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EX-31.2 - CERTIFICATION - Embarr Downs, Inc.embr_ex312.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended May 31, 2014
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to ____________.
 
Commission File Number: 000-55044
 
Embarr Downs, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
 
46-3403755
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
     
205 Ave. Del Mar. #984, San Clemente, California
 
92674
(Address of principal executive offices)
 
(Zip Code)
 
(949) 461-1471
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
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 x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Non-accelerated filer
o
Accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Title of Each Class
 
Outstanding as of July 15, 2014,
Common stock, par value $0.0001 per share
 
48,078,284
Class A Preferred Stock, par value $0.001 per share
 
4,000,000
Class B Preferred Stock, par value $0.001 per share
 
1,565,696
 


 
 

 
EMBARR DOWNS, INC.
 
FORM 10-Q
May 31, 2014

TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
Item 1.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
14
Item 4.
Control and Procedures
14
     
PART II - OTHER INFORMATION  
 
Item 1.
Legal Proceedings
16
Item 1A.
Risk Factors
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
16
Item 3.
Defaults Upon Senior Securities
16
Item 4.
Mine Safety Disclosures
16
Item 5.
Other Information
16
Item 6.
Exhibits
17

 
2

 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1 – FINANCIAL STATEMENTS
 
Embarr Downs, Inc.
Balance Sheet
(Unaudited)
 
   
May 31,
2014
   
August 31,
2013
 
ASSETS
Current assets:
           
Cash or cash equivalents
    23,844     $ 2,902  
Thoroughbreds
    47,679       55,000  
Total assets
    71,523     $ 57,902  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
               
Accounts payable
    7,249     $ -  
Accrued dividend payable
    302       -  
Notes payable
    90,500       -  
Notes payable- related party
    20,714       13,000  
Total liabilities
    118,765       13,000  
                 
Shareholders’ Equity:
               
Preferred Stock Series A, par value $.001, 5,000,000 shares authorized, 4,000,000 and 4,000,000 issued and outstanding, respectively
    4,000       4,000  
Preferred Stock Series B, par value $.001, 2,000,000 shares authorized, 1,565,696 and 0 issued and outstanding, respectively
    1,566       -  
Preferred Stock Series C, par value $.0001, 15,000,000 shares authorized, 113,797 and 0 issued and outstanding, respectively
    1       -  
Common Stock, par value $.0001, 500,000,000 shares authorized, 48,078,284 and 78,284 issued and outstanding, respectively.
    4,808       8  
Additional paid in capital
    1,795,493       61,117  
Subscription receivable
    (433,787 )     -  
Dividend paid
    (17,810 )     -  
Accumulated deficit
    (1,401,513 )     (20,223 )
Total shareholders' equity (deficit)
    (47,242 )     44,902  
Total liabilities and shareholders' equity (deficit)
    71,523     $ 57,902  

The accompanying notes are an integral part of these unaudited financial statements.
 
 
3

 
 
Embarr Downs, Inc.
Statement of Operations
(Unaudited)
 
   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
May 31,
   
May 31,
   
May 31,
   
May 31,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Ordinary income
  $ 610     $ -     $ 26,448     $ -  
Cost of goods sold
    -               19,027       -  
Net income
    610       -       7,421       -  
                                 
Operating expenses
                               
Thoroughbred research
    343       -       1,056       2,098  
Thoroughbred expenses
    10,736       -       47,661       -  
Depreciation
    4,583       -       16,293       -  
General and administrative expense
    170,462       1,500       1,323,701       5,250  
Total operating expenses
    182,764       1,500       1,388,711       7,348  
Operating income
    (185,154 )     (1,500 )     (1,381,290 )     (7,348 )
Provisions for income tax
    -       -       -       -  
Net loss
  $ (185,154 )   $ (1,500 )   $ (1,381,290 )   $ (7,348 )
 
                               
Earnings per share, basic and diluted
  $ (0.00 )   $ (0.04 )   $ (0.04 )   $ (0.19 )
Weighted average number of shares outstanding
    46,627,197       38,400       32,248,614       38,400  

The accompanying notes are an integral part of these unaudited financial statements.
 
