectations of securities analysts and investors. If this occurs, the trading price of our common stock may decline significantly.
A number of factors will cause gross margins to fluctuate in future periods. Factors that may harm our business or cause our development stage operating results to fluctuate include the following: the inability to obtain new customers at reasonable cost; the ability of competitors to offer new or enhanced services or products; price competition; the failure to develop marketing relationships with key business partners; increases in our marketing and advertising costs; increased labor costs that can affect demand for fire retardant products; the amount and timing of development stage operating costs and capital expenditures relating to expansion of operations; a change to or changes to government regulations; a general economic slowdown. Any change in one or more of these factors could reduce our ability to earn and grow revenue in future periods.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND EXPECT TO INCUR LOSSES FOR THE FORSEEABLE FUTURE. IF WE DO NOT RECEIVE ADDITIONAL FUNDING, WE WOULD HAVE TO CURTAIL OR CEASE DEVELOPEMNT STAGE OPERATIONS. AN INVESTMENT IN OUR SECURITIES REPRESENTS SIGNIFICANT RISK AND YOU MAY LOSE ALL OR PART OF YOUR ENTIRE INVESTMENT.
We have incurred recurring net losses from operations resulting in an accumulated deficit of $5,759,784 and a working capital deficit of $1,318,217 as of May 31, 2011 . These factors raise substantial doubt about the Company’s ability to continue as a going concern. At May 31, 2011, our cash on hand was $616. We do not currently have sufficient capital resources to fund operations. To stay in business, we will need to raise additional capital through public or private sales of our securities, debt financing or short-term bank loans, or a combination of the foregoing.
We will need additional capital to fully implement our business, operating and development plans. However, additional funding from an alternate source or sources may not be available to us on favorable terms, if at all. To the extent that money is raised through the sale of our securities, the issuance of those securities could result in dilution to our existing security holder. If we raise money through debt financing or bank loans, we may be required to secure the financing with some or all of our business assets, which could be sold or retained by the creditor should we default in our payment obligations. If we fail to raise sufficient funds, we would have to curtail or cease operations.
OUR CURRENT BUSINESS DEVELOMENT STAGE OPERATIONS RELY HEAVILY UPON OUR KEY EMPLOYEE AND FOUNDER, MR. CHRISTOPHER GLOVER.
We have been heavily dependent upon the expertise and management of Mr. Christopher Glover, our Chief Executive Officer and President, and our future performance will depend upon his continued services. The loss of the services of Mr. Glover’s services could seriously interrupt our business operations, and could have a very negative impact on our ability to fulfill our business plan and to carry out our existing development stage operations. The Company currently does not maintain key man life insurance on this individual. There can be no assurance that a suitable replacement could be found for him upon retirement, resignation, inability to act on our behalf, or death.
OUR FUTURE GROWTH MAY REQUIRE RECRUITMENT OF QUALIFIED EMPLOYEES.
In the event of our future growth in administration, marketing, and customer support functions, we may have to increase the depth and experience of our management team by adding new members. Our future success will depend to a large degree upon the active participation of our key officers and employees. There is no assurance that we will be able to employ qualified persons on acceptable terms. Lack of qualified employees may adversely affect our business development.
16
B) RISKS RELATED TO THE INDUSTRY
THE FIRE RETARDANT INDUSTRY IS COST COMPETITIVE AND IS CHARACTERIZED BY LOW FIXED COSTS. A REDUCTION IN COST FOR THE INDUSTRY COULD AFFECT THE DEMAND FOR OUR FIRE RETARDANT PRODUCTS.
The fire retardant industry is highly competitive and is characterized by a large number of competitors ranging from small to large companies with substantial resources. Many of our potential competitors have substantially larger customer bases, greater name recognition, greater reputation, and significantly greater financial and marketing resources than we do. In the future, aggressive marketing tactics implemented by our competitors could impact our limited financial resources and adversely affect our ability to compete in these markets.
Price competition exists in fire retardant products. Costs of raw material decreases within the industry could adversely affect our operations and profitability. There are many fire retardant companies that could discount their products which could result in lower revenues for the entire industry. A shortfall from expected revenue levels would have a significant impact on our potential to generate revenue and possibly cause our business to fail.
