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[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ____________
Commission file number 000-52381
SEARCH BY HEADLINES.COM
3250 Oakland Hills Court, Fairfield, California
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.
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
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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 definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 9,010,000 common shares issued and outstanding as of March 8, 2012.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
These financial statements have been prepared by Search By Headlines.Com Corp. and are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with such Securities and Exchange Commission rules and regulations. In the opinion of management, the accompanying statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the results of the interim periods presented. The results for these interim periods are not necessarily indicative of the results for the entire year.
SEARCH BY HEADLINES.COM CORP.
(A Development Stage Company)
January 31, 2012
(Stated in US Dollars)
SEE ACCOMPANYING NOTES
SEE ACCOMPANYING NOTES
SEE ACCOMPANYING NOTES
While the information presented in the accompanying interim three months financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. These interim financial statements follow the same accounting policies and methods of their application as the Companys July 31, 2011 annual financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Companys July 31, 2011 annual financial statements.
Summary of Significant Accounting Policies
The companys significant accounting policies are summarized in Note 2 of the Companys Annual Report on Form 10-K for the year ended July 31, 2011. There were no significant changes to these accounting policies during the six months ended January 31, 2012 and the Company does not expect that adoption of other recent accounting pronouncements will have a material impact on its financial statements.
Search by Headlines.com Corp. was incorporated in the State of Nevada on May 17, 2005, with 100,000,000 authorized common shares with a par value of $0.001 per share. During the year ended July 31, 2010, the Company ceased operation of a specialized internet search engine that features news in a format that allows users to search or submit news by headline. As at January 31, 2012, the Company has no business operations.
The Companys fiscal year-end is July 31.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company does not have sufficient working capital for its planned activity and to service its debt, which raises substantial doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through short-term loans from directors and additional equity investment, which will enable the Company to continue operations for the coming year.
The Company loaned $50,000 to Naked Boxer Brief Clothing Inc. (Naked) (borrower) on January 16, 2012. This loan carries an interest rate of 8% per annum, with principal and interest due in full on June 30, 2012.
During the three months ended January 31, 2012, the Company received $50,000 from two unrelated parties. These advances are unsecured, non-interest bearing, and payable on demand.
As at January 31, 2012, the Company received advances totalling $44,816 from the directors of the Company. These advances are unsecured, non-interest bearing, and payable on demand.
As at January 31, 2012, directors of the Company own 2,000,000 common shares.
On February 28, 2012, the Company entered into an acquisition agreement (the Agreement) with Naked and SBH Acquisition Corp. (Subco), the Companys newly incorporated subsidiary, pursuant to which the Company agreed to acquire all of the issued and outstanding common shares of Naked (each, a Naked Share) in exchange for the issuance of 13,500,000 common shares in the capital of the Company (each, a Share) to the shareholders of Naked on a pro-rata basis (the Transaction). Each warrant (the Naked Warrants) to purchase Naked Shares will be converted into warrants entitling the holder to purchase the number of Shares as is equal to the number of Naked Shares issued pursuant to the Naked Warrants multiplied by the exchange ratio of Shares to Naked Shares at a price of $0.75 per Share for a period of two years from the closing date.
To facilitate the Transaction, subject to the approval of the shareholders of Naked, Naked agreed to: (i) continue from the federal jurisdiction of Canada to the jurisdiction of the State of Nevada and (ii) merge with Subco, with Naked remaining as the surviving corporation.
Upon completion of the Transaction, Naked will become a wholly-owned subsidiary of the Company.
The closing of the Agreement is subject to a number of conditions and the acquisition of Naked will be accounted as a reverse acquisition.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled Risk Factors, that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report, particularly in the section entitled Risk Factors of this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to common shares refer to the common shares in our capital stock.
As used in this quarterly report, the terms we, us, our and Search By Headlines mean Search By Headlines.com Corp.
We have stopped pursuing the use of a news website and are currently seeking new business opportunities with established business entities for the merger with or acquisition of a target business. In certain instances, a target business may wish to become our subsidiary or may wish to contribute assets to us rather than merge. There can be no assurance that we will be able to enter into any definitive agreements.
Any new acquisition or business opportunities that we may acquire will require additional financing. There can be no assurance, however, that we will be able to acquire the financing necessary to enable us to pursue our plan of operation. If our company requires additional financing and we are unable to acquire such funds, our business may fail.
