UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2008
x
TRANSITION REPORT UNDER
SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the
transition period from ___________ to _____________
LADYBUG RESOURCE GROUP, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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333-153306
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26-1973389
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(State or other jurisdiction of incorporation or
organization)
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(Commission file number)
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(IRS Employer Identification No.)
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Molly S. Ramage
Ladybug Resource Group, Inc.
12703 NE 129
th
Ct. #H102
Kirkland, WA
98034-3246
(Address of principal executive
offices)
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425-821-1829
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(Issuer's telephone number)
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Check whether the
registrant (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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. Yes
x
*
No
o
*Companys Registration
Statement on Form S-1 became effective on September 19, 2008
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act (Check one):
Large Accelerated Filer
o
Accelerated Filer
o
Non-Accelerated Filer
o
Smaller Reporting Company
x
State the number of
shares outstanding of each of the issuers classes of common equity, as of the
latest practicable date: 11,320,000 shares of Common Stock, as of November 5,
2008.
Indicate by check mark
whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934) (check one): Yes
o
No
x
Transitional Small
Business Disclosure Format (check one): Yes
o
No
x
LADYBUG
RESOURCE GROUP, INC.
FORM 10-Q
September 30, 2008
INDEX
PART I-- FINANCIAL INFORMATION
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Page
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Item 1.
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Unaudited Financial Statements
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3
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Item 2.
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Managements Discussion and Analysis of Financial
Condition
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7
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Item 3
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Quantitative and Qualitative Disclosures About
Market Risk
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11
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Item 4.
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Control and Procedures
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11
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PART II-- OTHER INFORMATION
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Item 1
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Legal Proceedings
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12
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Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds
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20
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Item 3.
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Defaults Upon Senior Securities
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20
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Item 4.
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Submission of Matters to a Vote of Security
Holders
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20
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Item 5.
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Other Information
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20
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Item 6.
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Exhibits and Reports on Form 8-K
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20
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2
PART I.
FINANCIAL INFORMATION
ITEM 1. Financial Information
LADYBUG RESOURCE GROUP, INC.
Balance Sheets
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September 30,
2008
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June 30, 2008
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(unaudited)
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CURRENT
ASSETS:
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Cash
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$
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9,168
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$
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25,181
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COMPUTER
EQUIPMENT net of accumulated depreciation of $569 and $69,
respectively
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6,018
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2,426
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TOTAL
ASSETS
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$
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15,186
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$
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27,607
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LIABILITIES
AND STOCKHOLDERS EQUITY
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Accrued
professional fees
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$
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10,106
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12,000
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Stockholders'
Equity:
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Common
stock: $0.001 par value; 75,000,000 shares authorized; 11,320,000 shares
issued and outstanding
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11,320
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11,320
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Additional
paid-in capital
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26,820
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22,320
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Accumulated
deficit
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(33,060)
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(18,033)
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Total
stockholders equity
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5,080
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15,607
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TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY
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$
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15,186
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$
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27,607
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See accompanying notes to the financial
statements.
3
LADYBUG
RESOURCE GROUP, INC.
Statement of Operations
For the Three Months Ended September 30,
2008
(Unaudited)
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Revenue
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$
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24,357
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Expenses:
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Compensation
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4,500
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Professional fees
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1,500
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Office costs
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33,384
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Total
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39,384
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Net Loss
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$
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(15,027)
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Net loss per common share -
basic and diluted
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$
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(0.00)
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Weighted
average number of common shares outstanding - basic and diluted
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11,320,000
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See accompanying notes to the financial
statements.
4
LADYBUG
RESOURCE GROUP, INC.
Statement of Cash Flows
For the Three Months Ended September 30,
2008
(Unaudited)
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CASH FLOWS
FROM OPERATING ACTIVITIES:
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Net loss
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$
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(15,027)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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Depreciation
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500
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Contribution of services
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4,500
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Change in net operating assets
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(1,894)
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Net Cash Used by Operating Activities
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(11,921)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Purchase of equipment
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(4,092)
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CASH FLOWS
FROM FINANCING ACTIVITIES
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-
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NET CHANGE IN CASH
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(16,013)
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CASH AT BEGINNING OF PERIOD
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25,181
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CASH AT END OF PERIOD
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$
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9,168
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See accompanying notes
to the financial statements.
5
LADYBUG
RESOURCE GROUP, INC.
Notes to Unaudited Financial
Statements
September 30, 2008
(Unaudited)
NOTE 1
BASIS OF
PRESENTATION
The accompanying interim
financial statements for the three-month period ended September 30, 2008 are
unaudited and include all adjustments (consisting of normal recurring
adjustments) considered necessary by management for a fair presentation.
The results of operations realized during an interim period are not
necessarily indicative of results to be expected for a full year. These
financial statements should be read in conjunction with the information filed as
part of the Companys Registration Statement on Form S-1 as filed with the
United States Securities and Exchange Commission which was declared effective on
September 19, 2008.
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States 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 as
well as the reported amount of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2
GOING CONCERN
The Company commenced
operations on November 27, 2007 and has very limited financial resources and no
committed sources of debt or equity financing.
The Company intends to
seek business aggressively through the business contacts of its management.
