donmarcos_10k-123108.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-K

x 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008
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: 000-52692

DON MARCOS TRADING CO.
(Exact name of registrant as specified in its charter)

Florida
  
65-0921319
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)

1535 Southeast 17th Street, Suite 107, Ft. Lauderdale, Florida  33316
(Address of principal executive offices)

Registrant’s telephone number, including area code: (954) 356-8100

Securities registered pursuant to Section 12(b) of the Act:  None

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

Common Stock, no par value
(Title of Class)

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

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

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ Yes o No
 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, 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.  þ

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
  
Accelerated filer
o
Non-accelerated filer
o
  
Smaller reporting company
þ

Indicate by check mark whether the registrant is a shell company.  o Yes þ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on April 10, 2009 was approximately $1,520,000 (based on 15,200,000 shares at $0.10 per share).

The registrant had 47,300,000 shares of common stock outstanding as of April 13, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference in Part IV, Item 15: (i) Registration Statement on Form SB-2, filed on May 15, 2007, as amended (Registration No. 333-142976); (ii) Current Report on Form 8-K, filed on December 14, 2007; (iii) Annual Report on Form 10-KSB, filed on March 31, 2008; (iv) Current Report on Form 8-K, filed on April 30, 2008; and (v) Current Report on Form 8-K, filed on August 14, 2008.
 
 
 
TABLE OF CONTENTS
 

   
Page
     
PART I
    
     
ITEM 1.
BUSINESS
1
     
ITEM 1A.
RISK FACTORS
3
     
ITEM 1B.
UNRESOLVED STAFF COMMENTS
3
     
ITEM 2.
PROPERTIES
4
     
ITEM 3.
LEGAL PROCEEDINGS
4
     
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
4
     
PART II
    
     
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
4
     
ITEM 6.
SELECTED FINANCIAL DATA
5
     
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5
     
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
9
     
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
10
     
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
10
     
ITEM 9A.
CONTROLS AND PROCEDURES
10
     
ITEM 9A(T).
CONTROLS AND PROCEDURES
12
     
ITEM 9B.
OTHER INFORMATION
12
     
PART III
    
     
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
12
     
ITEM 11.
EXECUTIVE COMPENSATION
14
     
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
15
     
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
16
     
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
16
     
PART IV
    
     
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
17
     
SIGNATURES
  
18


 
i
 

PART I

ITEM 1.      BUSINESS.

Business Development

We were incorporated on May 11, 1999 in the state of Florida to be the sole importer and distributor of Don Marcos Coffee.

Business of Registrant

Don Marcos Coffee is grown, roasted and packaged in Costa Rica by the Don Marcos Coffee Company, S.A., a Costa Rica company.  On January 23, 2003, we entered into a Distributorship Agreement with Don Marcos Coffee Company, S.A.  Don Marcos Coffee Company, S.A. is a licensed coffee exporter.  Coffee exports are regulated by the National Costa Rican Coffee Institute (INCAFE).

Don Marcos Coffee is a specialty grade coffee, sometimes called gourmet or premium coffee.  Specialty coffees are made from exceptional beans grown only in ideal coffee-producing climates. They tend to feature distinctive flavors, which are shaped by the unique characteristics of the soil that produces them.

Don Marcos Coffee is designated Strictly Hard Bean (SHB) by the grower, Don Marcos Coffee Company, S.A.  SHB is part of a classification system for Costa Rican coffees, with the characteristic of being cultivated at an altitude higher than 3,900 feet above sea level.  In Costa Rica, coffee trees that grow at this altitude produce higher quality beans that have a high density that holds in the nutrients and flavor the beans during roasting.

The coffee is not roasted until the time of order for maximum freshness.  It can be packaged ground or whole bean.

We order coffee in quantities of 69 kilograms.  This is the standard size export bag.  For wholesale orders, the coffee is shipped to us in a 69 kilogram bulk pack.

For retail sales, we use a custom printed, 12-ounce foil side gusseted bag.  There are approximately 202 bags per order.  The bags are dropped shipped by the bag manufacturer directly to Costa Rica.  The bags are machine filled and machine sealed in Costa Rica.  The filled bags are then shipped directly to our offices. In addition, we offer custom packaging for both resale and business promotion.