Management of our company believes that there are benefits to being a reporting company with a class of securities quoted on the OTC Bulletin Board, such as (i) the ability to use registered securities to acquire assets or businesses; (ii) increased visibility in the financial community; (iii) the facilitation of borrowing from financial institutions; (iv) potentially improved trading efficiency; (v) potential stockholder liquidity; (vi) potentially greater ease in raising capital subsequent to an acquisition; (vii) potential compensation of key employees through stock options; (viii) potentially enhanced corporate image; and (ix) a presence in the United States capital market.
We may seek a business opportunity with entities who have recently commenced operations, or entities who wish to utilize the public marketplace in order to raise additional capital in order to expand business development activities, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
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In implementing a structure for a particular business acquisition or opportunity, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. Upon the consummation of a transaction, it is likely that our present management will no longer be in control of our company. In addition, it is likely that our officers and directors will, as part of the terms of the acquisition transaction, resign and be replaced by one or more new officers and directors.
We anticipate that the selection of a business opportunity in which to participate will be complex and without certainty of success. We believe that there are numerous firms in various industries seeking the perceived benefits of being a publicly registered corporation. Business opportunities may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Business opportunities that we believe are in the best interests of our company may be scarce or we may be unable to obtain the ones that we want. We can provide no assurance that we will be able to locate compatible business opportunities.
Currently, we do not have a source of revenue. We are not able to fund our cash requirements through our current operations. Historically, we have been able to raise a limited amount of capital through private placements of our equity stock, but we are uncertain about our continued ability to raise funds privately. Further, we believe that our company may have difficulties raising capital until we locate a prospective property through which we can pursue our plan of operation. If we are unable to secure adequate capital to continue our acquisition efforts, our shareholders may lose some or all of their investment and our business may fail.
Agreement with Naked Boxer Brief Clothing Inc.
We have entered into an acquisition agreement (the Agreement) with Naked Boxer Brief Clothing Inc. (Naked) and SBH Acquisition Corp. (Subco), the Companys subsidiary, pursuant to which we agreed to acquire all of the issued and outstanding common shares of Naked (each, a Naked Share) in exchange for the issuance of 13,500,000 common shares in the capital of our company (each, a Share) to the shareholders of Naked on a pro-rata basis (the Transaction). Each warrant (the Naked Warrants) to purchase Naked Shares will be converted into warrants entitling the holder to purchase the number of Shares as is equal to the number of Naked Shares issued pursuant to the Naked Warrants multiplied by the exchange ratio of Shares to Naked Shares at a price of $0.75 per Share for a period of two years from the closing date.
To facilitate the Transaction, subject to the approval of the shareholders of Naked, Naked agreed to: (i) continue from the federal jurisdiction of Canada to the jurisdiction of the State of Nevada (the Continuance) and (ii) merge with Subco (the Merger), with Naked remaining as the surviving corporation.
Upon completion of the Transaction, Naked will become a wholly-owed subsidiary or our company.
Conditions to Agreement
The Agreement is subject to a number of conditions, including the following conditions:
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Covenants of the Parties
As part of the Agreement, Naked has agreed to cause Naked Shareholders holding a minimum of 51% of the issued and outstanding Naked Shares to execute and deliver voting agreements pursuant to which such Naked Shareholders will covenant to vote in favour of the Continuance and the Merger. Naked has also agreed to use its commercial best efforts to cause each of the Naked Shareholders to, at or prior to the Closing, enter into a pooling agreement (the Pooling Agreement) with an escrow agent (the "Trustee"), pursuant to which such Naked Shareholders will deposit their respective Shares received in exchange for their respective Naked Shares as a result of the Merger with the Trustee until such Shares are released from the Pooling Agreement in accordance with the terms thereof. Each Pooling Agreement will provide, among other things, that 25% of the Shares will be released 90 days after the one year anniversary of the closing date and then 25% each 90 days thereafter. Naked has also agreed to certain negative covenants as set out in the Agreement.
Additional Details of the Agreement
A copy of the Agreement is incorporated by reference as Exhibit 10.6. Please see Exhibit 10.6 for a complete description of the terms of the Agreement.
