Notes to
Financial Statements
(1) Nature of Organization
and Summary of Significant Accounting Policies
Organization and Basis of
Presentation
Upon effectiveness of a Registration
Statement filed with the SEC by Forever Valuable Collectibles, Inc. (the “Company” or “we”), Fincor, Inc.
(“Fincor”) completed the spin-off of the Company to its shareholders of record as of August 13, 2008. The
transaction was effected by the issuance of 11,920,600 shares of the Company’s common stock to Fincor in exchange for cash
and property.
Fincor shareholders retained their
Fincor common shares and, after the spin-off, received (1) share of the common stock of the Company for each share of Fincor common
stock held. Immediately following the spin-off, Fincor’s shareholders owned approximately 100 percent of the Company’s
common stock.
The Company accounted for the spin-off
based on recorded amounts.
The Company is incorporated in the
State of Colorado and plans to enter the memorabilia and collectible industry. The Company is a development stage enterprise
in accordance with accounting principles generally accepted in the United States of America.
Basis of Presentation and
Going Concern
We have a limited history of operations,
limited assets, and an operating loss since inception. Our current burn rate is between $30,000 and $50,000 annually
and we may incur additional operating losses in future periods. In addition, there is no assurance that we will be able
to access capital markets to raise funds sufficient to cover any future operating losses.
Our ability to achieve and maintain
profitability and positive cash flow is dependent upon our ability to locate customers who will use our memorabilia and collectibles
services and our ability to generate sales revenues. However, we have not generated revenues from our inception and
at December 31, 2008, we had a cash position of $212.
In November, 2007, A-Squared Holdings,
Inc., an affiliated company, agreed to provide us with a credit facility of $200,000 for working capital (see Note 2). There
is no assurance that this credit facility will be sufficient to meet our future cash needs. A second affiliate, Fincor,
Inc., has also advanced working
capital to us on an as-needed basis
in exchange for promissory notes (see Note 2). There is no assurance that these loans will continue in the future.
As a result, our auditors are uncertain
about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that
might be necessary in the event the Company cannot continue in existence.
Risks and Uncertainties
The collectibles industry can be
subject to seasonal variations in demand. We expect that most of our collectibles operations will see the greatest demand during
the winter holiday shopping period. Consequently, we expect to be most profitable during the fourth quarter of our fiscal year. Quarterly
results may also be materially affected by the timing of new product introductions, the gain or loss of significant customers or
product lines and variations in merchandise mix. We will make decisions about purchases of
F - 7
FOREVER VALUABLE
COLLECTIBLES, INC.
(A Development
Stage Company)
Notes to
Financial Statements
inventory well in advance of
the time at which such products are intended to be sold.
Accordingly, our performance in any particular quarter may not be indicative of the results that can be expected for any other
quarter or for the entire year. Significant deviations from projected demand
for collectibles merchandise could have a material adverse effect on our financial
condition and quarterly or annual results of operations.
Demand for collectibles merchandise
is affected by the general economic conditions in the United States. When economic conditions are favorable and discretionary
income increases, purchases of non-essential items like collectibles merchandise and animation art generally increase. When
economic conditions are less favorable, sales of collectibles merchandise and animation art are generally lower. In addition, we
may experience more competitive pricing pressure during economic downturns. Therefore, any significant
economic downturn or any future changes in consumer spending habits could have a material adverse effect on our financial condition
and results of operations.
The markets for our products are
subject to changing customer tastes and the need to create and market new products. Demand for collectibles is influenced
by the popularity of certain themes, cultural and demographic trends, marketing
and advertising expenditures and general economic conditions. Because these factors can change
rapidly, customer demand also can shift quickly.
Use of Estimates
The preparation of financial statements
in accordance 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 and the disclosure of contingent assets and liabilities
at the
balance sheet date and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventory
Inventory, consisting of collectibles
held for sale, are stated at the lower of cost (specific identification method) or market.
Revenue Recognition
The Company had no revenue during
the year ended December 31, 2008 and the period ended December 31, 2007. Anticipated future operating revenue will represent product
sales in connection with owning and operating a memorabilia and collectibles business. We plan to recognize revenue
on the sale of our inventory when both of the following conditions are met:
1. The sale is consummated;
and
2. Collection of the
sales price has either been received or is assured.
Advertising Costs
The Company plans to expense all
advertising costs as incurred. The Company had no advertising costs during the year ended December 31, 2008 and the period ended
December 31, 2007.
F - 8
FOREVER VALUABLE
COLLECTIBLES, INC.
(A Development
Stage Company)
Notes to
Financial Statements
Income Taxes
We maintained a full valuation allowance
on our net deferred tax assets as of December 31 2008. The valuation allowance was determined in accordance with the provisions
of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
, or SFAS No. 109, which
requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred
tax assets are recoverable; such assessment is required on a jurisdiction by jurisdiction basis. Expected future losses represented
sufficient negative evidence under SFAS No. 109 and accordingly, a full valuation allowance was recorded against deferred
tax assets. We intend to maintain a full valuation allowance on the deferred tax assets until sufficient positive evidence exists
to support reversal of the valuation allowance.
