U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  

 

FORM 10-K/A

(Amendment No. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2012

Commission file number: 000-31176

 

SHELRON GROUP, INC.  

(Exact name of registrant as specified in its charter)

 

Delaware		04-2968425
(State of incorporation)		(I.R.S. Employer Identification No.)

 

39 Broadway, Suite 3010

New York, New York 10006

(Address of principal executive offices)

 

Tel: (516) 620-6794

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

None

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨      No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨      No  x

 

Check whether the issuer (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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

  

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company x

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently computed second fiscal quarter was $177,813

 

The number of shares of the issuer’s common stock issued and outstanding as of June 24, 2014 was 349,937,492 shares.

 

Documents Incorporated By Reference:

None

 

  

 Explanatory Note

 

Shelron Group, Inc. is filing this Amendment (the "Form 10-K/A") to our Annual Report on Form 10-K for the year ended December 31, 2012 (the "Form 10-Q"), filed with the Securities and Exchange Commission ("SEC") on July 28, 2014, for the sole purpose of correcting the date on the opinion of Rotenberg Meril Solomon Bertiger & Guttilla, P.C., our Independent Registered Public Accounting Firm contained in Item 8 and correcting an error in the Exhibit Table contained in Item 15.

 

No other changes have been made to the Form 10-K. This Form 10-K/A continues to speak as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update any related disclosures made in the Form 10-K.

 

 

Item 8. Financial Statements

 

The financials statements of our Company for the years ended December 31, 2012 and 2011 are attached hereto following the signature page commencing on page F-1.

 

      

Item 15.   Exhibits. Financial Statement Schedules.

 

 

Exhibit Number

Description

 

3.1

Certificate of Incorporation of the Company. (1)

 

3.2

Bylaws of the Company. (1)

 

4.1

Certificate of Designation (2)

 

10.1

Stock Purchase Agreement (3)

 

10.2

Consulting Agreement dated as of March 1, 2005 between the Company and Hull Services, Inc. (5)

 

14

Code of Ethics  (4)

 

31

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

 

32

Certification of Principal Executive Officer and Principal Financial Officer 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

 

 

(1) This exhibit was filed as an exhibit to the Registration statement on Form 10-SB12G filed on October 11, 2000 and is incorporated herein by reference.

 

(2) This exhibit was filed as an exhibit to the Annual Report on Form 10-KSB filed on April 16, 2002 and is incorporated herein by reference.

 

(3) This exhibit was filed as an exhibit to the Current Report on Form 8-K filed on November 16, 2001 and is incorporated herein by reference.

 

(4) This exhibit was filed as an exhibit to the Annual Report on Form 10-KSB filed on May 21, 2004 and is incorporated herein by reference.

 

(5) This exhibit was filed as an exhibit to the Annual Report on Form 10-KSB filed on April 8, 2005 and is incorporated herein by reference.

 

(6) This exhibit was filed as an exhibit to the Current Report on Form 8-K filed on May 8, 2006 and is incorporated herein by reference.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SHELRON GROUP, INC.
Dated: August 14, 2014	By:	/s/ Eliron Yaron
		Eliron Yaron
		Chairman

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following person on behalf of the Company and in the capacities and on the date indicated.

 

Signature	Capacity	Date
/s/ Eliron Yaron	Chairman and Director	August 14, 2014
/s/ Issac Maizel	Director	August 14, 2014
/s/ Yossi Levi	Director	August 14, 2014

 

 

 

SHELRON GROUP INC.

 

INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2012 and 2011	F-3
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011	F-4
Consolidated Statements of Stockholders' Deficiency for the years ended December 31, 2012 and 2011	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011	F-6
Notes to Consolidated Financial Statements	F-7

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Directors and Stockholders of

Shelron Group, Inc.