While the Company believes in the viability of its strategy to increase revenues
and in its ability to raise funds if necessary, there can be no assurances to
that effect. The ability of the Company to continue as a going concern is
dependent upon the Companys ability to generate increased levels of revenues.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
NOTE 3
RELATED PARTY
TRANSACTIONS
The Companys President
performed work and permitted the Company to use facilities and equipment owned
by her without charge. The estimated cost of this service, $4,500, was recorded
as an expense and as a contribution to paid-in-capital.
The Company paid
independent contractor fees of $10,000 to a director who is also the son of the
Companys President.
NOTE 4
CONCENTRATION OF
RISKS
During the three months
ended September 30, 2008, the Company derived 92.1% of its revenues from three
companies, BFFS (13.1%), Cohort Investments (27.7%) and VOF (51.3%). These
customers were introduced by and indirectly related to a minority shareholder of
the Company. The work done for VOF related to a politically oriented website and
is not expected to result in recurring engagements.
6
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995
Information set forth
herein contains "forward-looking statements" which can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. No assurance can be given that the
future results covered by the forward-looking statements will be achieved. The
Company cautions readers that important factors may affect the Companys actual
results and could cause such results to differ materially from forward-looking
statements made by or on behalf of the Company. These factors include the
Companys lack of historically profitable operations, dependence on key
personnel, the success of the Companys business, ability to manage anticipated
growth and other factors identified in the Company's filings with the Securities
and Exchange Commission, press releases and/or other public communications.
The following discussion
and analysis provides information which the Companys management believes to be
relevant to an assessment and understanding of the Company's results of
operations and financial condition. This discussion should be read together with
the Company's financial statements and the notes to financial statements, which
are included in this report.
This management's
discussion and analysis or plan of operation should be read in conjunction with
the financial statements and notes thereto of the Company for the three months
ended September 30, 2008. The reported results may not necessarily reflect the
future.
BUSINESS
Ladybug Resource Group,
Inc. (the Company, we, us, and Ladybug) was incorporated in the State of
Nevada on November 27, 2007 by Molly S. Ramage. Our business purpose is to
assist in the design of websites and website components that use specific
marketing messages or themes to reach target audiences. Our initial marketing
focus is the websites of the funeral industry in the Seattle, Washington
area.
Ladybug has limited
financial resources and has not established a source of equity or debt
financing.
Operations
Ladybug designs the
message or marketing theme included on Internet Websites. We will accept
engagements for the development of entire Websites in which case we will work
with other contractors to code complex portions of the project and design
portions that are not theme or marketing related.
We refer to our approach
as Smart Design which is about carefully planning the work that needs to be
done before starting the project. We make sure a customers website is a good
fit for its business and customers. We design our websites based on what it
means for the customer.
We will also resell
Website hosting space for the Websites of customers. In this case, the Website
is hosted on the server of a Website hosting company, but we manage all changes
to the Website.
Marketing
Ladybug obtains customer
leads from the business and personal contacts of Molly S. Ramage and by word of
mouth. Ms. Ramage works with a customer to understand the nature of the business
and the theme that the customer wants to convey. She then works with Stephen H.
Ramage, her husband, to develop the image and written portion of the theme. In
most cases, she codes the HyperText Markup Language portions of the package to
be placed on the customer Website. In certain cases, she will engage the
assistance of independent subcontractors to assist her with complex coding
requirements.
7
Ladybug bills for engagements after the work has been completed
and accepted by the customer.
Competition
The Web applications
markets are highly competitive and have low barriers of entry, which could
hinder our ability to successfully market our products and services. We may not
have the resources, expertise or other competitive factors to compete
successfully in the future. Because there are few substantial barriers to entry,
we expect that we will face additional competition from existing competitors and
new market entrants in the future. Some of these competitors are part-time
contractors willing to provide services at low rates to enter the industry or
earn extra money. On the other hand, many of our current and potential
competitors have greater name recognition and more established relationships in
the industry and greater resources. As a result, these competitors may be able
to:
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Develop and expand
their network infrastructures and service offerings more rapidly;
·
Adapt to new or
emerging technologies and changes in customer requirements more quickly; and
·
Devote greater
resources to the marketing and sale of their services and adopt more aggressive
pricing policies than we can.
Current and potential
competitors in the market include Web hosting service providers, applications
hosting providers, Internet service providers, telecommunications companies,
large information technology firms and computer hardware suppliers.
Our ability to compete
is based on our ability to meet customers through our other contacts and to
convince those prospective customers that we provide quality personalized
services at very competitive prices. We cannot provide assurances that our
strategy will succeed.
Operations
The Company commenced
operations on November 27, 2007 and has very limited financial resources and no
committed sources of debt or equity financing.
Operations for the three
months ended September 30, 2008 consisted of the following:
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Revenue
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$
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24,357
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Expenses:
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Compensation
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4,500
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Professional fees
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1,500
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Office costs
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33,384
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Total
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39,384
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Net Loss
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$
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(15,027)
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During the three months
ended September 30, 2008, the Company derived 92.1% of its revenues from three
companies, BFFS (13.1%), Cohort Investments (27.7%) and VOF (51.3%). These
customers were introduced by and indirectly related to a minority shareholder of
the Company. The work done for VOF related to a politically oriented website and
is not expected to result in recurring engagements.