 
4

 
 
Embarr Downs, Inc.
Statement of Cash Flows
(Unaudited)
 
   
Nine Months
Ended
   
Nine Months
Ended
 
   
May 31, 2014
   
May 31, 2013
 
Cash flows from operating activities
           
Net loss
  $ (1,381,290 )   $ (7,348 )
Depreciation
    16,293       -  
Stock based compensation
    945,000       -  
Changes in assets and liabilities:
               
Thoroughbred
    (8,973 )     -  
Accrued Interest
    1,243       -  
Accounts payable
    7,250       -  
Net cash provided by (used in) operating activities
    (420,477 )     (7,348 )
                 
                 
Cash flows from financing activities
               
Proceeds from sale of common stock
    182,970       -  
Contributed capital
    -       8,000  
Proceeds from note issued
    90,500       -  
Proceeds from line of credit
    282,000       -  
Distributed Capital
    (104,257 )        
Payments on notes to related party
    (99,459 )     -  
Dividend payment
    (17,508 )     -  
Proceeds from note issued to related party
    107,173       -  
Net cash provided by financing activities
    441,419       8,000  
Net increase in cash
    20,942       652  
Cash balance, beginning of periods
    2,902       1,575  
 
               
Cash balance, end of periods
  $ 23,844     $ 2,227  
 
               
Cash paid for:
               
Interest
  $ -     $ -  
Income taxes
  $ -     $ -  
                 
Noncash financing and investing activities:
               
Subscription Receivable
  $ 433,787     $ -  
Shares issued for the settlement of debt and accrued interest
  $ 283,243     $ -  
Series B Preferred Share dividends issued to Common stock shareholder
  $ 1,566     $ -  
Series C Preferred Share dividends issued to Common stock shareholder
  $ 1     $ -  
Dividends accrued
  $ 302     $ -  

The accompanying notes are an integral part of these unaudited financial statements.
 
 
5

 
 
EMBARR DOWNS, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
 
Note 1 – Basis of Presentation and significant accounting policies

The accompanying unaudited financial statements of Embarr Downs, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's registration statement filed with the SEC on Form 10. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2013 as reported in Form 10, have been omitted.

Stock-based Compensation

Accounting Standards Codification (“ASC”) 718, “Accounting for Stock-Based Compensation" established financial accounting and reporting standards for stock-based compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans and for share based payments to non-employees in accordance with ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. The Company accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non- Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

Note 2 – Going Concern
 
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
 
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
 
Historically, it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
 
 
6

 
 
Note 3 – Related Party Transaction

As of May 31, 2014, a note payable of $20,714 was due to the Company CEO Joseph Wade. During the nine months ended May 31, 2014, the Company CEO contributed additional $107,173 as a note payable and repaid $99,459 for a total remaining amount owed of $20,714. This note is unsecured, non-interest bearing and matures on December 31, 2014.
 
The Company lent three Companies related to our CEO a total of $104,257. The amounts carry an interest rate of 0% and have a repayment date of December 31, 2015. The company has recorded the transactions as a distribution of equity and will record further payments from the entities as contribution to the company.
 
Note 4 – Equity
 
Shares issued for services

During the nine months ended May 31, 2014, the Company issued 45,000,000 shares of common stock to employees and third party consultants as compensation. The fair value of the shares was determined to be $945,000.

Shares issued for settlement of debt and accrued interest
 
During the nine months ended May 31, 2014, the company issued 1,500,000 shares of common stock to third party for the total value of $450,000. The company settled $282,000 of the line of credit outstanding as well as $1,243 of accrued interest with the third party. In addition to the settlement, the company received $166,757 in cash.

Shares issued for cash
 
During the nine months ended May 31, 2014, the company issued 1,500,000 shares of common stock to a third party for the proceeds of $450,000. As of May 31, 2014, the company has received $16,213 of the $450,000 with the remaining $433,787 outstanding as a stock subscription.