 

We have audited the accompanying consolidated balance sheets of Shelron Group, Inc. and Subsidiary (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011 and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses, is dependent on debt and equity financing to fund its operations and has a stockholders' deficiency, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

 

/s/ Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

Saddle Brook, New Jersey

 

July 28, 2014

 

 

SHELRON GROUP INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

 

		December 31,				December 31,
		2012				2011
ASSETS
Current Assets:
Cash		$	3,878			$	185
Total Current Assets			3,878				185
Software License			900,000				900,000
Total Assets		$	903,878			$	900,185
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses		$	109,150			$	102,379
Due to stockholders			492,040				361,464
Note payable			15,000				-
Convertible note payable			7,028				7,028
Total Current Liabilities			623,218				470,871
Liability for common stock to be issued to officer			205,740				205,740
Software License Payable			900,000				900,000
Total Liabilities			1,728,958				1,576,611
Commitments
Stockholders' Deficiency:
Series A convertible preferred stock $0.001 par value
per share, Authorized 1,000,000 shares;
Issued and outstanding 1,000,000 shares			1,000				1,000
Common stock, par value $0.001 par value per share
Authorized 500,000,000 shares;
Issued and outstanding 337,677,492 shares and
328,877,492 shares, respectively			337,677				328,877
Common stock to be issued,  1,000,000 and
3,000,000 shares, respectively			10,000				12,000
Additional paid-in capital			5,637,505				5,529,306
Stock subscription receivable			(8,000	)			-
Accumulated deficit			(6,803,262	)			(6,547,609	)
Total Stockholders' Deficiency			(825,080	)			(676,426	)
Total Liabilities and Stockholders' Deficiency		$	903,878			$	900,185

 

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

 

 

SHELRON GROUP INC. AND SUBSIDIARY

 

CONSOLDIATED STATEMENTS OF OPERATIONS

 

		Years Ended
		December 31,				December 31,
		2012				2011
Revenues		$	-			$	-
Operating Expenses:
Consulting fees			35,000				34,500
Employment compensation			156,000				156,000
Professional fees			22,300				14,000
Office and general expenses			39,827				35,876
Bank charges			2,106				603
Total Operating Expenses			255,233				240,979
Loss from operations			(255,233	)			(240,979	)
Other Income (Expense):
Interest expense			(420	)			(2,025	)
Other income			-				13,944
Net Loss		$	(255,653	)		$	(229,060	)
Net loss per share:
Basic and diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding
Basic and Diluted			335,130,060				174,590,369

 

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

 

 

SHELRON GROUP INC. AND SUBSIDIARY

 

CONSOLDIATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

 

		Preferred Stock								Common Stock
		Number								Number								Common				Additional				Stock								Total
		of								of								Stock to				Paid-in				Subscription				Accumulated				Stockholders'
		Shares				Amount				Shares				Amount				be Issued				Capital				Receivable				Deficit				Deficiency
Balance at December 31, 2010			1,000,000			$	1,000				18,477,492			$	18,477							$	5,497,806			$	-			$	(6,318,549	)		$	(801,266	)
Issuance of Common Stock for debt of Hull			-				-				250,000,000				250,000																-				250,000
Issuance of Common Stock for investment by UY											2,500,000				2,500								22,500												25,000
Issuance of Common Stock for consulting fees and services											3,000,000				3,000								9,000												12,000
Common Stock to be issued																			12,000																12,000
Issuance of Common Stock for conversion on Note Payable											54,900,000				54,900																				54,900
Net loss																															(229,060	)			(229,060	)
Balance at December 31, 2011			1,000,000				1,000				328,877,492				328,877				12,000				5,529,306				-				(6,547,609	)			(676,426	)
Common Stock to be issued																			10,000																10,000
Issuance of Common Stock for cash											3,300,000				3,300								76,699				(8,000	)							71,999
Issuance of Common Stock for services											5,500,000				5,500				(12,000	)			31,500												25,000
Net loss																															(255,653	)			(255,653	)
Balance at December 31, 2012			1,000,000			$	1,000				337,677,492			$	337,677			$	10,000			$	5,637,505			$	(8,000	)		$	(6,803,262	)		$	(825,080	)

 

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

 

 