We sell our coffee directly on our e-commerce website, www.donmarcos.com and plan to distribute coffee to specialty coffee stores and select restaurants as well.

 
1
 

Competition

Although we face intense competition from numerous other coffee distributors, we believe that we can compete on the basis of the quality and uniqueness of our products.  We believe our products are unique because:

·     
Our coffee is specialty coffee.  Specialty coffee is defined as a coffee that has no defects and has a distinctive flavor in the cup.  Like wine and honey, specialty coffee has a unique flavor thanks to the micro-climates that produce it.  Our coffee is full bodied with a sweet caramel taste.
·     
Our coffee is Strictly Hard Bean.  Strictly Hard Bean is part of a classification system for coffees, with the characteristic of being cultivated above 3,900 feet above sea level.  In Costa Rica, coffee trees that grow at this altitude produce higher quality beans that have a high density that holds in the nutrients and flavor the beans during roasting.
·     
Our packaging is unique in that our bag incorporates a one-way degassing valve to protect the freshness of the coffee.
·     
Our coffee is processed under the highest quality standards, using the latest and most environmentally friendly machinery available.  We maintain the strictest environmental standards concerning water quality, recycling and reforestation.

However, many of our competitors are substantially larger, better financed and have superior resources compared to us.  Therefore, there is no guarantee that we will be able to successfully compete with them.

We have numerous competitors.  Some of our competitors are large companies selling a large variety of products, including products that compete with our coffee.  Competitors include Kraft General Foods, Inc., The Kroger Co., The Procter & Gamble Company and Sara Lee Corporation.  Our noteworthy competitors for specialty coffee include:

1.          Caf Britt
2.          Triangulo de Oro
3.          Caf 1820
4.          Volio
5.          Caf Rey

These are five popular coffee companies from Costa Rica.  Other coffee companies, such as Peets and Starbucks, offer coffee from several regions of the world.  The five competitors listed above are direct competitors of our company because they all produce only Costa Rican coffee like Don Marcos Coffee.

 
2
 

Sources and Availability of Raw Material and Principal Suppliers

Don Marcos Coffee is grown, roasted and packaged in Costa Rica by the Don Marcos Coffee Company, S.A., a Costa Rica company.  On January 23, 2003, we entered into a Distributorship Agreement with Don Marcos Coffee Company, S.A.  The material terms of our Distributorship Agreement with Don Marcos Coffee Company, S.A. are:

·     
We have exclusive worldwide rights to distribute all coffee products of Don Marcos Coffee Company, S.A.
·     
We have the right to appoint subdistributors, but have not done so yet.
·     
We must place a minimum order of $200 with payment terms of net 30 days.
·     
We have a 30 day right of inspection of the coffee.
·     
The agreement has an initial term of five years with automatic five year renewals unless either party terminates in writing at least 90 days prior to the end of any term.
·     
We pay the current market price for coffee when we place an order for coffee from Don Marcos Coffee Company, S.A.

If Don Marcos Coffee Company, S.A. terminated the Distributorship Agreement, it would be difficult to find a replacement distributor and our operations would suffer.

Dependence on Major Customers

We are not dependent on any one customer for a substantial portion of our sales of any product.

Intellectual Property

We own the registered trademark, Don Marcos, registration number 2559462, registered on April 9, 2002 with the U.S. Patent and Trademark Office.  At this time, we do not have any other trademark, copyright or patent protection.

Employees

As of the date hereof, we have three full-time employees.  We plan to hire independent contractors on an “as needed” basis only.  We have no collective bargaining agreements with our employees.  We believe that our employee relationships are satisfactory.

ITEM 1A.      RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 1B.      UNRESOLVED STAFF COMMENTS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 
3
 

ITEM 2.      PROPERTIES

Our office encompasses 800 square feet located in downtown Ft. Lauderdale, Florida in a building owned by Hudson Capital Group.  Our management believes these premises are in good condition.  Hudson Capital Group allows us to use this space free of charge.  Although Hudson Capital Group can revoke our right to use this space at any time, we have been informed by its principal, Steven W. Hudson, that Hudson Capital Group intends to allow us to continue using the space free of charge for the foreseeable future.  However, should we be evicted from the space, we would need to relocate to new facilities and may lack the funds to do so.