Substantially all of our
revenue related to our standard Website development and consulting services.
Molly S. Ramage, our
President, performed work for us and permitted us to use facilities and
equipment owned by her without charge. The estimated cost of this service,
$4,500, was recorded as an expense and as a contribution to paid-in-capital. Ms.
Ramage will start collecting a salary when we have the resources to pay it.
Specific guidelines have not been determined.
8
The most significant portion of office costs consist of $29,500
paid to independent contractors who assisted in our web development and
management efforts. Of this amount, $10,000 was paid to a director and who is
also the son of the Companys President.
Other -
As a
corporate policy, we will not incur any cash obligations that we cannot satisfy
with known resources, of which there are currently none except as described in
Liquidity below.
Liquidity
Ladybug had $15,186 in
total assets as of September 30, 2008, which included $9,168 of current assets
consisting of cash and $6,018 of long-term assets consisting of computer
equipment, net of accumulated depreciation.
Ladybug had total
liabilities of $10,106 as of September 30, 2008, consisting solely of accrued
professional fees.
Ladybug had negative
working capital of $938 and an accumulated deficit of $33,060 as of September
30, 2008.
Ladybug had net cash
used by operating activities of $11,921 for the three months ended September 30,
2008, consisting of net loss of $15,027 and $1,894 of change in net operating
activities, offset by $4,500 of contribution of services and $500 of
depreciation.
Ladybug had $4,092 of
net cash used by investing activities for the three months ended September 30,
2008, consisting entirely of $4,092 of purchase of equipment in connection with
the purchase of computer and related hardware.
Ladybug does not have
any credit facilities or other commitments for debt or equity financing. No
assurances can be given that advances when needed will be available. We do not
believe that we need funding to cover current operations because we do not have
a capital intensive business plan and can also use independent contractors to
assist in many projects. We will use funding, if obtained, to cover the salary
of our President and to pay for marketing materials and proposal efforts. We
currently have no formal salary arrangements with Ms. Ramage. While no annual
salary or length of employment has been determined to date, we anticipate
providing an annual salary not to exceed $100,000 commencing after the
successful completion of several engagements. The salary will be paid out of
revenues, if any, or accrued if sufficient cash is not available to make
payments.
The accrual will begin after we generate annual revenue of at
least $100,000 per year.
We may seek private
capital at some time in the future. Such funding, which we anticipate would not
exceed $100,000, will, if obtained, be used to pay salaries and for the
production of marketing materials. However, we will conduct operations and seek
client engagements even if no funding is obtained. The private capital will be
sought from former business associates of our President or private investors
referred to us by those associates. If a market for our shares ever develops, of
which there can be no assurances and which is unlikely in the foreseeable
future, we will use shares to compensate employees/consultants wherever
possible. To date, we have not sought any funding source and have not
authorized any person or entity to seek out funding on our behalf.
We are subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended and as such will incur ongoing expenses associated with professional
fees for accounting, legal and a host of other expenses for annual reports and
proxy statements. We estimate that these costs may range up to $50,000 per year
for the next few years and will be higher if our business volume and activity
increases but lower during the first year of being public because our overall
business volume will be lower, and we will not yet be subject to the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. These
obligations will reduce our ability and resources to fund other aspects of our
business. We hope to be able to use our status as a public company to increase
our ability to use noncash means of settling obligations and compensating
independent contractors who provide services for us, although there can be no
assurances that we will be successful in any of those efforts. We will reduce
the compensation levels paid to management if there is insufficient cash
generated from operations to satisfy these costs.
9
To meet commitments that become due more than 12 months in the
future, we will have to obtain engagements in sufficient number and at
sufficient levels of profitability, of which there can be no assurance. There
does not currently appear to be any other viable source of long-term financing
except that management may consider various sources of debt and/or equity
financing if the same financing can be obtained on terms deemed reasonable to
management.
Recently Issued Accounting
Pronouncements
Pursuant to Section 404
of the Sarbanes-Oxley Act of 2002 and Final Rule Release 33-8934, commencing
with our annual report for the fiscal year ending June 30, 2010, we will be
required to include a report of management on our internal control over
financial reporting. The internal control report must include a statement
§
of managements
responsibility for establishing and maintaining adequate internal control over
our financial reporting;
§
of managements
assessment of the effectiveness of our internal control over financial reporting
as of year end;
§
of the framework used
by management to evaluate the effectiveness of our internal control over
financial reporting; and
Furthermore, for the
fiscal year ended June 30, 2010, the Company is required to file the auditors
attestation report separately on the Companys internal control over financial
reporting on whether it believes that the Company has maintained, in all
material respects, effective internal control over financial reporting.
In December 2007, the
FASB issued FASB Statement No. 141 (Revised 2007),
Business Combinations
(SFAS No. 141(R)), which requires the Company to record fair value estimates
of contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under
Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
purchase accounting. SFAS No. 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, except for the presentation and disclosure requirements, which shall
be applied retrospectively for all periods presented. The Company will adopt
this standard at the beginning of the Companys fiscal year ending June 30, 2009
for all prospective business acquisitions. The Company has not determined the
effect that the adoption of SFAS No. 141(R) will have on its financial
statements.