SHELRON GROUP INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Years Ended
		December 31,				December 31,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(255,653	)		$	(229,060	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for consulting fees and services			25,000				24,000
Gain on write-off of accrued expenses			-				(13,944	)
Changes in operating assets and liabilities:
Increase in accounts payable			6,771				23,265
Increase in due to stockholders			130,576				170,870
Net cash used in operating activities			(93,306	)			(24,869	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable			15,000				-
Cash received from sale of common stock			81,999				25,000
Net cash provided by financing activities			96,999				25,000
Net increase in cash			3,693				131
Cash at the beginning of the year			185				54
Cash at the end of the year		$	3,878			$	185
Schedule of Non-Cash Activity:
Issuance of common stock under stock subscription		$	8,000			$	-
Payment of Due to Stockholder in the
Form of Shares of Common Stock		$	-			$	250,000
Conversion of Note Payable into Shares of Common Stock		$	-			$	54,900
Deposit on Software License		$	-			$	900,000

 

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

 

 

SHELRON GROUP INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

 

NOTE 1 - THE COMPANY AND ITS OPERATIONS

 

Shelron Group, Inc. (“Shelron”, the “Company”, “we”, “our”, or “us”) was originally incorporated in the State of Massachusetts in June 1987, under the name "Professional Brushes, Inc." In April 1999, the Company changed its state of incorporation to Delaware by means of a merger with and into a Delaware company and, in connection therewith, changed our name to "PB Acquisition Corp." In May 2000, the Company entered into a share exchange agreement with TTTTickets.com, Inc., a Delaware corporation ("Tickets") incorporated in April 2000 for the purposes of developing and maintaining an internet website for the sale and purchase of event tickets, pursuant to which Tickets became a wholly owned subsidiary of the Company. We also changed our name to "TTTTickets Holding Corp." Thereafter, in November 2001, we entered into a stock purchase and merger agreement with B-Park Communications, Inc., ("B-Park") a Delaware corporation formed in August 2001 for the sole purpose of entering into such agreement. In September 2002, we changed our name to Shelron Group, Inc.

 

On March 29, 2012, the Company created a new subsidiary called Serena Gold, LLC (“Serena Gold”) to acquire and hold gold exploration and production licenses in South America.

 

The Company is currently focused on two sectors, internet and mining as well as strategic acquisitions that management believes will enhance our market positioning.

 

The Company has entered into agreements related to these areas.

 

¾

During April 2011, the Company signed a non-binding Memorandum of Understanding (“MOU”) to acquire gold mining rights in Ghana.  This MOU has expired and has been canceled.

 

¾

During May 2011, the Company entered into an exclusive perpetual worldwide software license. The Company will utilize the software to create an affiliate network for online websites.    The Company agreed to pay $900,000 for such license in cash or in shares of the Company based the average share price on the preceding 30 days before payment. Such payment is scheduled to be made on or about August 2015 and only if the Company achieves $1,250,000 in aggregate revenues from the use of the software prior to the payment date. If the aggregate revenues are below $1,250,000, the Company has a right to terminate the license agreement with no penalty or payment required. The Company is waiting for the completion of certain features of the software and is currently evaluating the existing technical aspects of the software.

 

¾

During September 2011, the Company signed a non-binding MOU with a local Tanzanian company for the acquisition of 51% of the mineral rights of a property in the Geita district of Tanzania. This MOU has expired and has been canceled.

 

¾

During September 2011, the Company signed an additional non-binding MOU with a local Tanzanian company which has the rights to prospect for gold in the Kahama district. This MOU has expired and been canceled.

 

¾

During November 2011, the Company entered into gold exploration in Chile based on Chile’s potential, and the Company's strategy is to explore gold in Africa and in the Americas. The Company is interested in more deals to increase its portfolio and opportunities. The focus of the Company is to adhere to its acquisition criteria and only acquire a prospecting license in Chile that can potentially be developed into proven reserves or productive metal resource mines. The Company continues to focus its efforts and search for gold opportunities in Chile.

 

  

¾

During April 2012, the Company’s newly formed subsidiary, Serena Gold, signed a binding MOU to acquire six gold exploration licenses on approximately 1,800 acres in Northern Chile. The acquisition of the licenses is subject to the satisfactory completion of due diligence by Serena Gold Payment for the licenses was deferred for two years. After completion of the due diligence Serena Gold determined not to acquire the licenses and canceled the MOU. The Company is currently looking to acquire licenses directly from the Chilean government and plans to raise additional capital to fund any potential acquisitions for these licenses.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred recurring losses, is dependent on debt and equity financing to fund its operations and has a stockholders’ deficiency, all of which raises substantial doubt about the Company's ability to continue as a going concern.