THE COMPANY’S RELIANCE ON MATTRESS MANUFACTURERS MAY HAVE A SIGNIFICANT IMPACT ON THE COMPANY’S ABILITY TO GENERATE REVENUE AND POSSIBLY CAUSE OUR BUSINESS TO FAIL.
The Company intends to provide a fire retardant product to mattress manufactures. As such, the Company may not always be successful in achieving a long-term contract or be immediately compensated for products and services rendered. Since we expect our fire retardant product to be sold to mattress manufactures any slowdown in that industries would greatly affect the company.
The company’s success is dependent on its ability to obtain and maintain clients. No assurances can be given that the Company will be able to create a client or maintain a client base or that it will be able to attract new clients. The loss of one or more new clients of the Company or a significant reduction in business from such new clients could have a material adverse effect on the Company. The Company does not have contracts with any clients at this time.
OUR DEVELOPMENT STAGE OPERATING RESULTS MAY FLUCTUATE DUE TO FACTORS WHICH ARE NOT WITHIN OUR CONTROL.
Our development stage operating results are expected to fluctuate in the future based on a number of factors, many of which are not in our control. Our development stage operating expenses primarily include marketing and general administrative expenses that are relatively fixed in the short-term. If our revenues are lower than we expect because demand for our product and service diminishes, or if we experience an increase in defaults among approved applicants or for any other reasons we may not be able to quickly return to acceptable revenue levels.
Because of the unique nature of our business and the fact that there are no comparable past business models to rely on, future factors that may adversely affect our business are difficult to forecast. Any shortfall in our revenues would have a direct impact on our business. In addition, fluctuations in our quarterly results could adversely affect the market price of our common stock in a manner unrelated to our long-term operating performance.
17
WE HAVE A SHORT DEVELOPMENT STAGE OPERATING HISTORY AND FACE MANY OF THE RISKS AND DIFFICULTIES FREQUENTLY ENCOUNTERED BY A YOUNG COMPANY.
We have a short development stage operating history from August 13, 2009 to present for investors to evaluate the potential of our business development. We are continuing to build our customer base and our brand name. We do not have any customers at this time. In addition, we also face many of the risks and difficulties inherent in introducing new products and services. These risks include the ability to:
|
|
|
|
|
●
|
Increase awareness of our brand name;
|
|
|
●
|
Develop an effective business plan;
|
|
|
●
|
Meet customer standards;
|
|
|
●
|
Implement advertising and marketing plan;
|
|
|
●
|
Attain customer loyalty;
|
|
|
●
|
Maintain current strategic relationships and develop new strategic relationships;
|
|
|
●
|
Respond effectively to competitive pressures;
|
|
|
●
|
Continue to develop and upgrade our service; and
|
|
|
●
|
Attract, retain and motivate qualified personnel.
|
Our future will depend on our ability to raise additional capital and bring our product and service to the marketplace, which requires careful planning to provide a product and service that meets customer standards without incurring unnecessary cost and expense.
WE MAY NEED ADDITIONAL CAPITAL TO DEVELOP OUR BUSINESS.
The development of our services will require the commitment of resources to increase the advertising, marketing and future expansion of our business. In addition, expenditures will be required to enable us in 2011 to conduct planned business research, development of new affiliate and associate offices, and marketing of our existing and future products and services. Currently, we have no established bank-financing arrangements. Therefore, it is possible that we would need to seek additional financing through subsequent future private offering of our equity securities, or through strategic partnerships and other arrangements with corporate partners.
We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. The sale of additional equity securities could result in dilution to our stockholders. The occurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. If adequate additional financing is not available on acceptable terms, we may not be able to implement our business development plan or continue our business operations.
WE MAY NOT BE ABLE TO BUILD OUR BRAND AWARENESS.
Development and awareness of our brand Flameret will depend largely upon our success in creating a customer base and potential referral sources. In order to attract and retain customers and to promote and maintain our brand in response to competitive pressures, management plans to gradually increase our marketing and advertising budgets. If we are unable to economically promote or maintain our brand, then our business, results of operations and financial condition could be severely harmed. The company presently has a deficit of $1,318,217 in working capital.
OUR FUTURE SUCCESS RELIES UPON A COMBINATION OF PATENTS AND PATENTS PENDING, PROPRIETARY TECHNOLOGY AND KNOW-HOW, TRADEMARKS, CONFIDENTIALITY AGREEMENTS AND OTHER CONTRACTUAL COVENANTS TO ESTABLISH AND PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
.
