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EX-32.1 - LADYBUG RESOURCE GROUP, INC. | ex32-1.htm |
EX-31.1 - LADYBUG RESOURCE GROUP, INC. | ex31-1.htm |
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, 2009
[
] 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)
Nevada
|
333-153306
|
26-1973389
|
(State
or other jurisdiction of incorporation or organization)
|
(Commission
file number)
|
(IRS
Employer Identification No.)
|
Mitchell
Trace
Ladybug
Resource Group, Inc.
11630
Slater Avenue Northeast, Suite 1A
Kirkland, WA 98034
(Address
of principal executive
offices)
|
Ladybug
Resource Group, Inc.
12703 NE
129th Ct.
#H102
Kirkland, WA
98034-3246
(Former
address of principal executive offices)
425-306-5028
|
(Issuer's
telephone number)
|
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 [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
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 [ ] Accelerated Filer [ ]
Non-Accelerated
Filer [ ] Smaller Reporting Company [X]
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 11,320,000 shares of Common Stock, as of
November 11, 2009.
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
[ ] No [X]
LADYBUG
RESOURCE GROUP, INC.
FORM
10-Q
September
30, 2009
INDEX
PART
I-- FINANCIAL INFORMATION
Page
|
||
Item
1.
|
Financial
Statements
|
F-1
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
3
|
Item
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
8
|
Item
4.
|
Control
and Procedures
|
9
|
PART
II-- OTHER INFORMATION
Item
1
|
Legal
Proceedings
|
10
|
Item
1A
|
Risk
Factors
|
10
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
Item
3.
|
Defaults
Upon Senior Securities
|
20
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
20
|
Item
5.
|
Other
Information
|
20
|
Item
6.
|
Exhibits
|
20
|
PART
I. FINANCIAL INFORMATION
ITEM
1. Financial Information
LADYBUG
RESOURCE GROUP, INC.
Balance
Sheets
September
30, 2009 (Unaudited)
|
June
30, 2009
|
|||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ | 989 | $ | 8,213 | ||||
Accounts
receivable
|
- | 850 | ||||||
Total
Current Assets
|
989 | 9,063 | ||||||
COMPUTER
EQUIPMENT – net of accumulated depreciation of $2,150 and $1,725,
respectively
|
2,961 | 3,386 | ||||||
TOTAL
ASSETS
|
$ | 3,950 | $ | 12,449 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT:
|
||||||||
Accounts
payable and accrued professional fees
|
$ | 82,382 | $ | 74,930 | ||||
Stockholders'
Deficit:
|
||||||||
Preferred
stock: $0.001 par value; 20,000,000 shares authorized; no shares issued
and outstanding
|
- | - | ||||||
Common
stock: $0.001 par value; 300,000,000 shares authorized; 11,320,000 shares
issued and outstanding
|
11,320 | 11,320 | ||||||
Additional
paid-in capital
|
44,820 | 40,320 | ||||||
Accumulated
deficit
|
(134,572 | ) | (114,121 | ) | ||||
Total
Stockholders’ Deficit
|
(78,432 | ) | (62,481 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$ | 3,950 | $ | 12,449 |
See
accompanying notes to the financial statements.
F-1
LADYBUG
RESOURCE GROUP, INC.
Statements
of Operations
(Unaudited)
Three
Months Ended September 30, 2009
|
Three
Months Ended September 30, 2008
|
|||||||
Revenue
|
$ | 3,059 | $ | 24,357 | ||||
Expenses:
|
||||||||
Compensation
|
4,500 | 4,500 | ||||||
Professional
fees
|
14,352 | 1,500 | ||||||
Office
and subcontractor costs
|
4,658 | 33,384 | ||||||
Total
|
23,510 | 39,384 | ||||||
Net
Loss
|
$ | (20,451 | ) | $ | (15,027 | ) | ||
Net
loss per common share – basic and diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted
average number of common shares outstanding - basic and
diluted
|
11,320,000 | 11,320,000 |
See
accompanying notes to the financial statements.