 

Management believes that the Company 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.  The Company's 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. The outcome of this uncertainty cannot be assured. The Company is currently dependent on its President to continue to fund the Company. If the Company is unable to acquire or develop an operating business the Company will be unable to fund itself. There is no guarantee that our President will continue to fund the Company.

 

The accompanying consolidated 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 the Company's operating results.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

The following accounting policies have been identified as critical to the Company's business operations and the understanding of its results of operations.

 

Basis of Presentation

 

The Company’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Shelron and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

These consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and expenses. The Company continually evaluates the accounting policies and estimates used to prepare the consolidated financial statements. The Company bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

 

  

Concentration of Credit Risk

 

The Company maintains cash in one bank account which is fully insured by the Federal Deposit Insurance Corporation. The Company has not experienced any loss on this account.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the consolidated balance sheet for cash, accounts payable and accrued expenses, due to stockholders, note payable and convertible note payable approximate fair value based on the short-term maturity of these instruments.

 

Income Taxes

 

The Company accounts for income taxes under the provisions of FASB ASC 740, “Income Taxes.” This pronouncement requires recognition of deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operations in the period in which the enactment rate changes. Deferred tax assets and liabilities are reduced through the establishment of a valuation allowance at such time as, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.

 

The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740-10-05, “Accounting for Uncertainties in Income Taxes” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 

Loss per share

 

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of Common Stock outstanding during the period. Diluted loss per share give effect to dilutive convertible securities, options, warrants and other potential Common Stock outstanding during the period, only in periods in which such effect is dilutive.  The following securities have been excluded from the calculation of net loss per share, as their effect would be antidilutive:

 

		2012				2011
Series A convertible preferred stock			1,000,000				1,000,000
Convertible note payable			9,388,000				19,859,687

 

Recently Issued Accounting Standards

 

Effective January 1, 2012, the Company adopted ASU 2011-04 (ASU 2011-04), “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).” ASU 2011-04 clarifies application of fair value measurement and disclosure requirements and was effective for annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material effect on the Company’s financial position, results of operations or cash flows.

 

 

Recently Issued Accounting Standards (continued)

 

On July 18, 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update should be applied prospectively for annual and interim periods beginning after December 15, 2013. The Company is currently evaluating the impact of its pending adoption of ASU 2013-11 on its consolidated financial statements.

 

Management does not believe that any recently issued but not yet effective accounting standard, if currently adopted, would have a material effect on the accompanying financial statements

 

Subsequent Events

 

The Company has evaluated subsequent events through the date of the filing. 

 

NOTE 3 – STOCK SUBSCRIPTION RECEIVABLE

 

During the year ended December 31, 2012, the Company issued 1,600,000 shares to an investor for a sum of $40,000 or $0.025 a share. To date, the investor paid $32,000 for these shares and owes the Company $8,000 as of December 31, 2012. The Company recorded the amount receivable from this investor as a stock subscription receivable in the consolidated balance sheet. 

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following at December 31, 2012 and 2011:

 

		2012				2011
Accrued expenses		$	106,790			$	100,439
Interest payable			2,360				1,940
Total		$	109,150			$	102,379

 

Accrued expenses consist primarily of expenses for legal and accounting services. Interest payable is interest on the convertible note payable (see Note 5).

 

 

NOTE 5 - DUE TO STOCKHOLDERS AND RELATED PARTIES

 

Hull Services, Inc. ("Hull")

 

The Company is controlled by Hull, a company wholly-owned by Eliron Yaron, the Company's Principal Executive Officer/Principal Financial and Accounting Officer.  In March 2005, the Company entered into a consulting agreement with Hull.  Pursuant to the terms of the agreement, Hull receives consulting fees totaling $156,000 per annum in installments of $3,000 per week.  Due to stockholder represents accrued but unpaid consulting as well as other loans payable made by Hull.

 

For each of the years ended December 31, 2012 and 2011, consulting services totaled $156,000.   Such amounts are reflected in the consolidated statements of operations as employment compensation.  At December 31, 2012 and December 31, 2011, the Company owed Hull $492,040 and $361,464, respectively.

