Item 2.
Management's Discu
ssion and Analysis of Fina
ncial Condition and Results of Operations
Plan of Operations
All statements contained in this Report, other than statements of historical facts, that address future activities, events or developments, are forward-looking statements, including, but not limited to, statements containing the word "believe," "anticipate," "expect" and word of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance, and that actual results may differ materially from those in the forward - looking statements. Such risks and uncertainties include, without limitation: established competitors who have substantially greater financial resources and operating histories, regulatory delays or denials, ability to compete as a star t -up company in a highly competitive market, and access to sources of capital.
The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this Report. Except for the historical information contained herein, the discussion in this Report contains certain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectation s and intentions. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear in this Report. The Company's actual results could differ materially from those discussed here.
We were incorporated on March 14, 2012 in the State of Nevada. In March 2012, we completed a merger with Premier Pacific Construction, Inc., a California corporation (" PPC-CA"). PPC-CA was originally formed in 2000 by our President, Richard Francella to provide general contracting and construction services within San Diego County, California. Since our inception, we have operated as a construction company providing general contracting and construction services to both residential and commercial clients.
Our plan is to continue to provide general contracting and construction services as we have done for more than a decade. In addition, we are also pursuing opportunities to work with homeowners who wish to sell their homes in the currently weak rea l estate market and wish to make certain renovations and upgrades to increase their potential sales price. In order to assist the homeowners, we will complete the renovations and upgrades (hereinafter " pre-sale renovation and upgrade services") with no up - front out of pocket costs to the homeowner. Rather, the homeowner will agree to pay for our services through escrow when they sell. We plan to market our services to real estate brokers.
We have not yet begun marketing our pre-sale renovation and upgrade services to real estate brokers and have expended zero funds on marketing our pre-sale renovation and upgrade services to date. We have only established a few business relationships with real estate brokers in San Diego County. Our current lack of assets and no plan for obtaining additional funding may preclude our ability to execute on our business plan.
The Company will most likely require additional funding for development and this additional funding may be raised through deb t or equity offerings. Management has yet to decide what type of offering the Company will use or how much capital the Company will attempt to obtain and there is no guarantee that the Company will be able to raise any capital through any type of offerings. For these reasons, our auditor has expressed substantial doubt about our ability to continue as a going concern.
The Company has been operating since 2000, offering general construction services within San Diego County, California. Over the past two years, we have had little revenue from operations and limited assets. Our plan is to continue to offer general construction services while expanding our business into renovation of real estate properties to be sold.
During the next 12 months, the Company will continue to network with local real estate brokers who could refer homeowners who are interested in selling their properties, but need renovations and/or upgrades to increase the market value. Our 12-month plan also includes building a website to attract real estate brokers and homeowners, completing our sub-contractor list, prospect for clients, and marketing our business on affiliate websites.
We have created a basic website for our services (see Premierpacific.net), and are working on creating additional website pages that address our remodeling and renovation services to prospective home sellers in furtherance of our additional business plan. Within the next 6 months, we plan to have our website completed. For our internet marketing efforts, the website content will be search engine optimized, as well as outreaches to relevant partner sites and blogs to build link exchanges, driving traffic to our site. A stylish direct mail piece will also be produced highlighting our services and targeted to real estate brokers.
We anticipate that the design and development of the website will take an additional six weeks and the customer outreach will take six months. We will immediately begin our advertising and marketing to source prospective realtor partners, investors and contractors through cold calls, referencing state lists of licensed and registered contractors, and direct mail strategies. We will focus our marketing on real estate brokers, agents and real estate investor professionals. The following table summarizes our planned marketing activities.
Planned activities
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Budget
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a
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)
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Creating website
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$
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3,000 - $4,000
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b
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)
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Advertising through Industry related publications
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$
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2,000-$3,000
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c
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)
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Advertising through consumer special interest publications such as magazines, newsletters and newspapers.