F-2
LADYBUG
RESOURCE GROUP, INC.
Statements
of Cash Flows
(Unaudited)
Three
Months Ended September 30,
2009
|
Three
Months Ended September 30,
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (20,451 | ) | $ | (15,027 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
425 | 500 | ||||||
Contribution
of services
|
4,500 | 4,500 | ||||||
Change
in net operating assets
|
8,302 | (1,894 | ) | |||||
Net
Cash Used in Operating Activities
|
(7,224 | ) | (11,921 | ) | ||||
CASH
FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||
Purchase
of equipment
|
- | (4,092 | ) | |||||
Net
Cash Used in Investing Activities
|
- | (4,092 | ) | |||||
NET
CHANGE IN CASH
|
(7,224 | ) | (16,013 | ) | ||||
CASH
AT BEGINNING OF PERIOD
|
8,213 | 25,181 | ||||||
CASH
AT END OF PERIOD
|
$ | 989 | $ | 9,168 |
See
accompanying notes to the financial statements.
F-3
LADYBUG
RESOURCE GROUP, INC.
September
30, 2009 and 2008
Notes
to Interim Financial Statements
(Unaudited)
NOTE 1 -
ORGANIZATION
Ladybug
Resource Group, Inc. (the “Company”) was incorporated in the State of Nevada on
November 27, 2007. Its business purpose is to assist in the design of websites
and website components that use specific marketing messages or themes to reach
target audiences. Its initial marketing focus is the websites of the funeral
industry in the Seattle, Washington area.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The
accompanying interim financial statements for the three months ended September
30, 2009 and 2008 are unaudited and have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. 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 on
Form 10-K which was filed with the SEC on September 28, 2009.
Use
of Estimates
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.
Fiscal year
end
The
Company elected June 30 as its fiscal year ending date.
Cash
Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
Computer
equipment
Computer
equipment is stated at cost less accumulated depreciation. Depreciation is
provided on the straight-line basis over an estimated useful life of three (3)
years.
Fair
value of financial instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards
Codification for disclosures about fair value of its financial instruments and
paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph
820-10-35-37”) to measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in accounting
principles generally accepted in the United States of America (U.S. GAAP), and
expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and related
disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into
three (3) broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The three
(3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are
described below:
F-4
Level
1
|
Quoted
market prices available in active markets for identical assets or
liabilities as of the reporting date.
|
|
Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the reporting
date.
|
|
Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market
data.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as
cash, accounts payable and accrued expenses, approximate their fair values
because of the short maturity of these instruments.
The
Company does not have any assets or liabilities measured at fair value on a
recurring or a non-recurring basis, consequently, the Company did not have any
fair value adjustments for assets and liabilities measured at fair value at
September 30, 2009 or 2008, nor gains or losses are reported in the statement of
operations that are attributable to the change in unrealized gains or losses
relating to those assets and liabilities still held at the reporting date for
the interim period ended September 30, 2009 or 2008.
Revenue
Recognition
The
Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards
Codification for revenue recognition. The Company recognizes revenue
when it is realized or realizable and earned. The Company considers
revenue realized or realizable and earned when all of the following criteria are
met: (i) persuasive evidence of an arrangement exists, (ii) the product has been
shipped or the services have been rendered to the customer, (iii) the sales
price is fixed or determinable, and (iv) collectability is reasonably
assured.
Income
Taxes
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting
Standards Codification. Deferred income tax assets and liabilities
are determined based upon differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance to
the extent management concludes it is more likely than not that the assets will
not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the statements of operations in the period that includes the
enactment date.
The
Company adopted section 740-10-25 of the FASB Accounting Standards Codification
(“Section 740-10-25”). Section 740-10-25 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should
be recorded in the financial statements. Under Section 740-10-25, the
Company may recognize the tax benefit from an uncertain tax position only if it
is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than fifty percent (50%) likelihood of being realized upon ultimate
settlement. Section 740-10-25 also provides guidance on
de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. The
Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of Section 740-10-25.