Reverse stock split

On September 20, 2013, the Company executed a Fifty Thousand to One (50,000:1) reverse stock split of issued and outstanding shares of its Common Stock. As part of the reverse, the total authorized shares of Common Stock were reduced to 500,000,000 shares. The Company accounted for the reverse stock split retrospectively and is presented accordingly in the Company’s financial statements.
 
Series B Preferred Stock
 
On September 20, 2012, the Company approved of the issuance of Series B Preferred Stock to its Common Stock shareholders. Each common stock shareholders, prior to the reverse stock split, received one share of Series B Preferred Stock for each 2,500 common stock shares owned. As a result 1,565,696 of Series B Preferred Stocks were issued for a total fair value of $1,566. The stock dividend is considered an equity transaction due to all shareholders participating in the issuance.

The Series B Preferred Stock consists of 2,000,000 authorized and 1,565,696 are issued and outstanding as of the date of this filing. The Series B Preferred has the following terms and rights:
 
 
7

 
 
Dividend: No dividend rights
 
Ranks: All shares of Preferred Stock shall rank superior with all of the Corporation's Common Stock, $.0001 par value (the "Common Stock"), now or hereafter issued, as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, including the payment of dividends.
 
Conversion Provisions.

 
(a)
The company may convert, at any time by an affirmative vote of the Board of Directors, the shares of the Series B Preferred Stock into Common Stock equal to a rate equal to $1.00 divided by the closing price of the Company’s Common Stock as listed by OTC Markets (“Market Value”) for the date the conversion was approved by the Board of Directors. If no closing price is available, then the Market Value shall be assumed to be $1.00 per common share. Any fractional share shall be rounded up to the nearest share.

 
(b)
Each share of the Series B Preferred Stock, unless previously converted, will automatically convert on August 31, 2018 (the “mandatory conversion date”), into a number of shares of common stock equal to a rate equal to $1.00 divided by the closing price of the Company’s Common Stock as listed by OTC Markets (“Market Value”) for the date the conversion was approved by the Board of Directors. If no closing price is available, then the Market Value shall be assumed to be $1.00 per common share. Any fractional share shall be rounded up to the nearest share.
 
Voting Rights. The holders of the mandatory convertible preferred stock do not have voting rights other than those specifically required by Nevada law.

Series C Preferred Stock
 
On April 16, 2014, the Company approved of the issuance of Series C Preferred Stock to its Common Stock shareholders. Each common stock shareholders received one share of Series B Preferred Stock for each 3,500 common stock shares owned. As a result 13,797 of Series B Preferred Stocks were issued for a total fair value of $1. The stock dividend is considered an equity transaction due to all shareholders participating in the issuance.

The Series C Preferred Stock consists of 15,000,000 authorized and 113,797 are issued and outstanding as of the date of this filing. The Series C Preferred has the following terms and rights:

Rank. All shares of Preferred Stock shall rank superior with all of the Corporation's Common Stock, no par value (the "Common Stock"), now or hereafter issued, as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, including the payment of dividends.

Dividends. No dividend shall be declared or paid on the Preferred Stock unless approved and declared by the Board of Directors. 
 
No Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, the Series C Preferred shares shall have no priority on liquidation superior to that of the other Preferred Stock. The Series C Preferred shareholders will be entitled to preferential amounts paid in to the Corporation and be paid in full, for funds paid for the Series C Preferred Shares, if sufficient funds exist . The holders of shares of other series of Preferred Stock shall be entitled to participate with the Common Stock in all of the remaining assets of the Corporation available for distribution to its stockholders, ratably with the holders of Common Stock in proportion to the number of shares of Common Stock held by them, assuming for each holder of Preferred Stock on the record date for such distribution that each holder was the holder of record of the number (including any fraction) of shares of Common Stock into which the shares of Preferred Stock then held by such holder are then convertible. A liquidation, dissolution, or winding-up of the Corporation, as such terms are used in this Section 5, shall not be deemed to be occasioned by or to include any merger of the Corporation with or into one or more corporations or other entities, any acquisition or exchange of the outstanding shares of one or more classes or series of the Corporation, or any sale, lease, exchange, or other disposition of all or a part of the assets of the Corporation.