In December 2007, the
FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated
Financial Statements - an amendment of ARB No. 51
(SFAS No. 160), which
causes non-controlling interests in subsidiaries to be included in the equity
section of the balance sheet. SFAS No. 160 applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, except for the presentation and disclosure requirements, which shall
be applied retrospectively for all periods presented. The Company will
adopt this standard at the beginning of the Companys fiscal year ending June
30, 2010 for all prospective business acquisitions. The Company has
not determined the effect that the adoption of SFAS No. 160 will have on its
consolidated financial statements.
In March 2008, the FASB
issued FASB Statement No. 161,
Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133
(SFAS No. 161),
which changes the disclosure requirements for derivative instruments and hedging
activities. Pursuant to SFAS No.161, entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 with early application encouraged. SFAS No.
161 encourages but does not require disclosures for earlier periods presented
for comparative purposes at initial adoption. In years after initial
adoption, this Statement requires comparative disclosures only for periods
subsequent to initial adoption. We do not expect the adoption of SFAS No.
161 to have a material impact on our financial results.
10
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on our financial
statements upon adoption.
Critical Accounting Policies
The preparation of
financial statements and related notes requires us to make judgments, estimates,
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is
considered to be critical if it requires an accounting estimate to be made based
on assumptions about matters that are highly uncertain at the time the estimate
is made, and if different estimates that reasonably could have been used, or
changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact the financial statements.
Financial Reporting
Release No. 60 requires all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial
statements. There are no critical policies or decisions that rely on
judgments that are based on assumptions about matters that are highly uncertain
at the time the estimate is made. Note 2
to the financial
statements, included in our Registration Statement that was declared effective
on September 19, 2008, includes a summary of the significant accounting policies
and methods used in the preparation of our financial statements.
Seasonality
We do not yet have a basis to determine
whether our business will be seasonal.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K, obligations under any guarantee contracts or contingent
obligations. We also have no other commitments, other than the costs of being a
public company that will increase our operating costs or cash requirements in
the future.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Pursuant to Item 305(e)
of Regulation S-K (§ 229.305(e)), the Company is not required to provide the
information required by this Item as it is a smaller reporting company, as
defined by Rule 229.10(f)(1).
ITEM 4
CONTROLS AND PROCEDURES
(a)
Evaluation of
Disclosure Controls and Procedures.
An evaluation was
carried out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO") (in this case the same person), of the effectiveness of the
Company's disclosure controls and procedures as of September 30, 2008. Based on
that evaluation, the CEO/CFO has concluded that the Company's disclosure
controls and procedures are effective to provide reasonable assurance that: (i)
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is accumulated and
communicated to the Company's management, including the CEO/CFO, as appropriate
to allow timely decisions regarding required disclosure by the Company; and (ii)
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
11
(b)
Changes in Internal Controls.
During the quarter ended
September 30, 2008, there were no changes in the Company's internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, its internal control over financial reporting.
PART IIOTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
From time to time, we
may become party to litigation or other legal proceedings that we consider to be
a part of the ordinary course of our business. We are not currently involved in
legal proceedings that could reasonably be expected to have a material adverse
effect on our business, prospects, financial condition or results of operations.
We may become involved in material legal proceedings in the future.
ITEM 1A
RISK FACTORS
You should be aware that
there are various risks to an investment in our common stock. You should
carefully consider these risk factors, together with all of the other
information included in this Report, before you decide to invest in shares of
our common stock.
If any of the following
risks develop into actual events, then our business, financial condition,
results of operations and/or prospects could be materially adversely affected.
If that happens, the market price of our common stock, if any, could decline,
and investors may lose all or part of their investment.
Risks Related to the
Business
Ladybug has a very limited operating
history and anticipates generating losses for the foreseeable
future.
Ladybug was formed in
November 2007. Therefore, we have insufficient operating history upon which an
evaluation of our future performance and prospects can be made. Ladybugs future
prospects must be considered in light of the risks, expenses, delays, problems
and difficulties frequently encountered in the establishment of a new business.
An investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies operating in new and competitive
markets such as ours. These risks include:
·
competition from
entities that are much more established and have greater financial and technical
resources than do we;
·
the need to develop
corporate infrastructure;
·
the ability to access
and obtain capital when required; and
·
the dependence upon key
personnel.
Ladybug cannot be
certain that its business strategy will be successful or that it will ever have
profitable business activities or generate sustainable revenues. Furthermore,
Ladybug believes that it is probable that it will incur operating losses and
negative cash flow for the foreseeable future.
12
Ladybug
has no financial resources, and its independent registered auditors report
includes an explanatory paragraph stating that there is substantial doubt about
its ability to continue as a going concern
.
Ladybug has very limited
financial resources and an accumulated deficit of $33,060 at September 30, 2008.
Our independent registered auditors included an explanatory paragraph in their
opinion on Ladybugs financial statements as of June 30, 2008 that states that
this lack of resources causes substantial doubt about our ability to continue as
a going concern. No assurances can be given that we will generate sufficient
revenue or obtain necessary financing to continue as a going concern.