ITEM 3.      LEGAL PROCEEDINGS

To the best knowledge of management, there are no litigation matters pending or threatened against us.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

 
PART II
 
ITEM 5.      MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Equity
 
Our common stock is currently quoted on the Over-The-Counter Bulletin Board under the Symbol “DNMO.”  Our common stock was first eligible for quotation on the Over-the-Counter Bulletin Board on March 5, 2008.  The last sale price of our common stock was $0.10 per share on March 28, 2008, without retail mark-up, mark-down or commissions.
 
The above quotations are inter-dealer quotations from market makers of our common stock.  At certain times the actual closing or opening quotations may not represent actual trades that took place.
 
Holders
 
As of April 13, 2009, there were 86 shareholders holding certificated securities.  Our transfer agent is Transfer Online, Inc., 317 SW Alder Street, 2nd Floor, Portland, Oregon  97204.

Dividends
 
We have paid no dividends on our common stock since inception and do not anticipate or contemplate paying cash dividends in the foreseeable future.
 

 
4
 

Securities Authorized for Issuance under Equity Compensation Plans
 
None.
 
Recent Sales of Unregistered Securities
 
On April 13, 2009, we entered into Stock Purchase Agreements with certain of our officers for the sale to those officers of shares of our common stock as follows:
 
Name of Officer
Number of Shares of
Common Stock Purchased
Purchase Price Paid
Earl T. Shannon
1,000,000
$5,000
Steven W. Hudson
1,000,000
$5,000
Scott W. Bodenweber
1,000,000
$5,000
 
Pursuant to the Stock Purchase Agreements described above, we sold an aggregate of 3,000,000 shares of our common stock at a price of $0.005 per share to three accredited investors for gross proceeds of $15,000.  We relied on the exemption from registration relating to offerings that do not involve any public offering pursuant to Section 4(2) under the Act and/or Rule 506 of Regulation D promulgated pursuant thereto.  We believe that the investors are “accredited investors” under Rule 501 under Regulation D of the Act and had adequate access to information about us.

ITEM 6.      SELECTED FINANCIAL DATA
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report.

Overview

We were incorporated on May 11, 1999 in the state of Florida to be the sole importer and distributor of Don Marcos® Coffee.

 
5
 

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  In consultation with our Board of Directors, we have identified several accounting principles that we believe are key to understanding of our financial statements.  These important accounting policies require management's most difficult, subjective judgments.

Development Stage Enterprise

We are a development stage enterprise, as defined in Financial Accounting Standards Board No. 7.  Our planned principal operations have not commenced, and, accordingly, only nominal revenue has been derived during the period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Net Loss per Share

We adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, any anti-dilutive effects on net income (loss) per share are excluded.

Inventory

Inventory is stated at the lower of cost (determined by the first-in, first-out method), or market.  Inventories are adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.

 
6
 

Stock Issued for Non-Cash Transactions

It is our policy to value stock issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated.

There were no shares of common stock issued for services during the years ended December 31, 2008 and 2007.

Going Concern

Our financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  Our ability to continue as a going concern is dependent upon our ability to locate sources of capital, and attain future profitable operations.  Our management is currently initiating their business plan.  The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Stock Based Compensation

We adopted SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS No. 123R”), under the modified-prospective transition method on January 1, 2006.  SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair-value.  Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair-value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of January 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after January 1, 2006.  SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123.  Prior to the adoption of SFAS No. 123R, we accounted for our stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.

Stock-based compensation represents the cost related to stock-based awards granted to employees.  We measure stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognizes the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period.  We estimate the fair value of stock options using a Black-Scholes valuation model.  The expense is recorded in operating expenses in the condensed statements of operations.

 
7
 

Results of Operations

You should read the selected financial data set forth below along with our discussion and our financial statements and the related notes.  We have derived the financial data from our audited financial statements.  We believe the financial data shown in the table below include all adjustments consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information.  Operating results for the period are not necessarily indicative of the results that may be expected in the future.

   
Year Ended
December 31, 2008
(audited)
    
Year Ended
December 31, 2007
(audited)
    
Increase/(Decrease)
  
Revenue
   $ 480     $ -     $ 480  
Operating expenses
   $ 43,107     $ 132,650     $ (89,543 )
Net (loss)
   $ (42,627 )   $ (132,650 )   $ (90,023 )
Net (loss) per share
   $ (0.00 )   $ (0.00 )   $ (0.00 )
 
 
Results for the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007 (audited)

Revenues

There were revenues from operations in the amount of $480 for the year ended December 31, 2008.  There were no revenues from operations for the year ended December 31, 2007.