 
8

 
 
Voting Rights. The holders of the preferred stock do not have voting rights other than those specifically required by Nevada law.

No Redemption. The shares of Preferred Stock are not redeemable, unless approved by the Board of Directors and agreed upon by the Series C Preferred Shareholders.

Dividends

During the nine months ending May 31, 2014, the Company declared $17,810 in dividend. As of May 31, 2014, the company paid $17,508 and has accrued $302 in dividends.

Note 5 – Notes Payable

On January 9, 2014, the Company entered into a line of credit agreement for $500,000. The material terms of the line of credit are as follows:
 
(1)
The Company to borrow up to $500,000.
(2)
The amount that the Company borrows will carry an interest equal to nine percent (9%) per annum.
(3)
The Company will pay the accrued interest on any outstanding principal balance on the 15th of each month.
(4)
The maturity date is August 31, 2016.
(5)
The Debt from the Line of Credit may not be converted into common shares of the company.

As of May 31, 2014, the Company borrowed $282,000 from this line of credit and settled $282,243 of the line of credit plus accrued interest through the issuance of shares.

On December 30, 2013, the Company entered into an unsecured convertible promissory note with a principal amount of $37,500 with Asher Enterprises. The Company received net proceeds of $37,500 from the Transaction, which will be used as general working capital and to acquire thoroughbreds. Interest on the Note accrues at a rate of 8% annually and is to be paid with principal in full on the maturity date. The principal amount of the Note together with interest may be converted into shares of the Company's common stock, par value $0.0001 (“Common Stock”), at the option of the note holder at a conversion price equal to fifty-five percent (55%) of the average of the lowest three closing bid prices for the Common Stock during the ten trading days prior to the conversion. At any time up to 180 days from the date of the note; the company has the option to repay the principal amount plus any accrued interest at a rate equal to 140% of the principal amount and accrued interest.

On April 14, 2014, the Company entered into an unsecured convertible promissory note with a principal amount of $53,000 with KBM Worldwide. The Company received net proceeds of $53,000 from the Transaction, which will be used as general working capital and to acquire thoroughbreds. Interest on the Note accrues at a rate of 8% annually and is to be paid with principal in full on the maturity date. The principal amount of the Note together with interest may be converted into shares of the Company's common stock, par value $0.0001 (“Common Stock”), at the option of the note holder at a conversion price equal to fifty-five percent (55%) of the average of the lowest three closing bid prices for the Common Stock during the ten trading days prior to the conversion. At any time up to 180 days from the date of the note, the company has the option to repay the principal amount plus any accrued interest at a rate equal to 140% of the principal amount and accrued interest.
 
 
9

 

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained herein involve risks and uncertainties, including statements as to:
 
 
our future operating results;
 
our business prospects;
 
our contractual arrangements and relationships with third parties;
 
the dependence of our future success on the general economy;
 
our possible financings; and
 
the adequacy of our cash resources and working capital.
 
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto, included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this report, particularly in the “Risk Factors” section.
 
History

Embarr Downs, Inc. (“we”, “us”, “our”, the "Company" or the "Registrant") was originally incorporated in the State of Florida on June 27, 1997 under the name of July Project III Corp. and changed our name to Globalgroup Investment Holdings, Inc. on October 18, 2000 and subsequently changed our name to Embarr Downs, Inc. on August 20, 2013. The Company was reincorporated in Nevada on March 12, 2012. The Company is domiciled in the state of Nevada, and its corporate headquarters are located in the Los Angeles area of California. On August 20, 2013, the Company entered into an Agreement whereby the Company acquired 100% of Embarr Downs of California, Inc., incorporated in the State of California on February 23, 2013, and all operations of Embarr Downs, Inc., along with all the prior assets and liabilities were spun off through Sovereign Oil, Inc. On August 20, 2013, the acquisition closed and under the terms of the Agreement the Embarr Downs was the surviving entity. The Company selected August 31 as its fiscal year end.