Ladybug is and will continue to be
completely dependent on the services of its President, Molly S. Ramage, and its
Vice President, Stephen H. Ramage, the loss of whose services would likely cause
its business operations to cease.
Ladybugs current
business strategy is completely dependent upon the knowledge, reputation and
business contacts of Molly S. Ramage, its President, and Stephen H. Ramage, its
Vice President. Ms. Ramage spends approximately 30 hours per week on Company
matters and Stephen Ramage spends approximately 10 hours per week on Company
matters. If we were to lose the services of either one or both, it is unlikely
that we would be able to continue conducting our business plan even if some
financing is obtained.
Our Chief Executive
Officer, Molly S. Ramage, is principally responsible for the execution of our
business. She is under no contractual obligation to remain employed by us. If
she should choose to leave us for any reason before we have hired qualified
additional personnel, our operations are likely to fail. Even if we are able to
find additional personnel, it is uncertain whether we could find someone who
could develop our business along the lines with our business plan. We will fail
without Ms. Ramage or an appropriate replacement(s).
We depend on a very limited number of
customers.
During the three months
ended September 30, 2008, the Company derived 92.1% of its revenues from three
companies, BFFS (13.1%), Cohort Investments (27.7%) and VOF (51.3%). These
customers were introduced by and indirectly related to a minority shareholder of
the Company. The work done for VOF related to a politically oriented website and
is not expected to result in recurring engagements. We do not have
long-term agreements with any of customer and cannot predict the likelihood of
getting additional engagements from them.
We operate in a highly competitive
industry with low barriers to entry, and we may be unable to compete
successfully against existing or new competitors.
The Web applications
markets are highly competitive and have low barriers of entry, which could
hinder our ability to successfully market our products and services. We may not
have the resources, expertise or other competitive factors to compete
successfully in the future. Because there are few substantial barriers to entry,
we expect that we will face additional competition from existing competitors and
new market entrants in the future. Some of these competitors are part-time
contractors willing to provide services at low rates to enter the industry or
earn extra money. On the other hand, many of our current and potential
competitors have greater name recognition and more established relationships in
the industry and greater resources. As a result, these competitors may be able
to:
·
Develop and expand
their network infrastructures and service offerings more rapidly;
·
Adapt to new or
emerging technologies and changes in customer requirements more quickly; and
·
Devote greater
resources to the marketing and sale of their services and adopt more aggressive
pricing policies than we can.
Current and potential
competitors in the market include Web hosting service providers, applications
hosting providers, Internet service providers, telecommunications companies,
large information technology firms and computer hardware suppliers.
13
Our
success depends on our ability to maintain our professional reputation and name.
If we are unable to do so, our business would be significantly and negatively
impacted.
We depend on our overall
reputation and name recognition to secure new engagements. We expect to obtain
and are likely to continue obtaining many of our new engagements from existing
clients or from referrals by those clients. A client who is dissatisfied with
our work can adversely affect our ability to secure new engagements. If any
factor hurts our reputation, including poor performance, we may experience
difficulties in competing successfully for new engagements. Failure to maintain
our professional reputation and brand name could seriously harm our business,
financial condition and results of operations.
We currently are likely to complete a
limited number of engagements in a year. Our revenues and operating results will
fluctuate significantly from quarter to quarter, which may cause our stock
price, if one exists, to decline.
Our current limited sources of resources
permit us to perform a limited number of engagements in any one financial
reporting period. Performance of a small number of engagements in any one
financial reporting quarter compared with the number of engagements performed in
other surrounding periods will have a significant percentage impact on that
quarter compared to the other quarters. As a result of these and other factors,
we believe that period-to-period comparisons of our operating results will not
be meaningful in the short term and that you should not rely upon our
performance in a particular period as an indication of our performance in any
future period.
We are subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, and
will incur audit fees and legal fees in connection with the preparation of such
reports. These additional costs could reduce or eliminate our ability to
earn a profit.
We are required to file
periodic reports with the Securities and Exchange Commission (the SEC)
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder. In order to comply with these requirements,
our independent registered public accounting firm has to review our financial
statements on a quarterly basis and audit our financial statements on an annual
basis. Moreover, our legal counsel has to review and assist in the preparation
of such reports. The costs charged by these professionals for such services
cannot be accurately predicted because factors such as the number and type of
transactions that we engage in and the complexity of our reports cannot be
determined at this time and will have a major affect on the amount of time to be
spent by our auditors and attorneys. However, the incurrence of such costs will
obviously be an expense to our operations and thus have a negative effect on our
ability to meet our overhead requirements and earn a profit. We may be exposed
to potential risks resulting from new requirements under Section 404 of the
Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or
prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and the trading
price of our common stock, if a market ever develops, could drop
significantly.
Pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, we will be required,
beginning with our fiscal year ending June 30, 2010, to include in our annual
report our assessment of the effectiveness of our internal control over
financial reporting as of the end of the fiscal year ended June 30, 2010.
Furthermore, in the following fiscal year, our independent registered public
accounting firm will be required to report separately on whether it believes
that we have maintained, in all material respects, effective internal control
over financial reporting. We have not yet completed our assessment of the
effectiveness of our internal control over financial reporting. We expect to
incur additional expenses and diversion of managements time as a result of
performing the system and process evaluation, testing and remediation required
in order to comply with the management certification and auditor attestation
requirements.