F-5
Net
Loss per Common Share
Net loss
per common share is computed pursuant to section 260-10-45 of the FASB
Accounting Standards Codification. Basic net loss per share is
computed by dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Diluted net loss per share is
computed by dividing net loss by the weighted average number of shares of common
stock and potentially outstanding shares of common stock during each
period. There were no potentially dilutive shares outstanding as of
September 30, 2009 or 2008.
Recently
Issued Accounting Standards
In June
2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC
Release No. 33-9072 on October 13, 2009. Commencing with its annual
report for the fiscal year ending June 30, 2010, the Company will be required to
include a report of management on its internal control over financial reporting.
The internal control report must include a statement of
management’s responsibility for establishing and maintaining adequate internal
control over its financial reporting; of
management’s assessment of the effectiveness of its internal control over
financial reporting as of year end; and of the
framework used by management to evaluate the effectiveness of the Company’s
internal control over financial reporting.
Furthermore,
it is required to file the auditor’s attestation report separately on the
Company’s 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
June 2009, the FASB approved the “FASB Accounting Standards Codification”
(the “Codification”) as the single source of authoritative nongovernmental U.S.
GAAP to be launched on July 1, 2009. The Codification does not
change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. All existing accounting standard
documents will be superseded and all other accounting literature not included in
the Codification will be considered non-authoritative. The Codification is
effective for interim and annual periods ending after September 15,
2009. The adoption did not have a material impact on the Company’s
financial position, results of operations or cash flows.
In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-04 “Accounting for
Redeemable Equity Instruments - Amendment to Section 480-10-S99” which
represents an update to section 480-10-S99, distinguishing liabilities from
equity, per EITF Topic D-98, Classification and Measurement of
Redeemable Securities. The Company does not expect the
adoption of this update to have a material impact on its consolidated financial
position, results of operations or cash flows.
In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-05 “Fair Value
Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair
Value”, which provides amendments to subtopic 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. This “Update” provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques: 1. A valuation technique that
uses: a. The quoted price of the identical liability when traded as an asset and
b. Quoted prices for similar liabilities or similar liabilities when traded as
assets; and/or 2. Another valuation technique that is consistent with the
principles of topic 820; two examples would be an income approach, such as a
present value technique, or a market approach, such as a technique that is based
on the amount at the measurement date that the reporting entity would pay to
transfer the identical liability or would receive to enter into the identical
liability. The amendments in this Update also clarify that when estimating the
fair value of a liability, a reporting entity is not required to include a
separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability. The amendments in this
Update also clarify that both a quoted price in an active market for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements. The Company does not expect the adoption of this update
to have a material impact on its consolidated financial position, results of
operations or cash flows.
F-6
In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-08 “Earnings Per Share –
Amendments to Section 260-10-S99”,which represents technical corrections
to topic 260-10-S99, Earnings per share, based on EITF Topic D-53, Computation of Earnings Per Share
for a Period that includes a Redemption or an Induced Conversion of a Portion of
a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock. The Company does not expect the adoption of this update to have a
material impact on its consolidated financial position, results of operations or
cash flows.
In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-09 “Accounting for
Investments-Equity Method and Joint Ventures and Accounting for Equity-Based
Payments to Non-Employees”. This Update represents a
correction to Section 323-10-S99-4, Accounting by an Investor for
Stock-Based Compensation Granted to Employees of an Equity Method
Investee. Additionally, it adds observer comment Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees
to the Codification. The Company does not expect the adoption to have a material
impact on its consolidated financial position, results of operations or cash
flows.