 
10

 
 
This is the current corporate organization:
 

Embarr Downs, Inc. trades on the OTC Market Pink Sheets under the symbol EMBR.

Business of Registrant

The Company's business is the buying, selling and racing of thoroughbreds that can race in the allowance and stakes levels of thoroughbred racing; however, the Company will initially begin in the claiming level of thoroughbred racing. The Company intends to acquire 4-6 horses in its claiming division before acquiring horses for its allowance/stakes division. These 4-6 horses will provide the Company with revenue and a foundation to build out a stakes level stable. The Company’s main focus will be acquiring horses that will be capable of racing in stake races throughout the Country.

Allowance races are a race other than claiming for which the racing secretary drafts certain conditions (see below for more details). Stakes races are the top level races. The purse money is significantly higher in allowance and stakes level races. Claiming refers to the process by which a licensed person may purchase a horse entered in a race designated as a “claiming race” for a predetermined price. When a horse has been claimed, its new owner assumes title after the starting gate opens although the former owner is entitled to all purse money earned in that race. Claiming races are lowest level in thoroughbred racing. Stakes and allowance races are races in which the horses are not for sale. The Company also engages in the business of thoroughbred research.

Going Concern
 
Our financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated modest revenues since inception and has never paid any dividends and is unlikely to pay dividends. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations and to determine the existence, discovery and successful exploration of economically recoverable reserves in its resource properties, confirmation of the Company’s interests in the underlying properties, and the attainment of profitable operations. The Company has had very little operating history to date. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Overview
 
During the nine months ended May 31, 2014, we generated revenue of $26,448 and incurred a net loss of $1,381,290. We have received $26,448 in revenue, and have historically relied on equity and debt financings to finance our ongoing operations..

 
11

 
 
Results of Operations
 
For the Nine months ended May 31, 2014 and 2013 respectively, the Company generated the following revenue:

   
Nine Months Ended
   
Nine Months Ended
 
   
May 31, 2014
   
May 31, 2013
 
             
Revenue   $ 26,448       -  

For the Nine months ended May 31, 2014 and 2013 respectively, the Company generated the following cost of goods:

 
 
Nine Months Ended
   
Nine Months Ended
 
   
May 31, 2014
   
May 31, 2013
 
           
Cost of goods sold
  $ 19,027       -  

For the Nine months ended May 31, 2014 and 2013 respectively, the Company generated the following expenses:
 
 
 
Nine Months Ended
May 31, 2014
   
Nine Months Ended
May 31, 2013
 
Operating expenses
           
Thoroughbred research
    1,056       2,098  
Thoroughbred expenses
    47,661       -  
Depreciation
    16,293       -  
General and administrative expenses
    1,323,701       5,250  
Total operating expenses
    1,388,711       7,348  
 
 
12

 
 
Liquidity and Capital Resources
 
The following is a summary of our balance sheet as of May 31, 2014 and 2013 respectively:

   
May 31, 2014
   
August 31, 2013
 
ASSETS:
           
Current assets:
           
Cash or cash equivalents
  $ 23,844     $ 2,902  
Thoroughbreds
    47,679       55,000  
Total assets
  $ 71,523     $ 57,902  
 
In the opinion of management, available funds will not satisfy our growth requirements for the next twelve months. We believe our currently available capital resources will allows us to begin operations within our natural resource division and maintain its operation over the course of the next 12 months; however, our other expansion plans would be put on hold until we could raise sufficient capital.

Going Concern
 
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive exploration activities. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.

Accounting and Audit Plan
 
In the next twelve months, we anticipate spending approximately $20,000 - $30,000 to pay for our accounting and audit requirements.
 
Off-balance sheet arrangements
 
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
Critical Accounting Policies
 
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our historical financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.

 
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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The Company, as a smaller reporting company, as defined by Rule 229.10(f)(1), is not required to provide the information required by this Item.
 