Operating Expenses

Operating expenses decreased by $89,543 to $43,107 for the year ended December 31, 2008 as compared to $132,650 for the year ended December 31, 2007.

During the year ended December 31, 2008, we incurred accounting, legal and professional services expenses of $41,020 associated with our public company reporting requirements and other expenses of $2,087.  During the year ended December 31, 2007, we incurred accounting, legal and professional services expenses of $86,381 associated with our public company reporting requirements, salaries expense of $45,474 associated with the issuance of stock options to employees, and other expenses of $795.

Net Loss

Primarily as a result of our operating expenses, we had a net loss of $42,627 for the year ended December 31, 2008 compared to a net loss of $132,650 for the same period in the prior year.

 
8
 

Liquidity and Capital Resources

We currently have no material commitments for capital expenditures and have no fixed expenses.

Working capital is summarized and compared as follows:

   
December 31, 2008
    
December 31, 2007
  
Current assets
   $ 11,504     $ 15,421  
Current liabilities
   $ 12,176     $ 9,466  
Working capital (deficit)
   $ (672 )   $ 5,955  

Our net cash used by operations was $44,553 for the year ended December 31, 2008 as compared to net cash used of $91,965 for the year ended December 31, 2007.  During the year ended December 31, 2008, we experienced a net loss of $42,627, an increase in inventory of $4,636, and accounts payable and accrued expenses of $2,710.  During the year ended December 31, 2007, we experienced a net loss of $132,650, an increase in inventory of $4,255, and a decrease in accrued accounting and legal expenses of $534.  This was offset by non-cash stock options issued to employees in the amount of $45,474.

There was no net cash used or provided from investing activities for the years ended December 31, 2008 and 2007.

Our net cash provided from financing activities was $36,000 during the year ended December 31, 2008, due to the issuance of a private placement of common stock.  For the year ended December 31, 2007, cash was provided from financing activities of $103,000, due to the issuance of a private placement of common stock.

On April 13, 2009, cash was provided from financing activities amounting to $15,000, which were stock purchases by shareholders.

Off-Balance Sheet Arrangements

None.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 
9
 

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required to be filed pursuant to this Item 8 begin on page F-1 of this report.
 
ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
Effective October 31, 2007, we dismissed Kabani & Company, Inc. (“Kabani”) as our independent auditors for the fiscal year ended December 31, 2007 and approved the engagement of Weaver & Martin, LLC as Kabani’s replacement.  The decision to change auditors was approved by our Board of Directors.

For the last two fiscal years, Kabani’s reports on the financial statements of our company did not contain an adverse opinion or a disclaimer of opinion, nor were the reports qualified or modified as to uncertainty, audit scope, or accounting principles.  For the last two fiscal years and any subsequent interim period preceding the dismissal, there were no disagreements with Kabani on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Kabani would have caused Kabani to make reference to the matter in their reports.

ITEM 9A.      CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our President and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this report.  Based upon such evaluation,  the President and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
10
 

Management 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) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed our internal control over financial reporting as of December 31, 2008, the end of our fiscal-year.  Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal-year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.  We reviewed the results of management’s assessment with our Board of Directors.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by its registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

 
11
 

ITEM 9A(T).        CONTROLS AND PROCEDURES

This Item is not applicable to us.

ITEM 9B.              OTHER INFORMATION

We have nothing to report under this Item.

PART III

ITEM 10.              DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
 
Directors and Executive Officers
 
Our directors and executive officers are as follows:
 
Name
Age
Position
Earl T. Shannon
41
Director, President
Steven W. Hudson
39
Director, Executive Vice President
Scott W. Bodenweber
37
Director, Chief Financial Officer
Peter Wright
57
Director, Secretary
Mark E. Tupper
62
Director

Earl T. Shannon, President, Director.   Mr. Shannon has been our President and one of our Directors since our inception.  Mr. Shannon was an officer and director of Salty's Warehouse, Inc. from its inception on July 16, 1998 through its sale on December 11, 2006.  From January 1997 and continuing through the present, Mr. Shannon has been the President of Winthrop Venture Management, Inc., an investment management company based in Fort Lauderdale, Florida.