Results of Operations for the three month period ended January 31, 2012
During the three month period ended January 31, 2012 covered by our unaudited financial statements, we did not generate any revenues. Our loss from operations for the three month period ended January 31, 2012 was $17,123 compared to a loss of $11,295 for the three month period ended January 31, 2011. The increase was due to our general and administrative expenses increasing. General and administrative expenses were $17,123 for the three months ended January 31, 2012, compared to $11,295 for the three months ended January 31, 2011. The increase was due to legal and accounting expenses increasing in 2011.
We recorded interest income of $141 for the three month period ended January 31, 2012, compared to $nil for the three month period ended January 31, 2011.
Our net comprehensive loss for the three months ended January 31, 2012 was $16,065, or $0.00 per share, as compared to a net loss of $12,488, or $0.00 per share, for the three months ended January 31, 2011. The increase in comprehensive loss was due to our increased general and administrative expense and a foreign currency adjustment gain of $917 for the three months ended January 31, 2012, compared to a foreign currency loss of $1,193 in the three months ended January 31, 2011.
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Results of Operations for the six month period ended January 31, 2012
During the six month period ended January 31, 2012, covered by our unaudited financial statements, we did not generate any revenues. Our loss from operations for the six month period ended January 31, 2012 was $28,230 compared to a loss of $14,465 for the six month period ended January 31, 2011. The increase in comprehensive loss was due to an increase in our general and administrative expenses. General and administrative expenses were $28,230 for the six months ended January 31, 2012, compared to $14,465 for the six months ended January 31, 2011. Our general and administrative expenses are comprised primarily of legal and accounting fees.
We recorded $141 in interest income for the six month period ended January 31, 2012, compared to $nil for the six month period ended January 31, 2011.
Our comprehensive loss for the six months ended January 31, 2012 was $23,965, or $0.00 per share, as compared to a net comprehensive loss of $16,300, or $0.00 per share, for the six months ended January 31, 2011. The decrease in comprehensive loss was primarily due to the fact that the foreign currency translation loss increased from ($1,835) for the three month period ended January 31, 2011 compared to $4,124 for the three month period ended January 31, 2012.
Liquidity and Capital Resources
Our cash provided by operating activities decreased by $18,296 primarily due to an increase in our net loss from $(14,465) for the six month period ended January 31, 2011 to $(28,089) for the six month period ended January 31, 2012.
Investing activities used cash of $(50,142) during the six month period ended January 31, 2012, compared to $nil for the six month period ended January 31, 2011 due to the loan of $50,000 advanced to Naked Boxer Brief Clothing Inc. The loan is secured by the assets of Naked Boxer Brief and interest accrues on the principal amount of the loan at a rate of 8% per annum. The principal amount of the loan and all interest accrued thereon is due in full on or prior to June 30, 2012.
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Financing activities provided cash of $47,735 for the six month period ended January 31, 2012, compared to providing $779 for the six month period ended January 31, 2011. The financing provided during the six month period ended January 31, 2012 was due to an advance of $50,000 from two unrelated parties, which is unsecured, non-interest bearing, and payable on demand.
Effect of Foreign Exchange on Cash
The change in our foreign currency exchange is the result of the United States dollars increase or decrease against the Canadian dollar during each period. During the six months ended January 31, 2012 the United States dollar increased against the Canadian dollar, which resulted in a foreign exchange gain of $4,124.
Our primary objectives for the next twelve month period are to find and acquire a new business opportunity.
In the long term, to remedy the deficiency in financing for proposed future operations, we intend to raise funds from equity financings. In the short term, we intend to fund future cash shortfalls from loans from directors.
Purchase or Sale of Equipment
We do not anticipate that we will expend any significant amount on equipment over the next 12 months but that may change depending on the type of business that we acquire in the event that we are successful in doing so.
Anticipated Cash Resources
Presently, we have no revenue to meet our operating and capital expenses. Management projects that we will require additional funding to expand our current operations. We have incurred losses since inception and this is likely to continue for an indeterminate amount of time.
Assuming our transaction with Naked does not proceed, management projects that we may require $60,000 to $75,000 in addition to our current cash to fund our operating expenditures for the next twelve month period. Projected working capital requirements for the next twelve month period are broken down as follows:
Financing or funding expenses will include the costs of finders fees, bank fees, and all other fees related to our anticipated fund raising efforts, whether it is borrowing money or selling shares of our common stock.
