NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF HISTORY AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).
Nature of Operations
The Company was incorporated in the State of Colorado on May 9, 1996. The Company originally intended to engage in the business of marine transportation. These plans did not materialize, and the Company is currently considering alternative business opportunities.
On November 1, 2017, the Company incorporated Gulf Acquisition, Inc., a Utah corporation for the sole purpose of completing an Agreement and Plan of Merger. This wholly-owned subsidiary has had no activities since it was incorporated.
Pursuant to the terms of the Merger Agreement, the parties had until December 15, 2017, to complete the Merger Agreement (the Termination Date). The conditions of the Merger Agreement were not satisfied by the Termination Date, and therefore, the Merger Agreement has been terminated.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth in ASC Topic 740, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly-liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Income (Loss) Per Common Share
Income (Loss) per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the periods presented. Basic loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. The Company has no potentially dilutive securities, such as convertible preferred stock, options, or warrants, outstanding during the periods presented. Accordingly, basic and dilutive loss per common share are the same.
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Recently Issued Accounting Pronouncements
The Company has reviewed recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.
Fair Value of Financial Instruments
It is not practicable to estimate the fair value of related party loans because there is no established market for these loans and it is inappropriate to estimate future cash flows, which are largely dependent on the Company establishing or acquiring operations at some future point. No financial instruments are held for trading purposes.
NOTE 2:
INCOME TAXES
At September 30, 2018, the Company had a net operating loss carryover of approximately $325,000, which expires from 2018 to 2037.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Company does not have any foreign earnings and therefore, we do not anticipate the impact of a transition tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, and no later than fiscal year end December 31, 2018.
At September 30, 2018, the Company had a deferred tax asset relating to the net operating losses, which includes accrued interest of $8,078 at newly enacted Federal rates of 21% in the amount of $89,810. The amount has been reserved 100% due to the Companys history of losses.
The change in the valuation allowance was $(6,939) and $14,192 for the periods ended September 30, 2018 and 2017, respectively.
Components of income tax are as follows:
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Nine Months Ended
September 30,
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2018
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2017
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Current
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|
|
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Federal
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$
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-
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$
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-
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State
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-
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|
-
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Deferred
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-
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-
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$
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-
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$
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-
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A reconciliation of the provision for income tax expense with the expected income tax computed by applying the federal statutory income tax to income before provision for income taxes is as follows:
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Nine Months Ended
September 30,
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2018
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2017
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Income tax computed at
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|
|
|
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Federal statutory tax rate (21% for 2018 and 34% for 2017)
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$
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5,605
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$
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(12,373)
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State taxes (net of federal benefit)
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1,334
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(1,819)
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Change in valuation allowance
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(6,939)
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14,192
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$
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-
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$
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-
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The Company complies with the provisions of uncertain tax positions as addressed in ASC 740-10-65-1. As a result of the implementation of ASC 740-10-65-1, the Company recognized approximately no increase in the liability for unrecognized tax benefits. The Company has no tax position at September 30, 2018, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at September 30, 2018. The Companys utilization of any net operating loss carry forward may be unlikely as a result of its limited activities. Tax years 2016 through 2018 are open to examination by the tax authorities.
NOTE 3: COMMITMENTS, CONTINGENCIES AND LEGAL MATTERS
Agreement and Plan of Merger
On November 7, 2017, we, along with our newly formed wholly-owned subsidiary, Gulf Acquisition, Inc., and our President, entered into an Agreement and Plan of Merger (the Merger Agreement) with US 3D Printing, Inc., a Utah corporation (US 3D), and certain of its principals and majority shareholders. Additional information about the Merger Agreement is contained in the Companys 8-K Current Report dated November 7, 2017, and filed with the Securities and Exchange Commission (the SEC) on November 9, 2017, and which, together with a copy of the Merger Agreement, is incorporated therein. See Part II, Item 6, below.
Pursuant to the terms of the Merger Agreement the parties had until December 15, 2017, to complete the Merger Agreement (the Termination Date), and could terminate the Merger Agreement if the conditions precedent to the Closing had not been satisfied on or before such date. Further, the Company could terminate the Merger Agreement if the conditions provided in Article 5 thereof had not been satisfied by the Termination Date; and similarly, US 3D could terminate the Merger Agreement if the conditions provided in Article 5 thereof had not been satisfied by the Termination Date. The conditions of the Merger Agreement were not satisfied by the Termination Date, and therefore, the Merger Agreement has been terminated.
Management of the Company has conducted a diligent search and concluded that there were no other commitments, contingencies, or legal matters pending at the balance sheet dates that have not been disclosed.
NOTE 4: NOTES PAYABLE - RELATED PARTIES
At September 30, 2018, the Company owed $0 and as of December 31, 2017, the Company owed $285,381 to related parties for money advanced to the Company or expenses paid on behalf of the Company; $2,500 was non-interest bearing, $2,600 bore annual interest at 24%, $9,286 bore interest at 6%, $3,500 bore annual interest at 7%, $169,512 bore annual interest at 9%, $2,800 bore annual interest at 10% and $1,000 bore annual interest at 18%. The Company received proceeds from these related parties of $16,000 and $10,631 during the periods ended September 30, 2018, and 2017, respectively. The Company accrued $118 and $6,149 in interest expense during the three month periods ended September 30, 2018, and 2017, respectively. The Company accrued $13,366 and $17,684 during the nine month periods ended September 30, 2018, and 2017, respectively. The notes were all due on demand.