In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-12 “Fair Value
Measurements and Disclosures Topic 820 – Investment in Certain Entities That
Calculate Net Assets Value Per Share (or Its Equivalent)”, which provides
amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall,
for the fair value measurement of investments in certain entities that calculate
net asset value per share (or its equivalent). The amendments in this Update
permit, as a practical expedient, a reporting entity to measure the fair value
of an investment that is within the scope of the amendments in this Update on
the basis of the net asset value per share of the investment (or its equivalent)
if the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of Topic 946 as of the
reporting entity’s measurement date, including measurement of all or
substantially all of the underlying investments of the investee in accordance
with Topic 820. The amendments in this Update also require disclosures by major
category of investment about the attributes of investments within the scope of
the amendments in this Update, such as the nature of any restrictions on the
investor’s ability to redeem its investments at the measurement date, any
unfunded commitments (for example, a contractual commitment by the investor to
invest a specified amount of additional capital at a future date to fund
investments that will be made by the investee), and the investment strategies of
the investees. The major category of investment is required to be determined on
the basis of the nature and risks of the investment in a manner consistent with
the guidance for major security types in U.S. GAAP on investments in debt and
equity securities in paragraph 320-10-50-1B. The disclosures are required for
all investments within the scope of the amendments in this Update regardless of
whether the fair value of the investment is measured using the practical
expedient. The Company does not expect the adoption to have a material impact on
its consolidated financial position, results of operations or cash
flows.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
F-7
NOTE 3 -
GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As reflected in the accompanying
financial statements, the Company had an accumulated deficit of $134,572 at
September 30, 2009, a net loss from operations of $20,451 and net cash used in
operations of $7,224 for the interim period ended September 30, 2009,
respectively.
While the
Company is attempting to generate sufficient revenues, the Company’s cash
position may not be enough to support the Company’s daily
operations. The Company intends to seek business aggressively through
the business contacts of its management and investors. 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
Company’s 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 4 -
RELATED PARTY TRANSACTIONS
The
Company’s former President, who resigned in October 2009 because of health
issues, performed work and permitted the Company to use facilities and equipment
owned by her without charge. The estimated cost of this service ($4,500 for each
of the three months ended September 30, 2009 and 2008) was recorded as an
expense and as a contribution to paid-in-capital.
NOTE 5 -
SUBSEQUENT EVENTS
The
Company has evaluated all events that occurred after the balance sheet date of
September 30, 2009 through November 11, 2009, the date these financial
statements were issued. The Management of the Company determined that
there were no reportable events that occurred during that subsequent period to
be disclosed or recorded.
F-8
ITEM
2
MANAGEMENT’S
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. Ladybug Resource Group, Inc. (sometimes referred to herein as
“Ladybug”, the “Company”, “we”, or “us”) cautions readers that important factors
may affect the Company’s 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 Company’s lack of historically profitable operations,
dependence on key personnel, the success of the Company’s 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 Company’s
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, 2009. The reported results may not
necessarily reflect the future.
BUSINESS
Ladybug
Resource Group, Inc. was incorporated in the State of Nevada on November 27,
2007 by Molly S. Ramage, our former President and Director. Ms. Ramage resigned
from us in October 2009 because of health reasons; however, she will be
available to consult with us on a limited basis moving forward. 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 customer’s
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.
-3-
Marketing
Ladybug
obtains customer leads from the business and personal contacts of investors in
the Company, Molly S. Ramage, our former President and Director, and by word of
mouth. We work with each customer to understand the nature of the business and
the theme that the customer wants to convey. We then work with subcontractors to
develop the image and written portion of the theme. In most cases, we code the
HyperText Markup Language portions of the package to be placed on the customer’s
Website. In certain cases, we will engage the assistance of independent
subcontractors to assist us with complex coding requirements.
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:
|
·
|
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 was incorporated on November 27, 2007 and began operating activities in
early 2008. It has very limited financial resources and no committed sources of
debt or equity financing.