IF OUR PRODUCTS ARE DUPLICATED OUR RESULTS OF OPERATIONS WOULD BE NEGATIVELY IMPACTED.
Our application for trademark protection has been approved for "Flameret.” Because intellectual property protection is critical to our future success, we intend to rely heavily on trademark, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect proprietary rights. However, effective trademark, service mark and trade secret protection may not be available in every country in which we intend to sell our products and services. Unauthorized parties may attempt to copy aspects of our products or to obtain and use our proprietary information. As a result, litigation may be necessary to enforce our intellectual property rights to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of recourses and could significantly harm our business and operating results.
18
Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of intended trademarks and other proprietary rights.
There can be no assurance that third parties will not assert infringement claims against us. If infringement claims are brought against us, there can be no assurance that we will have the financial resources to defend against such claims or prevent an adverse judgment against us. In the event of an unfavorable ruling on any such claim, there can be no assurance that a license or similar agreement to utilize the intellectual property rights in question relied upon by us in the conduct of our business will be available to us on reasonable terms, if at all. The loss of such rights (or the failure by us to obtain similar licenses or agreements) could have a material adverse effect on our business, financial condition and results of operations.
OUR BUSINESS EMPLOYS LICENSED UNITED AMERICAN, INC. TECHNOLOGY WHICH MAY BE DIFFICULT TO PROTECT AND MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
We currently license our technology from United American, Inc. United American, Inc. owns two U.S. patents, (patent
#4,961,865 and
patent
#4,950,410)
and may file more patent applications in the future. Both patents are currently in the process of renewal, with the related patent applications having been appropriately registered for renewal. Our success depends, on these patents and on our ability to use the United American, Inc. Technology, and for United American, Inc. to obtain patents, maintain trade secrecy and not infringe the proprietary rights of third parties. We cannot assure you that the patents of others will not have an adverse effect on our ability to conduct our business, that we will develop additional proprietary technology that is patentable or that any patents issued to us or United American, Inc. will provide us with competitive advantages or will not be challenged by third parties. Further, we cannot assure you that others will not independently develop similar or superior technologies, duplicate elements of the United American, Inc. Technology or design around it.
It is possible that we may need to acquire other licenses to, or to contest the validity of, issued patents or claims of third parties. We cannot assure you that any license would be made available to us on acceptable terms, if at all, or that we would prevail in any such contest. In addition, we could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s patents in bringing patent infringement suits against other parties based on our licensed patents.
In addition to licensed patent protection, we also rely on United American Inc. trade secrets, proprietary know-how and technology that we seek to protect, in part, by confidentiality agreements with our prospective blenders, manufactures employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
WE MAY INCUR SUBSTANTIAL COSTS OR LOSE IMPORTANT RIGHTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO OUR PRODUCTS, PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS.
In recent years, there has been significant litigation involving patents and other intellectual property rights in many technology-related industries. Until recently, patent applications were retained in secrecy by the US Patent and Trademark Office until and unless a patent was issued. As a result, there may be US patent applications pending of which we are unaware that may be infringed by the use of our technology or a part thereof, thus substantially interfering with the future conduct of our business. In addition, there may be issued patents in the United States or other countries that are pertinent to our business of which we are not aware. We and future customers could be sued by other parties for patent infringement in the future. Such lawsuits could subject us and them to liability for damages or require us to obtain additional licenses that could increase the cost of our products, which might have an adverse affect on our sales.
In addition, in the future we may assert our intellectual property rights by instituting legal proceedings against others. We may not be able to successfully enforce United American, Inc. patents in any lawsuits we may commence. Defendants in any litigation we may commence to enforce United American, Inc. patents may attempt to establish that United American, Inc. patents are invalid or are unenforceable. Any patent litigation could lead to a determination that one or more of our patents are invalid or unenforceable. If a third party succeeds in invalidating one or more of our patents that party and others could compete more effectively against us. Our ability to derive sales from products or technologies covered by these patents could be adversely affected.
19
Whether we are defending the assertion of third party intellectual property rights against our business as a result of the use of United American, Inc. technology, or we are asserting our own intellectual property rights against others, such litigation can be complex, costly, protracted and highly disruptive to our business operations by diverting the attention and energies of management and key technical personnel. As a result, the pendency or adverse outcome of any intellectual property litigation to which we are subject could disrupt business operations, require the incurrence of substantial costs and subject us to significant liabilities, each of which could severely harm our business.