Effective July 31, 2018, the Company entered into Debt Cancellation Agreements with seven of its related party noteholders pursuant to which it settled approximately $314,747 in debts for the payment of $216,100 from the $500,000 which it borrowed in June, 2018. This included the settlement of $167,198 in principal and approximately $90,279 in accrued interest, which was settled with the Companys President, Michael Vardakis, for the payment of $187,000. Total interest forgiven by all noteholders was $98,647.
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NOTE 5: NOTES PAYABLE UNRELATED PARTIES
On June 5, 2018, the Company entered into promissory note with an unrelated party. The principal received was $500,000. Interest accrues on a 360-day year simple interest basis at 5.0% per annum. If a default occurs the default interest rate is 10.0% per annum. Principal and accrued interest are to be paid on or before the one year anniversary of the note. In addition, the two majority shareholders of the Company pledged their shares totaling 89% of the issued and outstanding common shares of the Company as collateral for the promissory note. The Company accrued $6,273 and $0 in interest expense during the three month periods ended September 30, 2018, and 2017, respectively. The Company accrued $8,078 and $0 during the nine month periods ended September 30, 2018, and 2017, respectively.
NOTE 6: DEBT FORGIVENESS
Effective July 31, 2018, the Company entered into Debt Cancellation Agreements with six of its vendors pursuant to which it settled approximately $135,060 in debts for the payment of $50,450 from the $500,000 which it borrowed in June, 2018.
The Company during the period ended September 30, 2018, recognized a reduction in accounts payable from vendors of $52,232 and debt forgiveness from certain nonrelated parties of $84,610.
NOTE 7: GOING CONCERN
The Companys consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At September 30, 2018, the Company had a retained deficit of $415,031, and a working capital deficit of $304,603 which raises substantial doubt about the Companys ability to continue as a going concern.
The Companys continued existence is dependent on its ability to generate sufficient cash flow to cover operating expenses and to invest in future operations. Management is actively pursuing possible business opportunities. The Company will look to related parties to fund continuing operations until a suitable business opportunity is identified.
NOTE 8: SUBSEQUENT EVENTS
The Company has evaluated events from September 30, 2018, through the date whereupon the consolidated financial statements were issued and has determined that there are no additional items to disclose.
On October 10, 2018 (effective September 30, 2018), one of the related party noteholders who was owed $2,500 and who had previously converted a non-interest bearing $5,000 promissory note dated April 13, 2005, to purchase 71,429 shares of the Companys common stock on September 29, 2005 (See Note 4), entered into a new Debt Cancellation Agreement whereby the payment of $2,500 received for accrued interest in July, 2018, was returned to the Company in exchange for $10. As part of the delivery of the new Debt Cancellation Agreement, the CEO of the Company introduced this noteholder to a related party who purchased the 71,429 shares of the Companys common stock owned by this noteholder. The purchaser of these shares was an LLC formed by the adult son of the Companys CEO.
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Item 2.
Managements Discussions and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words may, would, could, should, expects, projects, anticipates, believes, estimates, plans, intends, targets or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Plan of Operation
Our plan of operation for the next 12 months is to: (i) consider guidelines of industries in which we may have an interest; (ii) adopt a business plan regarding engaging in the business of any selected industry; and (iii) to commence such operations through funding and/or the acquisition of a going concern engaged in any industry selected.
During the next 12 months, our only foreseeable cash requirements will relate to maintaining our good standing; the payment of our SEC and Exchange Act reporting filing expenses, including associated legal and accounting fees; costs incident to reviewing or investigating any potential business venture; and maintaining our good standing as a corporation in our state of organization. We anticipate that these funds will be provided to us in the form of loans from Michael Vardakis, our current President. There are no written agreements requiring Mr. Vardakis to provide these cash resources; and to the extent funds are provided, such funds will bear interest and will be due on demand. As of the date of this Quarterly Report, we have not actively begun to seek any business or acquisition candidate.
Results of Operations
We have generated no revenues since inception. We had a net income of $51,458 and a net loss of ($9,815) for the three months ended September 30, 2018, and 2017, respectively. We had a net income of $26,689 and a net loss of ($36,390) for the nine months ended September 30, 2018, and 2017, respectively. The net income was the result of forgiveness of debt in the amount of $84,610. Primarily all of the losses are the result of legal and accounting expenses.
Liquidity
We had $211,223 cash as of September 30, 2018.
During the next 12 months, our only foreseeable cash requirements will relate to the payment of our SEC and Exchange Act reporting filing expenses, including associated legal and accounting fees; costs incident to reviewing or investigating any potential business venture; and maintaining our good standing as a corporation in our state of organization.
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