Our tax provision was $-0- on a
pre-tax loss of $12,281 for the period from November 29, 2007 through December 31, 2007 and $78,483 for the year ended December
31, 2008.
In June 2006, the FASB issued Interpretation
48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109,
and “Accounting for Income Taxes.” FIN 48 clarifies the accounting and reporting for income taxes where interpretation
of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation
and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income
tax returns. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and has no current applicability to the Company’s financial
statements. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.
Financial Instruments
The Company considers all highly
liquid investments with original maturities of three months or less when acquired to be cash equivalents.
The carrying amounts reported for
cash, accounts payable and accrued liabilities, and notes payable are considered to approximate fair values based upon the short
maturities of those financial instruments.
Financial instruments that potentially
subject us to concentrations of credit risks consist of cash. We invest our excess cash in accordance with our investment policy
and cash depositories did not exceed federally insured limits during the period from November 29, 2007 (inception) through December
31, 2008.
Stock-based Compensation
Effective November 29, 2007, we
adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”), Statement of Financial
Accounting Standards (“SFAS”),
Share-Based Payment
, or SFAS No. 123(R). Under the fair
value recognition provisions of SFAS No. 123(R), stock-based compensation cost is measured at the grant date based on the value
of the awards and is recognized as expense over the vesting period.
Loss per Common Share
SFAS 128,
Earnings per Share
,
requires presentation of “basic” and “diluted” earnings per share on the face of the statements of operations
for all entities with complex capital structures. Basic earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur
if securities or other
F - 9
FOREVER VALUABLE
COLLECTIBLES, INC.
(A Development
Stage Company)
Notes to
Financial Statements
contracts to issue common stock
were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings
per share are excluded from the calculation. At December 31, 20008 and 2007, a warrant to purchase 200,000 shares of our common
stock was excluded from diluted earnings per share because it was anti-dilutive.
New Accounting Standards
In June 2008, the FASB issued Staff
Position No. EITF 03-6-1 (“EITF No. 03-6-1”),
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.
EITF
No. 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in
the earnings allocation in calculating earnings per share under the two-class method described in Statement of Financial Accounting
Standards No. 128,
Earnings per Share
. EITF No. 03-6-1 requires companies to treat unvested share-based
payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating
earnings per share. EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008.
In April 2008, the FASB issued Staff
Position No. 142-3 (“FSP No. 142-3”),
Determination of the Useful Life of Intangible Assets
. FSP
No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible
Assets
. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Early adoption is prohibited.
In March 2008, the FASB issued Statement
of Financial Accounting Standards No. 161 (“SFAS No. 161”),
Disclosures about Derivative Instruments and Hedging
Activities
SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative
Instruments and Hedging
. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.
The above pronouncements are not
currently expected to have a material effect on our financial statements.
(2)
Related
Party Transactions
An affiliate contributed office
space to us during the period from November 29, 2007 through December 31, 2008. We recognized $9,246 for the year ended
December 31, 2008, and $771 for the period from November 29, 2007 (inception) to December 31, 2007, in rent expense. The
Board of Directors valued the contribution based on rent for similar space in the local area.
Our President and Director contributed
her time and attendance during the period from November 29, 2007 (inception) through December 31, 2008. We recognized
$48,000 for the year ended December 31, 2008, and $4,000 for the period from November 29, 2007 (inception) through December 31,
2007, in contributed services expense. The Board of Directors valued the contribution based on prevailing rates for
similar services in the local area.
F - 10
FOREVER VALUABLE
COLLECTIBLES, INC.
(A Development
Stage Company)
Notes to
Financial Statements
During the year ended December 31,
2008, we incurred stock transfer agent fees to X-Pedited Transfer Corp., an affiliate, totaling $3,375. This balance
remained unpaid at December 31, 2008 and is included in the accompanying Balance Sheet as Accounts payable, related party.
During the year ended December 31,
2008, our affiliates, Fincor, Inc. and A-Squared Holdings, Inc. provided us cash to cover operating expenses pursuant to the terms
of unsecured promissory notes.
As of December 31, 2008, notes payable
to related parties, consist of the following:
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December 31,
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2008
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2007
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|
Demand note payable to affilliate A-Squared Holdings, Inc. issued
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February 29, 2008, due on November 29, 2009, unsecured and bearing
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interest at 15%, interest payable every 90 days
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$
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5,084
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|
$
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-
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|
|
|
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Demand notes payable to affilliate Fincor, Inc. issued between
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January 16, 2008 and August 20, 2008, due on November 29, 2009,
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unsecured and bearing interest at 15%, interest payable every 90 days
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11,740
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-
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Total notes payable, related parties
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$
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16,824
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$
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-
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Interest expense accrued during
the year ended December 31, 2008 and from November 29, 2007 9inception) to December 31, 2007 were $1,950 and $-0-, respectively.