Results
of Operations for the Three Months Ended September 30, 2009
Operations for the three months ended
September 30, 2009 and 2008 consisted of the following (changes between the
periods on a cash and percentage basis are also provided below):
-4-
2009
|
2008
|
Change
($)
|
Change
(%)
|
|||||||||||||
Revenue
|
$ | 3,059 | $ | 24,357 | $ | (21,298 | ) | (87 | ) | |||||||
Expenses:
|
||||||||||||||||
Compensation
|
4,500 | 4,500 | - | - | ||||||||||||
Professional
fees
|
14,352 | 1,500 | 12,852 | 857 | ||||||||||||
Office
and subcontractor costs
|
4,658 | 33,384 | (28,726 | ) | (86 | ) | ||||||||||
Total
Expenses
|
23,510 | 39,384 | (15,874 | ) | (40 | ) | ||||||||||
Net
Loss
|
$ | (20,451 | ) | $ | (15,027 | ) | $ | (5,424 | ) | 36 |
Substantially
all the revenue in both periods was referred by or related to a Director or
major shareholder. Our revenue during the three months ended September 30, 2009
was adversely impacted by health issues affecting our former President, Molly
Ramage, which reduced the number of hours that she was able to work each week.
Ms. Ramage resigned in October 2009 because of health issues; however, she is
available to consult with us on a limited basis moving forward. The
Company’s revenues were also impacted by the overall economic recession and the
fact that fewer customers are willing to spend funds on advertising expenses,
such as the creation of websites.
Molly S.
Ramage, our former President, performed work for us and permitted us to use
facilities and equipment owned by her without charge to us during the three
months ended September 30, 2009 and 2008. The estimated cost of this service,
$4,500, was recorded as an expense and as a contribution to paid-in-capital in
each period.
Professional
fees increased for the three months ended September 30, 2009, compared to the
three months ended September 30, 2008, mainly due to the increased legal and
accounting costs associated with the Company being a public reporting company,
which it was not during the prior period.
Office
and subcontractor costs decreased for the three months ended September 30, 2009,
compared to the three months ended September 30, 2008, mainly as a result of the
decrease in revenues for the same period. The Company previously
subcontracted out the majority of its work to third parties, and due to the
decrease in services performed for the three months ended September 30, 2009,
compared to the prior period, there were less subcontractor costs as a result of
the decrease in revenues.
Our net
loss increased for the three months ended September 30, 2009, compared to the
three months ended September 30, 2008, mainly due to the 87% decrease in revenue
and the 857% increase in professional fees, which was not sufficiently offset by
the 86% decrease in office and subcontractor costs.
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 $3,950 in total assets as of September 30, 2009, which included $989 of
current assets consisting of cash and $2,961 of long-term assets consisting of
computer equipment, net of accumulated depreciation.
-5-
Ladybug
had total liabilities of $82,382 as of September 30, 2009 consisting principally
of accrued professional fees.
Ladybug
had negative working capital of $81,393 and an accumulated deficit of $134,572
as of September 30, 2009.
Ladybug
had net cash used in operating activities of $7,224 for the three months ended
September 30, 2009, consisting of net loss of $20,451, offset by $4,500 of
contributed services, $425 of depreciation and $8,302 of change in net operating
activities.
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 our President. 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.
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
In June
2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC
Release No. 33-8934 on June 26, 2008. Commencing with the Company’s Annual
Report for the fiscal year ended June 30, 2010, the Company is required to
include a report of management on the Company’s internal control over financial
reporting. The internal control report must include a statement of management’s
responsibility for establishing and maintaining adequate internal control over
financial reporting for the Company; of management’s assessment of the
effectiveness of the Company’s internal control over financial reporting as of
year end; of the framework used by management to evaluate the effectiveness of
the Company’s internal control over financial reporting; and that the Company’s
independent accounting firm has issued an attestation report on management’s
assessment of the Company’s internal control over financial reporting, which
report is also required to be filed as part of the Annual Report on Form
10-K.