General and administrative expenses will include the fees and travel costs we expect to pay for seeking out business opportunities and negotiating and executing definitive agreements for the new business acquisition.
Legal and accounting expenses will include those required to maintain our status as an OTC Bulletin Board company as well as for the legal and accounting work required for the acquisition of the new business opportunity, including due diligence work by our attorneys.
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Due to our being a development stage company and not having generated revenues, in their Notes to our financial statements for the year ended July 31, 2011, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern.
We have historically incurred losses, and through January 31, 2012 have incurred a cumulative net loss of $180,765 from our inception on May 17, 2005. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, and/or advances from related parties or shareholder loans.
The continuation of our business is dependent upon obtaining further financing, acquiring a new business and achieving a break even or profitable level of operations in that new business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain additional financing through either private placements, and/or bank financing or other loans necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us.
These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Application of Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by managements application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
The carrying amounts of financial instruments consisting of cash and cash equivalents, accounts payable and due to related party are considered by management to be their estimated fair values due to their short term maturities. Our company is not exposed to significant interest, currency or credit risk arising from its financial instruments.
After technological feasibility is established, direct costs incurred during the application stage of development are capitalized and amortized over the estimated useful life of three years. Fees incurred for website hosting are expensed over the period of the benefit. Costs of operating the website are expensed as incurred.
Deferred income tax liabilities or assets at the end of each period are determined by applying currently enacted tax rates to temporary differences and loss carry forwards. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized.
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Our companys functional currency is in Canadian dollars as substantially all of our companys operations are in Canada. Our company used the United States dollar as its reporting currency for consistency with registrants of the Securities and Exchange Commission (SEC).
Assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the period-end and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments from the use of different exchange rates from period to period are included in the comprehensive income account in Stockholders Equity, if applicable.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting standards if currently adopted could have a material effect on the accompanying financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer, principal financial officer and principal accounting officer, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by the quarterly report, being January 31, 2012, our principal executive officer, who is also our principal financial officer, has carried out an evaluation of the effectiveness of the design and operation of our companys disclosure controls and procedures and our companys internal control over financial reporting. Based upon that evaluation, our companys principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting management to material information relating to us required to be included in our periodic SEC filings as at the end of the period covered by this report.
Changes to Internal Control over Financial Reporting
During our most recently completed fiscal quarter ended January 31, 2012 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
Internal Control over Financial Reporting
The term internal control over financial reporting is defined as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 1A. Risk Factors
Much of the information included in this quarterly report includes or is based upon estimates, projections or other forward-looking statements. Such forward-looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. We caution readers of this quarterly report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements. In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.
Risks Associated with our Company
The Agreement with Naked may not close for reasons beyond our control.
As discussed above, we have entered into the Agreement with Naked whereby we would acquire all of the issued and outstanding common shares of Naked. There are a number of risks and uncertainties associated with this acquisition. For example, the Agreement may not complete within the time frame or manner currently anticipated or at all, as a result of several factors, including, among other things, the failure by one of the parties to satisfy the closing conditions in the Agreement, several of which are beyond our control. Further, we have loaned Naked $50,000, which they may be unable to pay back if the Agreement does not close. If the Agreement does not close and if we are unable to obtain a business opportunity that we believe is in the best interests of our company, we may never recommence operations and will go out of business.
Business opportunities that we believe are in the best interests of our company may be scarce or we may be unable to obtain the ones that we want. If we are unable to obtain a business opportunity that we believe is in the best interests of our company, we may never recommence operations and will go out of business. If we go out of business, investors will lose their entire investment in our company.
We are, and will continue to be, an insignificant participant in the number of companies seeking a suitable business opportunity or business combination. A large number of established and well-financed entities, including venture capital firms, are actively seeking suitable business opportunities or business combinations which may also be desirable target candidates for us. Virtually all such entities have significantly greater financial resources, technical expertise and managerial capabilities than we do. We are, consequently, at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. We will also compete with numerous other small public companies seeking suitable business opportunities or business combinations. If we are unable to obtain a business opportunity that we believe is in the best interests of our company, we may never recommence operations and will go out of business. If we go out of business, investors will lose their entire investment in our company.