In November 2007, we acquired inventory
valued at $3,211 from Fincor. We valued the inventory at Fincor’s book value or “predecessor cost.”
(3)
Shareholders’
Deficit
Preferred stock
We are authorized to issue 1,000,000
shares of no par value preferred stock; the classes and features of which will be determined by the Board of Directors.
Common stock
We are authorized to issue 50,000,000
shares of no par value common stock. The shares do not have preemptive rights and cumulative voting is not permitted.
During October 2008, we issued 5,000
shares of common stock to a vendor in exchange for payment of professional fees. The transaction was recorded based
on the fair value of the services rendered, which totaled $500, or $0.10 per share.
Warrant to purchase our common
stock
On November 29, 2007 the Board of
Directors unanimously approved the granting of a warrant to A-Squared Holdings, Inc. in exchange for providing a one-year, $200,000
credit facility to the Company (See Note 5).
F - 11
FOREVER VALUABLE
COLLECTIBLES, INC.
(A Development
Stage Company)
Notes to
Financial Statements
The warrant vested as of the date
of the grant and expires in five years. All 200,000 shares underlying the warrant are exercisable at $0.001 per share. The
Board of Directors valued the shares of common stock at the fair value of $0.00005 per share on the date of grant using the Black-Scholes
option pricing model. Compensation expense totaling $10 was recognized during the period ended December 31, 2007. No
warrants had been exercised through December 31, 2008.
The status of the Company’s
outstanding warrant is as follows:
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Weighted
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Weighted Avg.
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Aggregate
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Number of
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Avg. Exercise
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Rermaining
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Intrinsic
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Shares
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Price
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Contractual Term
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Value
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Outstanding at November 29, 2007 (inception)
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$
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—
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$
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—
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Granted
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200,000
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0.001
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4.9 years
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Exercised
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—
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—
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Cancelled
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—
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—
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Outstanding at December 31, 2007
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$
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200,000
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$
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0.001
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4.9 years
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Granted
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—
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—
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Exercised
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—
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—
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Cancelled
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—
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—
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Outstanding at December 31,2008
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200,000
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0.001
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3.9 years
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Exercisable at December 31, 2007
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$
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200,000
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$
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0.001
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$
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—
|
Exercisable at December 31, 2008
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$
|
200,000
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$
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0.001
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$
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—
|
The weighted average fair value
of the warrant granted on November 29, 2007 was estimated on the date of grant using the Black-Sholes option-pricing model at $0.00035
per share or $10. The fair value of the options granted is estimated on the date of grant using the following assumptions:
dividend yield of zero, expected volatility of 100%, risk free interest rate of 3.42 percent, and an expected life of five years.
(4)
Income Taxes
A reconciliation of the U.S. statutory
federal income tax rate to the effective tax rates at December 31, 2008 and 2007 is as follows:
F - 12
FOREVER VALUABLE
COLLECTIBLES, INC.
(A Development
Stage Company)
Notes to
Financial Statements
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December 31,
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2008
|
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2007
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U.S. federal statutory graduated rate
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15.00
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%
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15.00
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%
|
State income tax rate,
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net of federal benefit
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3.94
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%
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5.32
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%
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Permanent differences
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-13.82
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%
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-7.89
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%
|
Net operating loss for which no tax
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benefit is currently available
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-5.12
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%
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-12.43
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%
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0.00
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%
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0.00
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%
|
At December 31, 2008, deferred tax
assets consisted of a net tax asset of $5,547, due to an operating loss carryforward of $28,747, which was fully allowed for, in
the valuation allowance of $5,547. The valuation allowance offsets the net deferred tax asset for which there is no assurance of
recovery. The changes in the valuation allowance for the year ended December 31, 2008 was $4,021. Net operating
loss carryforwards will expire through 2028. The value of these carryforwards depends on the ability of the company
to generate taxable income.
At December 31, 2007, deferred tax
assets consisted of a net tax asset of $1,526, due to operating loss carry forwards of $7,510, which was fully allowed for, in
the valuation allowance of $1,526. The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The changes in the valuation allowance for the period ended December 31, 2007 was $1,526.
The valuation allowance will be
evaluated at the end of each year, considering positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result in the complete elimination of the allowance if
positive evidence indicates that the value of the deferred tax asset is no longer impaired and the allowance is no longer required.
(5)
Subsequent
Events
Notes Payable to Related Parties
During February and March 2008,
Fincor, Inc., an affiliate, provided us cash to cover operating expenses pursuant to the terms of unsecured promissory notes. The
notes mature on November 29, 2009, carry a 15% interest rate and interest payments are due quarterly.
Common Stock Issuances
During March 2009, we issued 25,000
shares of common stock to our stock transfer agent, X-Pedited Transfer Corp., an affiliate, for payment of professional services. The
transaction was recorded based on the fair value of the services rendered, which totaled $2,500, or $0.10 per share.
F - 13