-6-
In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification’ and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168
establishes the “FASB Accounting Standards Codification” (“Codification”), which
officially launched July 1, 2009, to become the source of authoritative
U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to
be applied by nongovernmental entities, superseding existing FASB, American
Institute of Certified Public Accountants, Emerging Issues Task Force, and
related accounting literature. Rules and interpretive releases of the Securities
and Exchange Commission (“SEC”) under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168
reorganizes the previously issued GAAP pronouncements into accounting topics and
displays them using a consistent structure. The subsequent issuances of new
standards will be in the form of Accounting Standards Updates that will be
included in the Codification. SFAS 168 will be effective for the Company as of
the interim period ended October 31, 2009. As the Codification was not
intended to change or alter existing GAAP, it will not have an impact on the
Company’s consolidated financial statements. The only impact will be that any
future references to authoritative accounting literature will be in accordance
with SFAS 168 and the new numbering system prescribed by the
Codification.
In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS
165”). This standard is intended to establish general standards of accounting
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 requires
issuers to reflect in their financial statements and disclosures the effects of
subsequent events that provide additional evidence about conditions at the
balance sheet date. Disclosures should include the nature of the event and
either an estimate of its financial effect or a statement that an estimate
cannot be made. This standard also requires issuers to disclose the date through
which they have evaluated subsequent events and whether the date corresponds
with the release of their financial statements. The Company adopted SFAS 165 as
of the interim period ended July 31, 2009. As the requirements under SFAS
165 are consistent with its current practice, the implementation of this
standard did not have an impact on the Company’s consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, and Amendment of FASB Statement No.
133. SFAS 161 amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, to amend and expand the disclosure
requirements of SFAS 133 to provide greater transparency about (i) how and why
an entity uses derivative instruments, (ii) how derivative instruments and
related hedge items are accounted for under SFAS 133 and its related
interpretations, and (iii) how derivative instruments and related hedged items
affect an entity's financial position, results of operations and cash flows. To
meet those objectives, SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative agreements. SFAS 161
is effective for fiscal years and interim periods beginning after November 15,
2008. Earlier adoption is encouraged. The Company is currently evaluating the
impact of SFAS 161 on its financial position, results of operations or cash
flows.
In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlements). This FSP requires a portion of this type of convertible
debt to be recorded as equity and to record interest expense on the debt portion
at a rate that would have been charged on nonconvertible debt with the same
terms. This FSP takes effect in the first quarter of fiscal years beginning
after December 15, 2008 and will be applied retrospectively for all periods
presented. It will be effective for the Company on July 1, 2009. This FSP would
apply to the Company's convertible debentures. The Company is currently
evaluating how it may affect the financial statements. The Company
does not currently have any convertible debt instruments.
-7-
In June
2008, the FASB issued Staff Position ("FSP") EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.
Securities participating in dividends with common stock according to a formula
are participating securities. This FSP determined unvested shares of restricted
stock and stock units with nonforfeitable rights to dividends are participating
securities. Participating securities require the "two-class" method to be used
to calculate basic earnings per share. This method lowers basic earnings per
common share. This FSP takes effect in the first quarter of fiscal years
beginning after December 15, 2008 and will be applied retrospectively for all
periods presented. It will be effective for the Company on July 1, 2009. The
Company does not expect FSP EITF 03-6-1 to have a material effect on its
financial statements.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.
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).
-8-
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, 2009. 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, as amended,
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b)
Changes in Internal Controls.
During
the quarter ended September 30, 2009, 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.
-9-
PART
II—OTHER 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’s
founder and former President resigned in October 2009 because of health issues.
It is unclear whether our current officers and Directors can implement
successfully the business plan that she created.