Steven W. Hudson, Executive Vice President, Director.   Mr. Hudson has been with us since February 1, 2007.  Mr. Hudson was an officer and director of Salty’s Warehouse, Inc. from April 20, 2004 through its sale on December 11, 2006.  Mr. Hudson was President and CEO of International Yacht Construction from May 1999 through July 3, 2007.  Since June 1997, Mr. Hudson also has served as President and CEO of Hudson Capital Group, a private investment firm.  Mr. Hudson graduated from Southern Methodist University with a Bachelor of Arts degree in Business Economics.

 
12
 

Scott W. Bodenweber, Chief Financial Officer, Director.  Mr. Bodenweber joined us January 21, 2003.  Mr. Bodenweber was an officer and director of Salty’s Warehouse, Inc. from April 20, 2004 through its sale on December 11, 2006.  From June 1997 and continuing through the present, Mr. Bodenweber has been the Controller of Hudson Capital Group, an investment firm in Fort Lauderdale, Florida.  Mr. Bodenweber graduated from Florida State University in 1994 with Bachelor of Science Degrees in both Accounting and Finance.  He is a licensed Certified Public Accountant in the State of Florida.

Peter Wright, Secretary, Director.  Mr. Wright joined us on January 21, 2003.  Mr. Wright has been the Chief Financial Officer of Hudson Capital Group, an investment firm in Fort Lauderdale, Florida from May 1998 continuing through the present.  Mr. Wright graduated from Stetson University in 1975, with a Bachelor of Science degree in Accounting.

Mark E. Tupper, Director.  Mr. Tupper joined us on February 1, 2007.  Mr. Tupper has been the founder, Chief Executive Officer and principal shareholder of Don Marcos Coffee Company, S.A. since its inception on March 27, 2000.  Mr. Tupper has been the founder, Chief Executive Officer and principal shareholder of Tupper Centroamerica, S.A. since its inception on July 9, 1982.  Mr. Tupper graduated from the American School in Switzerland with studies in World & European History, the University of Aix-en-Provence in France in European Politics & French Literature, and the Lewisham Technical College of London, England in Mechanical Engineering.

Our Directors serve until the next annual meeting or until their successors are qualified and elected.  Our Officers serve at the discretion of the Board of Directors.
 
Family Relationships

Mark E. Tupper, one of our directors, is the uncle of Earl T. Shannon, who is our President and one of our directors.

Compliance with Section 16(a) of the Exchange Act
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and certain officers, as well as persons who own more than 10% of a registered class of our equity securities, (“Reporting Persons”) to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission.

Based solely upon a review of the copies of such forms, we believe that all Reporting Persons have complied on a timely basis with all filing requirements applicable to them.

 
13
 

ITEM 11.        EXECUTIVE COMPENSATION

Summary Compensation Table

None of our officers or directors is currently receiving any cash compensation for their services.

Outstanding Equity Awards at Fiscal Year-End

In order to compensate our officers and directors, we enacted an Incentive and Nonstatutory Stock Option Plan on February 1, 2007.  Our stock option plan has a total of 5,000,000 shares reserved for issuance as stock options. All issued options are 100% vested.  Other than our stock option plan, we do not currently have any arrangements or contracts pursuant to which our officers and directors are compensated for any services, including any additional amounts payable for committee participation or special assignments.   No such arrangements were in effect between us and our officers and directors for the last completed fiscal year, either.  As of the date of this report, we have issued the following stock options:
 
 
Option Awards
Name
Number of securities
underlying unexercised
options (#)
exercisable
Number of securities
underlying unexercised
options (#)
unexercisable
Equity incentive
plan awards:
Number of securities
underlying unexercised
unearned options(#)
Option exercise price ($)
Option
expiration date
Earl T. Shannon
1,000,000
-0-
-0-
$0.005
02/01/17
Steven W. Hudson
1,000,000
-0-
-0-
$0.005
02/01/17
Scott W. Bodenweber
1,000,000
-0-
-0-
$0.005
02/01/17
Peter Wright
1,000,000
-0-
-0-
$0.005
02/01/17
Mark E. Tupper
1,000,000
-0-
-0-
$0.005
02/01/17
TOTAL
5,000,000
-0-
-0-
    

Compensation of Directors

Our Directors do not receive any cash compensation, but are entitled to reimbursement of their reasonable expenses incurred in attending directors’ meetings.