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The worldwide economic downturn may reduce our ability to obtain the financing necessary to continue our business and may reduce the number of viable businesses that we may wish to acquire. If we cannot raise the funds that we need or find a suitable business to acquire, we will go out of business and investors will lose their entire investment in our company.
Since 2008, there has been a downturn in general worldwide economic conditions due to many factors, including the effects of the subprime lending and general credit market crises, volatile but generally declining energy costs, slower economic activity, decreased consumer confidence and commodity prices, reduced corporate profits and capital spending, adverse business conditions, increased unemployment and liquidity concerns. In addition, these economic effects, including the resulting recession in various countries and slowing of the global economy, will likely result in decreased business opportunities as potential target companies face increased financial hardship. Tightening credit and liquidity issues will also result in increased difficulties for our company to raise capital for our continued operations and to consummate a business opportunity with a viable business. We may not be able to raise money through the sale of our equity securities or through borrowing funds on terms we find acceptable. If we cannot raise the funds that we need or find a suitable business to acquire, we will go out of business. If we go out of business, investors will lose their entire investment in our company.
We have had negative cash flows from operations and if we are not able to obtain further financing, our business operations may fail.
We had cash and cash equivalents in the amount of $975, a loan receivable of $50,142 and a working capital deficit of $113,735 as of January 31, 2012. We anticipate that we will require additional financing while we are seeking a suitable business opportunity or business combination. Further, we anticipate that we will not have sufficient capital to fund our ongoing operations for the next twelve months. We may be required to raise additional financing for a particular business combination or business opportunity. We would likely secure any additional financing necessary through a private placement of our common shares.
There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. Our inability to obtain additional financing in a sufficient amount when needed and upon terms and conditions acceptable to us could have a material adverse effect upon our company. We will require further funds to finance the development of any business opportunity that we acquire. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of any business opportunity that we acquire. Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations. If we cannot raise the funds that we require, we will go out of business and investors will lose their entire investment in our company.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.
We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.
We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies
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seeking to acquire or establish a new business opportunity. Some of these risks and uncertainties relate to our ability to identify, secure and complete an acquisition of a suitable business opportunity.
We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a materially adverse effect on our financial condition. In addition, our operating results are dependent to a large degree upon factors outside of our control. There are no assurances that we will be successful in addressing these risks, and failure to do so may adversely affect our business.
It is unlikely that we will generate any or significant revenues while we seek a suitable business opportunity. Our short and long-term prospects depend upon our ability to select and secure a suitable business opportunity. In order for us to make a profit, we will need to successfully acquire a new business opportunity in order to generate revenues in an amount sufficient to cover any and all future costs and expenses in connection with any such business opportunity. Even if we become profitable, we may not sustain or increase our profits on a quarterly or annual basis in the future.
We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until we complete a business combination or acquire a business opportunity. This may result in our company incurring a net operating loss which will increase continuously until we complete a business combination or acquire a business opportunity that can generate revenues that result in a net profit to us. There is no assurance that we will identify a suitable business opportunity or complete a business combination.
We do not have any targets for a business combination or other transaction and we have no minimum standards for a business combination.
We have no arrangement, agreement, or understanding with respect to acquiring a business opportunity or engaging in a business combination with any private entity. There can be no assurance that we will successfully identify and evaluate suitable business opportunities or conclude a business combination. There is no assurance that we will be able to negotiate the acquisition of a business opportunity or a business combination on terms favorable to us. We have not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria which we will require a target business opportunity to have achieved, and without which we would not consider a business combination in any form with such business opportunity. Accordingly, we may enter into a business combination with a business opportunity having no significant operating history, losses, limited or no potential for earnings, limited assets, negative net worth or other negative characteristics.
Risks Associated with our Common Stock
Our stock is a penny stock. Trading of our stock may be restricted by the Securities and Exchange Commissions penny stock regulations which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The 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 in a form prepared by the SEC which provides information about penny stocks and the nature and level of 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 customers account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customers confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may
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have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
Financial Industry Regulatory Authority sales practice requirements may also limit a stockholders ability to buy and sell our shares of common stock.
In addition to the penny stock rules described above, the Financial Industry Regulatory Authority (known as FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. Financial Industry Regulatory Authority requirements make it more difficult for broker-dealers to recommend that their customers buy our shares of common stock, which may limit your ability to buy and sell our shares of common stock and have an adverse effect on the market for its shares.
Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
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* Filed herewith
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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