 

Liability for Common Stock to be issued to officer

 

The Company has received proceeds for shares of Common Stock to be issued to Mr. Yaron. As the shares were not issued as of December 31, 2012 and 2011, the proceeds were not included in stockholders’ deficiency but classified as a liability for common stock to be issued to officer. The liability totaled $205,740 as of December 31, 2012 and 2011. 

 

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

On October 2, 2008, the Company received proceeds of $50,000 for an unsecured convertible note payable issued for working capital purposes. The note bears interest at 6% per annum and matured on April 18, 2009. The note holder had the option to convert the note and related accrued interest into share of the Company’s Common Stock at equal or lower of (a) 20% below the average of the closing price of the Common Stock for the five trading days prior to the date of the agreement and (b) the average closing price of the Common Stock for the five trading days prior to the date of the conversion notice.

 

As of the maturity date, the Company did not make any payments in respect of the amounts due.  The non-payment of this amount constituted an Event of Default under the transaction document.  On June 20, 2011, the Company and the note holder entered into an agreement whereby the maturity of the note was extended until December 31, 2011 and the total amount due to the note holder was $62,210 including $12,210 of accrued interest. In addition, in consideration for the waiver of the Event of Default, the Company agreed to reduce the price at which the note holder may convert the principal amount of the loan and interest accrued thereon (or any portion hereof) into shares of the Company’s common stock at $0.001 per share. During 2011, the note holder converted $42,972 of the convertible note payable and accrued interest into 54,900,000 shares of the Company’s stock. As of December 31, 2012, the Company is in default with respect to the remaining outstanding principal on the note of $7,028 plus the accrued interest thereon which is recorded as interest expense on the statement of operations.

  

The Company accounted for the modification of the convertible note payable as an extinguishment of debt in accordance with FASB ASC 470-50-40 “Accounting for Modifications and Extinguishments in Debt” The Company deemed the terms of the note modification to be substantially different due to the change in the conversion rate and treated the Convertible Promissory Note as extinguished and exchanged for  a  new note.  The Company determined that there was no gain or loss on the extinguishment.

 

NOTE 7 – NOTE PAYABLE

 

The Company received proceeds of $15,000 for an unsecured note payable issued for working capital purposes. There is no interest on this note and the note matured on May 17, 2012. As of December 31, 2012, the Company is in default with respect to the outstanding principal on the note.

 

  

NOTE 8 – DEPOSIT ON SOFTWARE LICENSE

 

On May 25, 2011, the Company entered into an exclusive perpetual worldwide software license. The Company will utilize the software to create an affiliate network for online websites. The Company agreed to pay $900,000 for such license in cash or in shares of the Company based the average share price on the preceding 30 days before payment. Such payment is scheduled to be made on or about August 2015 and only if the Company achieves $1,250,000 in aggregate revenues from the use of the software prior to the payment date. If the aggregate revenues are below $1,250,000, the Company has a right to terminate the license agreement with no penalty or payment required. The Company is waiting for the completion of certain features of the software and is currently evaluating the existing technical aspects of the software.

 

NOTE 9 – STOCK COMPENSATION EXPENSE

 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC Topic 505, “Equity.” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by ASC Topic 505.

 

On July 1, 2011, the Company entered into a three-month agreement with a service provider to provide marketing, business development and consulting services. In consideration of the services provided, the Company agreed to issue 6,000,000 shares of the Company’s Common Stock valued at $24,000 or $0.004 per share. On November 14, 2011, the Company issued 3,000,000 of the shares and on October 9, 2012, the Company issued the remaining 3,000,000 of the shares to the service provider. As of December 31, 2012 and 2011, there was $0 and $12,000, respectively, classified as common stock to be issued for the remaining shares to be issued.

 

On January 1, 2012, the Company entered into a four-month agreement with a service provider to provide marketing, business development and consulting services. In consideration of the services provided, the Company agreed to issue 1,000,000 shares of the Company’s Common Stock valued at $10,000 or $0.01 per share. On September 18, 2012, the Company issued these shares to the service provider.

 

On January 1, 2012, the Company entered into a one-year agreement with a service provider to provide marketing, business development and consulting services. In consideration of the services provided, the Company agreed to issue 1,500,000 shares of the Company’s Common Stock valued at $15,000 or $0.01 per share. On September 18, 2012, the Company issued these shares to the service provider.