14
We currently have only three employees. We may be unable to afford
the cost of increasing our staff or engaging outside consultants or
professionals to overcome our lack of employees. During the course of our
testing, we may identify other deficiencies that we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance
with the requirements of Section 404. In addition, if we fail to achieve and
maintain adequate internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Moreover, effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial reports and are
important to help prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating results could be
harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock, if a market ever develops, could drop
significantly.
Molly S. Ramage, our Chief Executive
Officer, and Benjamin Ramage, our Chief Financial Officer, have no meaningful
accounting or financial reporting education or experience and, accordingly, our
ability to meet Exchange Act reporting requirements on a timely basis will be
dependent to a significant degree upon others.
Molly S. Ramage, our
Chief Executive Officer and chief accounting officer, and Benjamin Ramage, our
Chief Financial Officer, have no meaningful financial reporting education or
experience. They are heavily dependent on advisors and consultants. As such,
there is risk about our ability to comply with all financial reporting
requirements accurately and on a timely basis.
Having only three Directors limits
our ability to establish effective independent corporate governance procedures
and increases the control of our President/Director.
We have only three
Directors, Molly Ramage, Stephen Ramage and Benjamin Ramage, who are also
executive officers. Further, Molly Ramage and Stephen Ramage are married
to each other, and Benjamin Ramage is their son. Accordingly, we cannot
establish Board committees comprised of independent members to oversee functions
like compensation or audit issues. In addition, a tie vote of Board members is
decided in favor of the Chairman, Molly Ramage, which gives her significant
control over all corporate issues.
Until we have a larger
Board of Directors that would include some independent members, if ever, there
will be limited oversight of our Presidents decisions and activities and little
ability for minority shareholders to challenge or reverse those activities and
decisions, even if they are not in the best interests of minority
shareholders.
Risks Related to Our Common
Stock
Shareholders may be diluted
significantly through our efforts to obtain financing and satisfy obligations
through the issuance of additional shares of our common stock.
We have no committed
source of financing. Wherever possible, our Board of Directors will attempt to
use non-cash consideration to satisfy obligations. In many instances, we believe
that the non-cash consideration will consist of restricted shares of our common
stock. Our Board of Directors has authority, without action or vote of the
shareholders, to issue all or part of the authorized but unissued common shares.
We have authorized 75,000,000 shares of common stock, and as of October 24,
2008, 63,680,000 shares remain unissued. In addition, if a trading market
develops for our common stock, we may attempt to raise capital by selling shares
of our common stock, possibly at a discount to market. These actions will result
in dilution of the ownership interests of existing shareholders, may further
dilute common stock book value, and that dilution may be material. Such
issuances may also serve to enhance existing managements ability to maintain
control of Ladybug
because the shares may be issued to parties or
entities committed to supporting existing management.
15
Our
Articles of Incorporation provide for indemnification of officers and Directors
at our expense and limit their liability. These provisions may result in a major
cost to us and hurt the interests of our shareholders because corporate
resources may be expended for the benefit of officers and/or Directors.
Our Articles of
Incorporation and applicable Nevada law provide for the indemnification of our
Directors, officers, employees, and agents, under certain circumstances, against
attorney's fees and other expenses incurred by them in any litigation to which
they become a party arising from their association with or activities on our
behalf. We will also bear the expenses of such litigation for any of our
Directors, officers, employees, or agents, upon such person's written promise to
repay us even if it is ultimately determined that any such person shall not have
been entitled to indemnification. This indemnification policy could result in
substantial expenditures by us that we may be unable to recoup.
We have been advised
that, in the opinion of the SEC, indemnification for liabilities arising under
federal securities laws is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification for liabilities arising under federal securities laws, other
than the payment by us of expenses incurred or paid by a Director, officer or
controlling person in the successful defense of any action, suit or proceeding,
is asserted by a Director, officer or controlling person in connection with the
securities being registered, we will (unless in the opinion of our counsel, the
matter has been settled by controlling precedent) submit to a court of
appropriate jurisdiction, the question whether indemnification by us is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue. The legal process relating to this matter if
it were to occur is likely to be very costly and may result in us receiving
negative publicity, either
of which factors is likely to materially
reduce the market and price for our shares, if such a market ever develops.
Currently, there is no established
public market for our securities, and there can be no assurances that any
established public market will ever develop or that our common stock will be
quoted for trading, and even if quoted, it is likely to be subject to
significant price fluctuations.
There has not been any
established trading market for our common stock. A market maker has filed a Form
15c2-11 with the Financial Industry Regulatory Authority ("FINRA") on our behalf
so that the shares of our common stock may be quoted on the Over-the-Counter
Bulletin Board (OTCBB) commencing sometime in the future. There can be no
assurance that we will be able to clear FINRA comments to obtain a trading
symbol on the OTCBB nor can we estimate as to the time period of this process.
