The accompanying notes are an integral part of these financial statements
BAYNON INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
Baynon International Corp. formerly known as Technology Associates Corporation (the Company), was originally incorporated on February 29, 1968 under the laws of the Commonwealth of Massachusetts to engage in any lawful corporate undertaking. On December 28, 1989, the Company reincorporated under the laws of the State of Nevada. The Company was formerly engaged in the technology marketing business and its securities traded on the National Association of Securities Dealers OTC Bulletin Board. The Company has not engaged in any business operations for at least the last nine fiscal years and has no operations to date.
The Company will attempt to identify and negotiate with a business target for the merger of that entity with and into the Company. In certain instances, a target company may wish to become a subsidiary of the company or wish to contribute assets to the Company rather than merge.
No assurance can be given that the Company will be successful in identifying or negotiating with any target company. The Company provides a means for a foreign or domestic private company to become a reporting (public) company whose securities would be qualified for trading in the United States secondary market.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The December 31, 2012 balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, the accompanying unaudited financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of September 30, 2013, its results of operations for the three and nine months ended September 30, 2013 and 2012 and its cash flows for the nine months ended September 30, 2013 and 2012.
The statements of operations for the three and nine months ended September 30, 2013 and 2012 are not necessarily indicative of the results for the full year.
While the Company believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the financial statements and accompanying notes included in the Companys annual Report on Form 10-K for the year ended December 31, 2012.
Loss Per Share
The Company computes loss per share in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 260, Earnings Per Share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding, Diluted earnings per share reflects the potential dilution that could occur if securities or other agreements to issue common stock were exercised or converted into common stock. Diluted earnings per share is computed based upon the weighted average number of common shares and dilutive common equivalent shares outstanding, which includes convertible debentures, stock options and warrants. The following securities have been excluded from the calculation of loss per share for the three and nine months ended September 30, 2013 and 2012 as their effect would be anti-dilutive:
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Convertible note payable and accrued interest - stockholder (weighted average)
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred continuing operating losses and has an accumulated deficit of $328,837 at September 30, 2013. The Company has no revenue generating operations and has limited cash resources. These factors raise substantial doubt about the ability of the Company to continue as a going concern.
Management believes that it will be able to achieve a satisfactory level of liquidity to meet the Companys obligations through September 30, 2014 by obtaining additional financing from key officers, directors and certain investors. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts payable, notes payable, and accrued expenses approximate fair value based on the short-term maturity of those instruments.
Recently Issued Accounting Standards
Management does not believe that any recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.
CONVERTIBLE NOTES PAYABLE - STOCKHOLDER
On April 10, 2012, the Company issued an unsecured convertible note payable to a stockholder in exchange for $50,000 in cash for the Companys working capital needs. The note bore interest at 6% per annum and matured on April 10, 2013. The stockholder had the option to convert the note and accrued interest into the Companys common stock at $.0125 per share.
On April 10, 2013, the note was extended for an additional twelve months. The note bears interest at 6% per annum and matures on April 10, 2014. The stockholder has the option to convert the note and accrued interest into the Companys common stock at $.0125 per share.
At September 30, 2013 and December 31, 2012, accrued interest on the notes was $4,430 and $2,186, respectively. Interest expense amounted to $756 for each of the three months ended September 30, 2013 and 2012. Interest expense amounted to $2,243 and $1,430 for the nine months ended September 30, 2013 and 2012, respectively.
On April 10, 2012, the Company received cash in the amount of $1,000 for the issuance of 1,000,000 shares ($0.001 per share) of common stock to an investor. The shares were not issued until August 2013 and the amount was classified as common stock to be issued at December 31, 2012.
On September 19, 2013, the Companys board of directions approved the issuance of 4,000,000 shares of common stock for $20,000 ($0.005 per share) to the Companys majority stockholder who is the Companys president and 4,000,000 shares of common stock for $20,000 ($0.005 per share) to another stockholder.
On September 19, 2013, the Companys board of directors approved the increase in the number of authorized shares from 50,000,000 to 100,000,000. The increase will enable the Company to raise additional capital in the future. The Company has begun the process necessary to increase the number of authorized shares.
The Company has evaluated subsequent events through the date of this filing.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These statements include those concerning the following: Our intentions, beliefs and expectations regarding the fair value of all assets and liabilities recorded; our strategies; growth opportunities; product development and introduction relating to new and existing products; the enterprise market and related opportunities; competition and competitive advantages and disadvantages; industry standards and compatibility of our products; relationships with our employees; our facilities, operating lease and our ability to secure additional space; cash dividends; excess inventory, our expenses; interest and other income; our beliefs and expectations about our future success and results; our operating results; our belief that our cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements, our expectations regarding our revenues and customers; investments and interest rates. These statements are subject to risk and uncertainties that could cause actual results and events to differ materially.
Baynon undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.
Critical Accounting Policies
The financial statements and accompanying footnotes included in this report has been prepared in accordance with accounting principles generally accepted in the United States with certain amount based on managements best estimates and judgments. To determine appropriate carrying values of assets and liabilities that are not readily available from other sources, management uses assumptions based on historical results and other factors that believe are reasonable. Actual results could differ from those estimates.
Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to our critical accounting policies as of and for the nine months ended September 30, 2013.