 

Stock based compensation amounted to $25,000 and $24,000 for the years ended December 31, 2012 and 2011, respectively, and is included in consulting fees on the consolidated statements of operations.

 

NOTE 10 - STOCKHOLDERS' DEFICIENCY

 

Convertible Preferred Stock

 

On November 8, 2001, the Company filed a Certificate of Designation with the State of Delaware authorizing the issuance of one series of Preferred Stock (the "Series A Preferred Stock") consisting of 1,000,000 shares. All 1,000,000 shares of Series A Preferred Stock were issued to Hull. The holder of the Series A Preferred Stock is entitled to vote along with the holders of Common Stock as one class on all matters for which the Stockholders of the Company shall vote. The holder of Series A Preferred Stock is entitled to a vote representing 52% of the total shares entitled to vote by all holders of the then outstanding shares of Common Stock and Series A Preferred Stock combined. Each share of the Series A Preferred Stock is convertible at the option of the holder into one share of Common Stock upon not less than 15 days and not more than 30 days’ notice to the Company. In addition, if all or substantially all of the Company's assets or all of the outstanding shares of the Company are sold, the shares of Series A Preferred Stock automatically convert to Common Stock. The Series A Preferred Stock has a liquidation preference of $0.001 per share.

 

 

Issuances of Common Stock

 

During the year ended December 31, 2012, the Company issued a total of 8,800,000 shares of common stock valued at $116,999 of which 3,300,000 common shares with a total value of $79,999 was issued for various cash investments in the Company and 5,500,000 common shares with a total value of $37,000 was issued for various services performed for the Company.

 

On December 14, 2012, the Company entered into an agreement with an investor to purchase 1,000,000 common shares for $10,000. As of July 8, 2014, these shares have not been issued and this is recorded as common stock to be issued on the consolidated balance sheet.

 

During the year ended December 31, 2011, the Company issued a total of 310,400,000 shares of common stock valued at $341,900 of which 250,000,000 common shares with a total value of $250,000 were issued as partial payment of the debt to Hull, 54,900,000 common shares with a total value of $54,900 were issued for the conversion of the Note Payable, 2,500,000 common shares with a total value of $25,000 was issued for various cash investments in the Company and 3,000,000 with a total value of $12,000 was issued for various services performed for the Company.

 

NOTE 11 - INCOME TAXES

 

There was no provision for federal income taxes for the years ended December 31, 2012 and 2011.

 

At December 31, 2012, the Company had available approximately $6.3 million of net operating loss carry forwards for federal income tax purposes which expire in the fiscal years 2021 through 2031.  In addition, the Company has available approximately $511,000 of capital loss carry forwards that expire in fiscal year 2014.

 

Significant components of the Company’s deferred tax assets at December 31, 2012 and 2011 are as follows:

 

		2012				2011
Net operating loss carryforwards		$	2,192,970			$	2,137,293
Capital loss carryforwards			173,582				173,582
Stock based compensation			154,580				46,308
Intangible assets			6,120				4,760
Total deferred tax assets			2,527,252				2,361,943
Valuation allowance			(2,527,252	)			(2,361,943	)
Net deferred tax assets		$	—			$	—

 

A valuation allowance has been established equal to the full amount of the deferred tax assets as the Company is not assured at December 31, 2012 and 2011 that it is more than likely than not that these benefits will be realized.

 

The change in valuation allowance for the years ended December 31, 2012 was an increase of approximately $165,000. The increase in the valuation allowance was the result of increases in the above stated items.

 

  

At December 31, 2012 and 2011, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. We recognize interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2012 and 2011, we have not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

 

The Company files federal income tax returns subject to statutes of limitations. The 2009 through 2012 tax years generally remain subject to examination by federal tax authorities

 

NOTE 12 - COMMITMENT

 

We maintain an office at 39 Broadway, New York, New York.  No rent is charged for this space.  

 

NOTE 13 – SUBSEQUENT EVENTS

 

During the year ended December 31, 2013 and the period from January 1, 2014 to July 8, 2014, the Company raised additional capital and issued 7,775,000 and 4,485,000 common shares, respectively. The money raised is being used to assist the Company to achieve its strategy with respect to its search for potential acquisitions in the mining and energy sectors.