If the Form 15c2-11 is accepted and we clear FINRA comments, there can be no
assurances as to whether:
1.
any market for our
shares will develop;
2.
the prices at which our
common stock will trade; or
3.
the extent to which
investor interest in us will lead to the development of an active, liquid
trading market. Active trading markets generally result in lower price
volatility and more efficient execution of buy and sell orders for
investors.
In addition, in the
event a market develops, our common stock is unlikely to be followed by any
market analysts, and there may be few institutions acting as market makers for
our common stock. Either of these factors could adversely affect the liquidity
and trading price of our common stock. Until an orderly market develops in our
common stock, if ever, the price at which it trades is likely to fluctuate
significantly. Prices for our common stock will be determined in the marketplace
and may be influenced by many factors, including the depth and liquidity of the
market for shares of our common stock, developments affecting our business,
including the impact of the factors referred to elsewhere in these Risk Factors,
investor perception of us
and general economic and market
conditions. No assurances can be given that an orderly or liquid market will
ever develop for the shares of our common stock.
Because of the
anticipated low price of the securities being registered, many brokerage firms
may not be willing to effect transactions in these securities. Purchasers
of our securities should be aware that any market that develops in our stock
will be subject to the penny stock restrictions.
16
Any market
that develops in shares of our common stock will be subject to the penny stock
regulations and restrictions pertaining to low priced stocks that will create a
lack of liquidity and make trading difficult or impossible.
The trading of our
securities, if any, will likely be on the OTCBB as maintained by FINRA. As a
result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the price of our securities.
Rule 3a51-1 of the
Securities Exchange Act of 1934 establishes the definition of a "penny stock,"
for purposes relevant to us, as any equity security that has a minimum bid price
of less than $4.00 per share or with an exercise price of less than $4.00 per
share, subject to a limited number of exceptions which are not available to us.
It is likely that our shares will be considered to be penny stocks for the
immediately foreseeable future. This classification severely and adversely
affects any market liquidity for our common stock.
For any transaction
involving a penny stock, unless exempt, the penny stock rules require that a
broker or dealer approve a person's account for transactions in penny stocks and
the broker or dealer receive from the investor a written agreement to the
transaction setting forth the identity and quantity of the penny stock to be
purchased. In order to approve a person's account for transactions in
penny stocks, the broker or dealer must obtain financial information and
investment experience and objectives of the person and make a reasonable
determination that the transactions in penny stocks are suitable for that person
and that that person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure
schedule prepared by the SEC relating to the penny stock market, which, in
highlight form, sets forth:
·
the basis on which the
broker or dealer made the suitability determination, and
·
that the broker or
dealer received a signed, written agreement from the investor prior to the
transaction.
Disclosure also has to
be made about the risks of investing in penny stock in both public offerings and
in secondary trading and commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
Because of these
regulations, broker-dealers may not wish to engage in the above-referenced
necessary paperwork and disclosures and/or may encounter difficulties in their
attempt to sell shares of our common stock, which may affect the ability of
selling shareholders or other holders to sell their shares in any secondary
market. Our common stocks penny stock status may also have the effect of
reducing the level of trading activity in any secondary market. These additional
sales practice and disclosure requirements could impede the sale of our
securities, if and when our securities become publicly traded. In addition, the
liquidity for our securities may decrease, with a corresponding decrease in the
price of our securities. Our shares, in all probability, if they trade at all,
will be subject to such penny stock rules for the foreseeable future, and our
shareholders will, in all likelihood, find it difficult to sell their
securities.
The market for penny stocks has
experienced numerous frauds and abuses that could adversely impact investors in
our stock.
Company management
believes that the market for penny stocks has suffered from patterns of fraud
and abuse. Such patterns include:
·
Control of the market
for the security by one or a few broker-dealers that are often related to the
promoter or issuer;
·
Manipulation of prices
through prearranged matching of purchases and sales and false and misleading
press releases;
17
·
"Boiler room" practices
involving high pressure sales tactics and unrealistic price projections by sales
persons;
·
Excessive and
undisclosed bid-ask differentials and markups by selling broker-dealers; and
·
Wholesale dumping of
the same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the inevitable collapse of those
prices with consequent investor losses.
State securities laws may limit
secondary trading, which may restrict the states in which and conditions under
which you can sell shares.
Secondary trading in our
common stock will not be possible in any state until the common stock is
qualified for sale under the applicable securities laws of the state or there is
confirmation that an exemption, such as listing in certain recognized securities
manuals, is available for secondary trading in the state. If we fail to register
or qualify, or to obtain or verify an exemption for the secondary trading of,
the common stock in any particular state, the common stock could not be offered
or sold to, or purchased by, a resident of that state. In the event that a
significant number of states refuse to permit secondary trading in our common
stock, the liquidity for the common stock could be significantly impacted.
The ability of our President and
majority shareholders to control our business may limit or eliminate minority
shareholders ability to influence corporate affairs.
Our President and four
other principal shareholders beneficially own 95.76% of our outstanding common
stock. Because of this level of beneficial stock ownership, our President and
four other principal shareholders will be in a position to continue to elect our
Board of Directors, decide all matters requiring stockholder approval and
determine our policies. The interests of our President and four other principal
shareholders may differ from the interests of other shareholders with respect to
the issuance of shares, business transactions with or sales to other companies,
selection of officers and Directors and other business decisions. The minority
shareholders would have no way of overriding decisions made by our President and
three other principal shareholders. This level of control may also have an
adverse impact on the market value of our shares because our President and three
other principal stockholders may institute or undertake transactions, policies
or programs that result in losses, may not take any steps to increase our
visibility in the financial community and
/
or may sell sufficient numbers
of shares to significantly decrease our price per share.
