Notes to Condensed Financial Statements
September 30, 2013
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Eight Dragons Company (Company), formerly known as Tahoe Pacific Corporation, Pacific Holdings, Inc. and Ameri-First Financial Group, respectively, was incorporated in the State of Nevada on September 27, 1996.
On October 24, 2007, the Company changed its state of incorporation from Delaware to Nevada by means of a merger with and into Eight Dragons Company, a Nevada corporation formed on September 26, 2007 solely for the purpose of effecting the reincorporation. The merger was consummated through an exchange of 100 shares in the Nevada corporation for each share then issued and outstanding in the Delaware corporation. The Articles of Incorporation and Bylaws of the Nevada corporation are the Articles of Incorporation and Bylaws of the surviving corporation. Such Articles of Incorporation modified the Company’s capital structure to allow for the issuance of up to 50,000,000 shares of $0.0001 par value common stock and up to 10,000,000 shares of $0.0001 par value preferred stock.
For periods prior to 2000, the Company participated in numerous unsuccessful ventures and corporate name changes, as discussed in greater detail in previous filings with the U. S. Securities and Exchange Commission. Since 2000, the Company has had no operations, significant assets or liabilities.
The Company’s current business plan is to locate and combine with an existing, privately-held company which is profitable or, in management's view, has growth potential, irrespective of the industry in which it is engaged. A combination may be structured as a merger, consolidation, exchange of the Company's common stock for stock or assets or any other form which will result in the combined enterprise's becoming a publicly-held corporation.
NOTE 2 - PREPARATION OF FINANCIAL STATEMENTS
The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has a year-end of December 31.
The preparation of financial statements in conformity 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
NOTE 3 - GOING CONCERN UNCERTAINTY
The Company has no significant assets or operating activity as of September 30, 2013. There are no assurances that the Company will be able to either (1) consummate a business combination transaction with a privately-owned business seeking to become a public company; (2) if successful, achieve a level of revenues adequate to generate sufficient cash flow from operations; or (3) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support the Company's current working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient to support the Company, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not renew its operations.
The Company's ultimate continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.
The Company’s articles of incorporation authorizes the issuance of up to 50,000,000 shares of preferred stock and 100,000,000 shares of common stock. The Company’s ability to issue preferred stock may limit the Company’s ability to obtain debt or equity financing as well as impede potential takeover of the Company, which takeover may be in the best interest of stockholders. The Company’s ability to issue these authorized but unissued securities may also negatively impact our ability to raise additional capital through the sale of our debt or equity securities.
EIGHT DRAGONS COMPANY
Notes to Condensed Financial Statements
September 30, 2013
NOTE 3 - GOING CONCERN UNCERTAINTY - CONTINUED
The Company anticipates future sales of equity securities to facilitate either the consummation of a business combination transaction or to raise working capital to support and preserve the integrity of the corporate entity. However, there is no assurance that the Company will be able to obtain additional funding through the sales of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.
It is the belief of management and significant stockholders that they will provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or significant stockholders to provide additional future funding. Further, the Company is at the mercy of future economic trends and business operations for the Company’s majority stockholder to have the resources available to support the Company. Should this pledge fail to provide financing, the Company has not identified any alternative sources.
If no additional operating capital is received during the next twelve months, the Company will be forced to rely on existing cash in the bank and upon additional funds loaned by management and/or significant stockholders to preserve the integrity of the corporate entity at this time. In the event, the Company is unable to acquire advances from management and/or significant stockholders, the Company’s ongoing operations would be negatively impacted. While the Company is of the opinion that good faith estimates of the Company’s ability to secure additional capital in the future to reach our goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement any future business plan steps.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.
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Cash and cash equivalents
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For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
The Company files income tax returns in the United States of America and may file, as applicable and appropriate, various state(s). With few exceptions, the Company is no longer subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for years ending prior to December 31, 2009. The Company does not anticipate any examinations of returns filed after December 31, 2009.
The Company uses the asset and liability method of accounting for income taxes. At September 30, 2013 and December 31, 2012, respectively, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences generally represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals.
The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of management’s acceptance of potentially uncertain positions for income tax treatment on a “more-likely-than-not” probability of an assessment upon examination by a respective taxing authority. As a result of the implementation of Codification’s Income Tax Topic, the Company did not incur any liability for unrecognized tax benefits.
EIGHT DRAGONS COMPANY
Notes to Condensed Financial Statements
September 30, 2013
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
3.
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Earnings (loss) per share
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Basic earnings (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements.
Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants).
Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income (loss) position at the calculation date.
As of September 30, 2013 and December 31, 2012, and subsequent thereto, the Company had no outstanding common stock equivalents.
4.
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Recent Accounting Pronouncements
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The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flows.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.
Interest rate risk is the risk that the Company’s earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company’s earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any.