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$
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4,000-$5,000
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d
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)
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Attending industry related Trade Shows and Expos
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$
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2,000-$3,000
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e
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)
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Public Relations activities, including: creating a PR package, contacting media outlets, writing expert articles and industry related news and updates for submission to various consumer periodicals
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$
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2,500-$3,500
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f
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)
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Direct marketing
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$
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1,500-$2,500
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TOTAL ANTICIPATED MARKETING EXPENSES
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$
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15,000-$21,000
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(*)
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(*) The amount of funds necessary to implement our marketing activities and plan of operation cannot be predicted with any certainty and may exceed any estimates set forth above.
In the event that we are unable earn enough revenue from operations, we will endeavor to proceed with our plan of operations by locating alternative sources of financing. While the officers and directors have generally indicated a willingness to provide services and financial contributions if necessary, there are presently no agreements, arrangements, commitments, or specific understandings, either verbally or in writing, between the officers and directors and the Company.
We do not anticipate hiring any staff during the first 12 months of operation, and will rely on the services of outside contractors for the design and development of our website and for labor on our real estate property renovations.
Results of Operations
We earned net income (loss) from operations in the amount of $253 and $(20,926) for the three and nine months ended September 30, 2016, respectively, compared to a net income (loss) of $4,608 and $(16,483) for the three and nine month periods ended September 30, 2015. Our gross profits (revenues less cost of goods sold) for the three and nine months ending September 30, 2016 were $8,407 and $9,898, respectively, compared to $15,477 and $15,477 for the three and nine month periods ended September 30, 2015. We incurred operating expenses in the amount of $8,154 for the three months ending September 30, 2016 compared to $10,869 for the three-month period ended September 30, 2015.
Liquidity and Capital Resources
As of September 30, 2016, we had cash of $8,004 and operating working deficit of $(7,906). Over the past two fiscal years, the Company has funded its operations primarily through sales of common stock and through loans from its President, Richard Francella.
Our current average monthly administrative expenses are about $580, of which $218 is for phone, $100 is for gasoline, and $262 is for miscellaneous. We have been able to pay our monthly expenses from income from operations, sales of our common stock, and stockholder loans. We do not foresee quantifiable long term liquidity needs that vary from our current since those needs are dependent on whether or not we enter into contracts to provide pre-sale renovation and upgrade services.
Richard Francella will be the only employee initially as the company seeks contracts. Additionally, there will be little if any capital expenditures due to the nature of the business and the ability to bring in subcontractors for the bigger work. We believe that we have enough cash to support our daily operations and produce revenues while we are attempting to commence the expansion of our business with our pre-sale renovation and upgrade services. However, if we are unable to satisfy our cash requirements we may be unable to proceed with our plan of operations. We do not anticipate the purchase or sale of any significant equipment. We also do not expect any significant additions to the number of employees. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan for the development and marketing of our pre-sale renovation and upgrade services.
Increase in mortgage interest rates or unavailability of mortgage financing could adversely affect the ability of homebuyers to sell their current homes. As a result, once we commit to provide pre-sale renovation and upgrade services to a client, our margins, revenues, and cash flows may also be adversely affected.
Our liquidity may be negatively impacted by the 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 Securities and Exchange Commission. 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 anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
We have no significant 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 of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Going Concern
We have an accumulated deficit through September 30, 2016 of $86,415. The Company will most likely require additional funding for development and this additional funding may be raised through debt or equity offerings. Management has yet to decide what type of offering the Company will use or how much capital the Company will attempt to obtain. There is no guarantee that the Company will be able to raise any capital through any type of offerings. For these reasons, our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from the sale of products or services in accordance with ASC 605-35-25-1" Revenue Recognition in Financial Statements". The Company has adopted the "Completed Contract Method of Accounting.". Revenue will consist of services income and will be recognized only when the following criteria have been met: i) Persuasive evidence of an agreement has been met; ii) Service has occurred; iii) The fee is fixed or determinable; iv) The collection is reasonably assured.
Item 4. Controls and Proc
edures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Limitations on Systems of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses identified in our evaluation, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the company's 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 accounting principles generally accepted in the United States of America and includes those policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of September 30, 2016, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: lack of a functioning audit committee; lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; inadequate segregation of duties consistent with control objectives; and, management is dominated by a single individual. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2016.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2016 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.