Ladybug’s
current business strategy was developed and dependent upon the knowledge,
reputation and business contacts of Molly S. Ramage, its founder and former
President, who resigned in October 2009 because of health issues. She will be
available to us on a limited consulting basis moving forward. We can provide no
assurances that Ms. Ramage’s successors will be able to implement her business
plan successfully. If they are unable to successfully implement her
business plan, we may be forced to scale back our business plan and/or seek
additional funding, which may have a materially adverse effect on the value of
our common stock.
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.
Ladybug’s 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.
|
-10-
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.
Ladybug has limited 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 had negative working capital of $81,393
and an accumulated deficit of $134,572 at September 30, 2009. Our independent
registered auditors included an explanatory paragraph in their opinion on
Ladybug’s financial statements as of September 30, 2009 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.
-11-
Ladybug
is and will continue to be significantly dependent on the services of its
President, Mitchell Trace, and its Secretary, Patricia Barton, the loss of whose
services would likely cause its business operations to cease.
Ladybug’s
current business strategy is completely dependent upon the knowledge, reputation
and business contacts of Mitchell Trace, its President, and Patricia Barton, its
Secretary. If we were to lose the services of either one or both for any reason,
it is unlikely that we would be able to continue conducting our business plan
even if financing is obtained.
Our
President, Mitchell Trace and our Secretary Patricia Barton, are principally
responsible for the execution of our business. They are under no contractual
obligation to remain employed by us. If they 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
depend on a very limited number of customers.
During
the three months ended September 30, 2009, all revenue was derived from two
entities related to our Secretary and Director, Patricia Barton. During the
fiscal year ended June 30, 2009, the Company derived 34% of its revenues from
two companies, VOF (23.95%) and Seattle Cremations (10.45%). The work
done for VOF related to politically oriented websites and is not expected to
result in recurring engagements. We do not have long-term agreements with any
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.
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.
-12-
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 management’s 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.
We
currently have only one employee. 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.
-13-
Mitchell
Trace, our Chief Executive Officer and Chief Financial Officer, has 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.
Mitchell
Trace, our Chief Executive Officer and Chief Accounting Officer, has no
meaningful financial reporting education or experience. He is 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.
Our
internal controls may be inadequate, which could cause our financial reporting
to be unreliable and lead to misinformation being disseminated to the
public.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in the Securities Exchange Act of
1934, as amended, Rule 13a-15(f), internal control over financial reporting is a
process designed by, or under the supervision of, the principal executive and
principal financial officer and effected by the board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and/or
directors of the Company; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the financial
statements.
|
Our
internal controls may be inadequate or ineffective, which could cause our
financial reporting to be unreliable and lead to misinformation being
disseminated to the public. Investors relying upon this misinformation may make
an uninformed investment decision.
Having
only two Directors limits our ability to establish effective independent
corporate governance procedures and increases the control of our
President/Director.
We have
only two Directors, one of whom is also our Chief Executive Officer.
Accordingly, we cannot establish Board committees comprised of independent
members to oversee functions like compensation or audit issues.
Until we
have a larger Board of Directors that would include some independent members, if
ever, there will be limited oversight of our President’s 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 300,000,000 shares of common stock, and as of
November 11, 2009, 288,680,000 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 management’s ability to maintain
control of Ladybug because
the shares may be issued to parties or entities committed to supporting existing
management.
-14-
Nevada
law and our Articles of Incorporation authorize us to issue shares of stock,
which shares may cause substantial dilution to our existing
shareholders.