NOTE 6 - NOTES PAYABLE TO STOCKHOLDER
On August 1, 2002, the Company issued a $740,000 note to Wilkerson Consulting, Inc. (Wilkerson) as compensation to replace a guarantee related to a former officer's debt. This note was unsecured and bore interest at 6% on unpaid principal and 10% on matured unpaid principal. The note was payable on demand, or if no demand was made, the entire principal amount and all accrued interest was due and payable on July 31, 2006. On January 18, 2005, the Company and Wilkerson entered into a Debt and Stock Purchase Agreement with Glenn A. Little (Little) pursuant to which Little agreed to purchase the $740,000 in outstanding debt against the Company and to purchase certain common stock of the Company owned by Wilkerson for total cash consideration of $60,000. The note matured on July 31, 2006 and no demand for payment has been made by Mr. Little.
The Company and its controlling stockholder and sole officer, Glenn A. Little, have acknowledged that outside funds are necessary to support the corporate entity and comply with the periodic reporting requirements of the Securities Exchange Act of 1934, as amended. Accordingly, Mr. Little agreed to lend the Company up to $50,000 with a maturity period not to exceed two (2) years from the initial funding date at an interest rate of 6.0% per annum. In May 2005, Mr. Little advanced approximately $50,000 under this agreement, with an initial maturity date in May 2007. During 2007, this agreement was modified to extend the credit limit to $75,000 and the maturity date was extended to December 31, 2008. Through September 30, 2013 and December 31, 2012, an aggregate $143,050 and $134,550 has been advanced under this agreement. This note matured on December 31, 2008 and no demand for payment has been made by Mr. Little. Mr. Little and the Company may elect to renegotiate or extend the maturity date of this note at a future date.
EIGHT DRAGONS COMPANY
Notes to Condensed Financial Statements
September 30, 2013
NOTE 6 - NOTES PAYABLE TO STOCKHOLDER - CONTINUED
The following table is a summary of the notes payable to the Company’s controlling shareholder as of September 30, 2013 and December 31, 2012, respectively:
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September 30,
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December 31,
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2013
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2012
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Unaudited
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|
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|
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|
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Wilkerson note sold to Little
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$
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740,000
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|
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$
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740,000
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Working capital note payable to Little
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|
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143,050
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|
|
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134,550
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|
|
|
|
|
|
|
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Total
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$
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883,050
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|
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$
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874,550
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NOTE 7 - INCOME TAXES
The components of income tax (benefit) expense for each of the nine months ended September 30, 2013 and 2012, are as follows:
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Nine months ended
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September 30,
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2013
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|
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2012
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|
|
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Unaudited
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|
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Unaudited
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Federal:
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|
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|
|
|
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Current
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$
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—
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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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|
|
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—
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State:
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Current
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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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—
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|
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Total
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$
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—
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|
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$
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—
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As of September 30, 2013, the Company has a net operating loss carryforward of approximately $784,000 for Federal income tax purposes after taking the effect of change in control in 2005, The amount and availability of any future net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards.
The Company's income tax expense (benefit) for each of the nine months ended September 30, 2013 and 2012, respectively, differed from the statutory federal rate of 34 % as follows:
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Nine months ended
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September 30,
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2013
|
|
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2012
|
|
|
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Unaudited
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|
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Unaudited
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|
|
|
|
|
|
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Statutory rate applied to income before income taxes
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$
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(24,000
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)
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$
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(17,000
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)
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Increase (decrease) in income taxes resulting from:
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State income taxes
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|
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—
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Other, including reserve for deferred tax asset
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|
|
|
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and application of net operating loss carryforward
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24,000
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17,000
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|
|
|
|
|
|
|
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Income tax expense
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$
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—
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|
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$
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—
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|
EIGHT DRAGONS COMPANY
Notes to Condensed Financial Statements
September 30, 2013
NOTE 7 - INCOME TAXES - CONTINUED
Temporary differences, which consist principally of net operating loss carryforwards, statutory deferrals of expenses for organizational costs and statutory differences in the depreciable lives for property and equipment, between the financial statement carrying amounts and tax bases of assets and liabilities give rise to deferred tax assets and/or liabilities, as appropriate. As of September 30, 2013 and December 31, 2012, respectively, the deferred tax asset is as follows:
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September 30,
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|
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December 31,
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|
|
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2013
|
|
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2012
|
|
|
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Unaudited
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|
|
|
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Deferred tax assets
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|
|
|
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Net operating loss carryforwards
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$
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275,000
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$
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251,000
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Less valuation allowance
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(275,000
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)
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(251,000
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)
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|
|
|
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|
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Net Deferred Tax Asset
|
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$
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—
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|
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$
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—
|
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During the nine month periods ended September 30, 2013 and for the year ended December 31, 2012, respectively, the valuation allowance for the deferred tax asset increased by approximately $24,000 and $34,000.
NOTE 8 - SUBSEQUENT EVENTS
Management has evaluated all activity of the Company through the issue date of the financial statements and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to financial statements.
Part I - Item 2