Trends and Uncertainties
There are no material commitments for capital expenditure at this time. There are no trends, events or uncertainties that have had or are reasonably expected to have a material impact on our limited operations. There are no known causes for any material changes from period to period in one or more line items of Baynons financial statements.
Liquidity and Capital Resources
At September 30, 2013, Baynon had a cash balance of $39,338, which represents a $17,119 increase from the $22,219 balance at December 31, 2012. This increase was the result of $40,000 cash received from the issuance of common stock, net of cash used to
satisfy the requirements of a reporting company of $22,881. Baynons working capital deficit at September 30, 2013 was $34,129 as compared to a December 31, 2012 deficit of $57,274.
During the nine months ended September 30, 2013 and 2012, there were no investing activities.
The focus of Baynons efforts is to acquire or develop an operating business. Despite no active operations at this time, management intends to continue in business and has no intention to liquidate Baynon. Baynon has considered various business alternatives including the possible acquisition of an existing business, but to date has found possible opportunities unsuitable or excessively priced. Baynon does not contemplate limiting the scope of its search to any particular industry. Management has considered the risk of possible opportunities as well as their potential rewards. Management has invested time evaluating several proposals for possible acquisition or combination; however, none of these opportunities were pursued. Baynon presently owns no real property and at this time has no intention of acquiring any such property. Baynons sole expected expenses are comprised of professional fees primarily incident to its reporting requirements.
The accompanying financial statement has been prepared assuming Baynon will continue as a going concern. As shown in the accompanying financial statements, Baynon has incurred losses of $16,855 and $13,195 for the nine months ended September 30, 2013 and 2012, respectively, and a working capital deficiency which raises substantial doubt about the Companys ability to continue as a going concern.
Management believes Baynon will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot assure that such financing will be available on acceptable terms. Baynons continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a going concern qualification in their auditors report dated March 13, 2013. Such a going concern qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.
The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve Baynons operating results.
Results of Operations for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012.
For the nine months September 30, 2013, we did not earn any revenues. We incurred general and administrative expenses of $14,624 and interest expense stockholder of $2,243. We earned interest income of $12. As a result, we had a net loss of $16,855 for the nine months ended September 30, 2013.
Comparatively, for the nine months ended September 30, 2012, we did not earn any revenues. We incurred general and administrative expenses of $11,786 and interest expense stockholder of $1,430. We earned interest income of $21. As a result, we had a net loss of $13,195 for the nine months ended September 30, 2012.
The $2,838 increase in general administrative expenses were incurred primarily to enable Baynon to satisfy the reporting requirements of a reporting company.
During the current and prior period, Baynon did not record an income tax benefit due to the uncertainty associated with Baynons ability to utilize the deferred tax assets.
Results of Operations for the three months ended September 30, 2013, compared to the three months ended September 30, 2012.
For the three months September 30, 2013, we did not earn any revenues. We incurred general and administrative expenses of $3,836 and interest expense stockholder of $756. We earned interest income of $7. As a result, we had a net loss of $4,585 for the three months ended September 30, 2013.
Comparatively, for the three months ended September 30, 2012, we did not earn any revenues. We incurred general and administrative expenses of $3,692 and interest expense stockholder of $756. We earned interest income of $10. As a result, we had a net loss of $4,438 for the three months ended September 30, 2012.
The $144 increase in general administrative expenses were incurred primarily to enable Baynon to satisfy the reporting requirements of a reporting company.
During the current and prior period, Baynon did not record an income tax benefit due to the uncertainty associated with Baynons ability to utilize the deferred tax assets
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures.
During the three months ended September 30, 2013, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2013. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of September 30, 2013 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process designed by and under the supervision of our chief executive officer and chief financial officer, or the persons performing similar functions, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. These officers have evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting Guidance for Smaller Public Companies.
Our chief executive officer and chief financial officer have assessed the effectiveness of our internal control over financial reporting as of September 30, 2013 and concluded that it was not effective because of the material weakness described below:
In connection with the preparation of our financial statements for the years ended December 31, 2012 and 2011, due to resource constraints, material weaknesses became evident to management regarding our inability to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchange Commission due to the lack of resources and segregation of duties. A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level the risk that material misstatements in our consolidated financial statements will not be prevented or detected on a timely basis.
We will aggressively recruit experienced professionals to ensure that we include all necessary disclosures in our filings with the Securities and Exchange Commission. Although we believe that this corrective step will enable management to conclude that the internal controls over our financial reporting are effective when the staff is trained, we cannot assure you these steps will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in internal control.
Evaluation of Changes in Internal Control over Financial Reporting
Our chief executive officer and chief financial officer have evaluated changes in our internal controls over financial reporting that occurred during the period ended September 30, 2013. Based on that evaluation, our chief executive officer and chief financial officer, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Not applicable for smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In August, 2013, the registrant issued 1,000,000 common shares to an investor for $0.001 per share.
On September 19, 2013, the registrant issued 4,000,000 shares their president, Carmine Catizone, for $0.005 per share, and 4,000,000 shares to Pat Catizone, the brother of the registrants president, for $0.005 per share.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6. Exhibits
Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 13, 2013
BAYNON INTERNATIONAL CORP.
By: /s/Pasquale Catizone
Principal Executive Officer
Principal Financial Officer