Future sales of common stock by our
existing shareholders could adversely affect our stock price.
As of October 24, 2008,
Ladybug has 11,320,000 issued and outstanding shares of common stock. Sales of
substantial amounts of common stock in the public market, or the perception that
such sales will occur, could have a materially negative effect on the market
price of our common stock if a market ever develops. This problem would be
exacerbated if we issue common stock in exchange for services.
We do not expect to pay cash
dividends in the foreseeable future
We have never paid cash
dividends on our common stock. We do not expect to pay cash dividends on our
common stock at any time in the foreseeable future. The future payment of
dividends directly depends upon our future earnings, capital requirements,
financial requirements and other factors that our Board of Directors will
consider. Since we do not anticipate paying cash dividends on our common stock,
return on your investment, if any, will depend solely on an increase, if any, in
the market value of our common stock.
18
Because we
are not subject to compliance with rules requiring the adoption of certain
corporate governance measures, our stockholders have limited protections against
interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act
of 2002, as well as rule changes proposed and enacted by the SEC, the New York
and American Stock Exchanges and the Nasdaq Stock Market, as a result of
Sarbanes-Oxley, require the implementation of various measures relating to
corporate governance. These measures are designed to enhance the integrity of
corporate management and the securities markets and apply to securities that are
listed on those exchanges or the Nasdaq Stock Market. Because we are not
presently required to comply with many of the corporate governance provisions
and because we chose to avoid incurring the substantial additional costs
associated with such compliance any sooner than legally required, we have not
yet adopted these measures.
Because our Directors
are not independent directors, we do not currently have independent audit or
compensation committees. As a result, our Directors have the ability to, among
other things; determine their own level of compensation. Until we comply with
such corporate governance measures, regardless of whether such compliance is
required, the absence of such standards of corporate governance may leave our
stockholders without protections against interested director transactions,
conflicts of interest, if any, and similar matters and any potential investors
may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with
all corporate governance measures relating to director independence as and when
required. However, we may find it very difficult or be unable to attract and
retain qualified officers, Directors and members of board committees required to
provide for our effective management as a result of the Sarbanes-Oxley Act of
2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series
of rules and regulations by the SEC that increase responsibilities and
liabilities of directors and executive officers. The perceived increased
personal risk associated with these recent changes may make it more costly or
deter qualified individuals from accepting these roles.
If our shares are quoted on the
over-the-counter bulletin board, we will be required to remain current in our
filings with the SEC and our securities will not be eligible for quotation if we
are not current in our filings with the SEC.
In the event that our
shares are quoted on the OTCBB, we will be required to remain current in
our filings with the SEC in order for shares of our common stock to remain
eligible for quotation on the OTCBB. In the event that we become delinquent in
our required quarterly and annual filings with the SEC, quotation of our common
stock will be terminated following a 30 day grace period if we do not make our
required filing during that time. If our shares are not eligible for quotation
on the OTCBB, investors in our common stock may find it difficult to sell their
shares.
You may have limited access to
information regarding our business because our obligations to file periodic
reports with the SEC could be automatically suspended under certain
circumstances.
As of effectiveness of
our Registration Statement, September 19, 2008, we are required to file periodic
reports with the SEC which are immediately available to the public for
inspection and copying. Except during the year that our Registration Statement
became effective, these reporting obligations may (in our discretion) be
automatically suspended under Section 15(d) of the Securities Exchange Act of
1934 if we have less than 300 shareholders. If this occurs after the year in
which our Registration Statement became effective, we will no longer be
obligated to file periodic reports with the SEC and your access to our business
information would then be even more restricted. Although we are currently
required to deliver periodic reports to security holders, we will not be
required to furnish proxy statements to security holders and our Directors,
officers and principal beneficial owners will not be required to report their
beneficial ownership of securities to the SEC pursuant to Section 16 of the
Securities Exchange Act of 1934 until we have both 500 or more security holders
and greater than $10 million in assets. This means that your access to
information regarding our business will be limited.
For all of the
foregoing reasons and others set forth herein, an investment in our securities
involves a high degree of risk.
19
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
None.
ITEM 3
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
ITEM 5
OTHER INFORMATION
None.
ITEM 6
EXHIBITS
(a)
Exhibits
|
|
|
Exhibit Number
|
|
Description
|
31.1
|
|
Section 302 Certification Of Chief Executive And
Chief Financial Officer
|
|
|
|
32.1
|
|
Certification Pursuant To 18 U.S.C.
Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act
Of 2002 Chief Executive And Chief Financial
Officer
|
(b)
Reports of Form
8-K
None.
20
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Ladybug Resource
Group, Inc.
(Registrant)
/s/ Molly S. Ramage
Molly S. Ramage
Title:
President
(Principal Executive Officer) and
Chief Financial
Officer
(Principal
Financial Officer)
November 7, 2008
21