ITEM 4 – CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures
 
Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
 
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
 
The reason we believe our disclosure controls and procedures are not effective is because:
 
 
1.
No independent directors;
 
2.
No segregation of duties;
 
3.
No audit committee; and
 
4.
Ineffective controls over financial reporting.

As of May 31, 2014, the Company has not taken any remediation actions to address these weaknesses in our controls even though they were identified in 2011. The Company’s management expects, once it is in the financial position to do so, to hire additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $60,000 per year which would allow the Company to hire 2 new staff members.
 
This 10-Q does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Rule 308(b) of Regulation S-K.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed 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. Our internal control over financial reporting includes those policies and procedures that:
 
 
1.
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
 
2.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
 
3.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of August 30, 2013. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

Identified Material Weakness
 
A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Management identified the following material weakness during its assessment of internal controls over financial reporting as of November 28, 2013:
 
Independent Directors: The Company intends to obtain at least 2 independent directors at its 2014 annual shareholder meeting. The cost associated to the addition in minimal and not deemed material.
 
No Segregation of Duties/ Ineffective controls over financial reporting: The company intends to hire additional staff members, either as employees or consultants, prior to December 31, 2014. These additional staff members will be responsible for making sure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required and will the staff members will have segregated responsibilities with regard to these responsibilities. The costs associated with the hiring the additional staff members will increase the Company's Sales, General and Administration (SG&A) Expense. It is anticipated the cost of the new staff members will be approximately $40,000 per year.
 
No audit committee: After the election of the independent directors at the 2014 annual shareholder meeting, the Company expects that an Audit Committee will be established. The cost associated to the addition an audit committee are minimal and not deemed material.

Resources: As of May 31, 2014, we have no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.
 
Written Policies & Procedures: We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.
 
Management’s Remediation Initiatives
 
As our resources allow, we will add financial personnel to our management team. We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions. We will also create an audit committee made up of our independent directors.

As of May 31, 2014, the Company has not taken any remediation actions to address these weaknesses in our controls even though they were identified during the year ending August 30, 2013. The Company’s management expects, once it is in the financial position to do so, to hire additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $60,000 per year which would allow the Company to hire 2 new staff members.
 
(b) Changes In Internal Control Over Financial Reporting
 
We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner
 
 
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PART II -- OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
None.
 
ITEM 1A. RISK FACTORS
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

The above statement notwithstanding, shareholders and prospective investors should be aware that certain risks exist with respect to the Company and its business, including those risk factors contained in our most recent Registration Statements on Form S-1 and Form 10, as amended. These risks include, among others: limited assets, lack of significant revenues and only losses since inception, industry risks, dependence on third party manufacturers/suppliers and the need for additional capital. The Company’s management is aware of these risks and has established the minimum controls and procedures to insure adequate risk assessment and execution to reduce loss exposure.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On September 20, 2013 the Company and its shareholders approved a reverse stock split of the outstanding common shares of the Company by a ratio of One for Fifty Thousand (1:50,000) (the “Split”) with a record date of October 10, 2013 to be effective on October 16, 2013.

On November 21, 2013, the Company issued 40,000,000 shares of Common Stock to our CEO. These shares were issued pursuant to the Personal Services Agreement executed on November 21, 2013. These shares are subjected to a lock up agreement whereby the shares shall be restricted from resale for 10-years from the date of issuance. Our CEO gifted 6,000,000 of these shares to family and friends. The gift shares are also subjected to the lock up agreement. The Company booked an $840,000 (or $0.021 per share) expense related to this issuance.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES.
 
Not Applicable.
 
ITEM 5. OTHER INFORMATION
 
There was no other information during the quarter ended May 31, 2014 that was not previously disclosed in our filings during that period.
 
 
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ITEM 6. EXHIBITS
 
31.1
 
Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
     
31.2
 
Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
     
32.1
 
Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
     
32.2
 
Certifications pursuant to Section 906 of 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
___________
** 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.
 
 
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SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 
 
 
 
EMBARR DOWNS, INC.
 
 
 
 
 
Date: July __, 2014
By:
/s/ Joseph Wade
 
 
 
Joseph Wade
Chief Executive and Financial Officer
 
 
 
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