We have
authorized capital stock consisting of 300,000,000 shares of common stock,
$0.001 par value per share and 20,000,000 shares of preferred stock, $0.001 par
value per share (“Preferred Stock”). As of the date of this report, we have
11,320,000 shares of common stock issued and outstanding and no shares of
Preferred Stock issued and outstanding. As a result, our Board of
Directors has the ability to issue a large number of additional shares of common
stock without shareholder approval, which if issued could cause substantial
dilution to our then shareholders. Additionally, shares of Preferred
Stock may be issued by our Board of Directors without shareholder approval with
voting powers, and such preferences and relative, participating, optional or
other special rights and powers as determined by our Board of Directors, which
may be greater than the shares of common stock currently
outstanding. As a result, shares of Preferred Stock may be issued by
our Board of Directors which cause the holders to have super majority voting
power over our shares, provide the holders of the Preferred Stock the right to
convert the shares of Preferred Stock they hold into shares of our common stock,
which may cause substantial dilution to our then common stock shareholders
and/or have other rights and preferences greater than those of our common stock
shareholders. Investors should keep in mind that the Board of Directors has the
authority to issue additional shares of common stock and Preferred Stock, which
could cause substantial dilution to our existing
shareholders. Additionally, the dilutive effect of any Preferred
Stock, which we may issue may be exacerbated given the fact that such Preferred
Stock may have super majority voting rights and/or other rights or preferences
which could provide the preferred shareholders with voting control over us
subsequent to this offering and/or give those holders the power to prevent or
cause a change in control. As a result, the issuance of shares of
common stock and/or Preferred Stock may cause the value of our securities to
decrease and/or become worthless.
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, as amended, 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.
-15-
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. The Financial
Industry Regulatory Authority ("FINRA") has assigned us a trading symbol
(“LBRG”) which enables a market maker to quote the shares of our common stock on
the OTCBB maintained by FINRA. There can be no assurances as to
whether:
|
1.
|
any
market for our shares will ever
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.
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.
-16-
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:
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·
|
the
basis on which the broker or dealer made the suitability determination,
and
|
|
·
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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 stock’s 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:
|
·
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Control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
|
|
·
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Manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
|
·
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"Boiler
room" practices involving high pressure sales tactics and unrealistic
price projections by sales persons;
|
|
·
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Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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|
·
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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.
-17-
The
ability of our majority shareholders to control our business may limit or
eliminate minority shareholders’ ability to influence corporate
affairs.
Our four
principal shareholders beneficially own 95.76% of our outstanding common stock.
Because of this level of beneficial stock ownership, these principal
shareholders are and 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 these 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 such principal shareholders. This level of
control may also have an adverse impact on the market value of our shares
because our 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
November 11, 2009, 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
or in connection with fund raising transactions.
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.
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.
-18-
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.
We
are 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.
As our
shares are currently quoted on the OTCBB, we are 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.
Additionally,
pursuant to OTCBB rules relating to the timely filing of periodic reports with
the SEC, any OTCBB issuer which fails to file a periodic report (Form 10-Q's or
10-K's) by the due date of such report (not withstanding any extension granted
to the issuer by the filing of a Form 12b-25), three (3) times during any
twenty-four (24) month period is automatically de-listed from the OTCBB. Such
removed issuer would not be re-eligible to be listed on the OTCBB for a period
of one-year, during which time any subsequent late filing would reset the
one-year period of de-listing. Furthermore, any issuer delisted from the OTCBB
more than one (1) time in any twenty-four (24) month period for failure to file
a periodic report would be ineligible to be re-listed for a period of one-year
year, during which time any subsequent late filing would reset the one-year
period of de-listing. As such, if we are late in our filings three times
in any twenty-four (24) month period and are de-listed from the OTCBB, or if our
securities are de-listed from the OTCBB two times in any twenty-four (24) month
period for failure to file a periodic report, our securities may become
worthless and we may be forced to curtail or abandon our business
plan.
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 the
effectiveness date 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, as amended, 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.
-19-
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.
At of
effectiveness of our registration statement , we were required to file periodic
reports with the SEC. Except during the year after 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 becomes 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. After this registration
statement on Form S-1 becomes effective, we will be required to deliver periodic
reports to security holders. However, 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.
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
|
* Filed
herewith.
-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/ Mitchell Trace
|
|
Mitchell
Trace
|
|
Title:
|
President
(Principal Executive Officer) and
|
Chief
Financial Officer
|
|
(Principal
Financial Officer)
|
|
Date:
|
November 16, 2009 |
-21-