Plaintiffs in intellectual property cases often seek injunctive relief. Any intellectual property litigation commenced against us could force us to take actions that could be harmful to our business and thus to our future sales.
WE MAY INCUR SIGNIFICANT COSTS TO BE A PUBLIC COMPANY TO ENSURE COMPLIANCE WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE ABLE TO ABSORB SUCH COSTS.
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public company, which will negatively affect our business operations.
C) RISKS RELATED TO THE OWNERSHIP OF OUR SECURITIES AND RISKS RELATED TO THIS OFFERING
WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
OUR CONTROLLING SECURITY HOLDER MAY TAKE ACTIONS THAT CONFLICT WITH YOUR INTERESTS.
Mr. Christopher Glover beneficially owns approximately 92% of our capital stock with voting rights. In this case, Mr. Glover will be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and they will have significant control over our management and policies. The directors elected by our controlling security holder will be able to significantly influence decisions affecting our capital structure. This control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other security holders to approve transactions that they may deem to be in their best interest. For example, our controlling security holder will be able to control the sale or other disposition of our operating businesses and subsidiaries to another entity.
20
AS OUR SOLE DIRECTOR AND OFFICER AND OUR ASSETS ARE LOCATED IN ENGLAND, INVESTORS MAY BE LIMITED IN THEIR ABILITY TO ENFORCE CIVIL ACTIONS IN THE UNITED STATES AGAINST OUR DIRECTOR OR OUR ASSETS. YOU MAY NOT BE ABLE TO RECEIVE COMPENSATION FOR DAMAGES TO THE VALUE OF YOUR INVESTMENT CAUSED BY WRONGFUL ACTIONS BY OUR DIRECTOR OR OFFICERS.
Our assets are located in England and our director is a resident of England. Consequently, it may be difficult for United States investors to affect service of process within the United States on our director. A judgment of a US court predicated solely upon such civil liabilities may not be enforceable in England by a English court if the US court in which the judgment was obtained did not have jurisdiction, as determined by the English court, in the matter. There is substantial doubt whether an original action could be brought successfully in England against any of our future assets or our director predicated solely upon such civil liabilities. You may not be able to recover damages as compensation for a decline in your investment.
THE OFFERING PRICE OF THE COMMON STOCK WAS ARBITRARILY DETERMINED, AND THEREFORE SHOULD NOT BE USED AS AN INDICATOR OF THE FUTURE MARKET PRICE OF THE SECURITIES. THEREFORE, THE OFFERING PRICE BEARS NO RELATIONSHIP TO OUR ACTUAL VALUE, AND MAY MAKE OUR SHARES DIFFICULT TO SELL.
Since our shares are not listed or quoted on any exchange or quotation system, the offering price of $0.001 per share for the shares of common stock was arbitrarily determined. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. The offering price bears no relationship to the book value; assets or earnings of our company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.
YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 2,000,000,000 shares of capital stock consisting of 1,800,000,000 shares of common stock, par value $0.0001 per share, 1,000,000 shares of Series A preferred stock, par value $0.0001 per share, 10,000,000 shares of Series B preferred stock, par value $0.0001 per share, 10,000,000 shares of Series C preferred stock, par value $0.0001 per share, 30,000,000 shares of Series D preferred stock, par value $0.0001 per share, 30,000,000 shares of Series e preferred stock, par value $0.0001 per share, and 30,000,000 shares of Series F preferred stock, par value $0.0001 per share.
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes.
21
OUR COMMON STOCK IS CONSIDERED PENNY STOCKS, WHICH MAY BE SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
THERE IS NO ASSURANCE OF A PUBLIC MARKET OR THAT OUR COMMON STOCK WILL EVER TRADE ON A RECOGNIZED EXCHANGE. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT IN OUR STOCK.
There is no established public trading market for our common stock. Our shares have not been listed or quoted on any exchange or quotation system. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTCBB, nor can there be any assurance that such an application for quotation will be approved or that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor may be unable to liquidate their investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Starting on March 12, 2010 through March 29, 2010, the founder and CEO sold 8,000,000 registered shares held personally to 42 separate individuals/companies (8,000,000). He sold the shares for $.001 per share for total proceeds of ($8,000).
22
Item 6. Exhibits.