We do not have any audit, nominating, compensation or other committee of our Board of Directors.

 
14
 

ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth certain information regarding our shares of outstanding common stock beneficially owned as of the date hereof by (i) each of our directors and executive officers, (ii) all directors and executive officers as a group, and (iii) each other person who is known by us to own beneficially more than 5% of our common stock based upon 47,300,000 issued shares of common stock.

Name and Address of Beneficial Owners1
Amount and Nature
of Beneficial Ownership
Percent Ownership2
Earl T. Shannon, Director, President
13,225,0003
27.4%
Steven W. Hudson, Director, Executive Vice President
10,737,5004
22.0%
Scott W. Bodenweber, Director, Chief Financial Officer
10,937,5005
22.4%
Peter Wright, Director, Secretary
  1,200,0006
2.5%
Mark E. Tupper, Director
  1,000,0007
2.1%
All executive officers and directors as a group (five persons)
37,100,000  
69.3%


1   c/o our address, 1850 Southeast 17th Street, Suite 300, Ft. Lauderdale, FL 33316.
 
2   Except as otherwise indicated, we believe that the beneficial owners of common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
 
3   Includes 1,000,000 options to purchase shares of common stock at $0.005 per share until February 1, 2017.
 
4   Includes 1,000,000 options to purchase shares of common stock at $0.005 per share until February 1, 2017 and 400,000 shares of common stock owned by family members.
 
5   Includes 1,000,000 options to purchase shares of common stock at $0.005 per share until February 1, 2017 and 600,000 shares owned by family members.
 
6   Consists of 1,000,000 options to purchase shares of common stock at $0.005 per share until February 1, 2017 and 200,000 shares owned by family members.
 
7   Consists of 1,000,000 options to purchase shares of common stock at $0.005 per share until February 1, 2017.

 
15
 

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Steven W. Hudson is a principal of Hudson Capital Group, which furnishes us with office space, a value of approximately $400 per month, on a rent-free basis.

Don Marcos Coffee is grown, roasted and packaged in Costa Rica by the Don Marcos Coffee Company, S.A., a Costa Rica company owned and operated by Mark E. Tupper.  Mark E. Tupper is the uncle of Earl T. Shannon, our President and one of our directors.  We have an exclusive distributorship agreement with Don Marcos Coffee Company, S.A., the material terms of which are described in Part I, Item 1, Description of Business—Sources and Availability of Raw Materials and Principal Suppliers.

ITEM 14.        PRINCIPAL ACCOUNTING FEES AND SERVICES

Weaver & Martin, LLC (“Weaver”)

Weaver was our independent auditor and examined our financial statements for the years ended December 31, 2008 and December 31, 2007.  Weaver performed the services listed below and was paid the fees listed below for the years ended December 31, 2008 and December 31, 2007.

Audit Fees

Weaver was paid aggregate fees of approximately $7,200 and $5,400 for the years ended December 31, 2008 and December 31, 2007, respectively, for professional services rendered for the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports on Form 10-Q during the first, second and third quarters of 2008 and the third quarter of 2007.

Audit Related Fees

Weaver was not paid additional fees for the years ended December 31, 2008 and December 31, 2007 for assurance and related services reasonably related to the performance of the audit or review of our financial statements.

Tax Fees

Weaver was not paid fees for the years ended December 31, 2008 and December 31, 2007 or professional services rendered for tax compliance, tax advice and tax planning during this fiscal year period.

All Other Fees

Weaver was not paid any other fees for professional services during the years ended December 31, 2008 and December 31, 2007.

 
16
 

PART IV

ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits

 
3.1
Articles of Incorporation of Don Marcos Trading Co., filed May 11, 19991
 
3.2
Amendment to Articles of Incorporation of Don Marcos Trading Co., filed February 6, 20031
 
3.3
Amendment to Articles of Incorporation of Don Marcos Trading Co., filed February 14, 20071
 
3.4
Amendment to Articles of Incorporation of Don Marcos Trading Co., filed May 4, 20071
 
3.5
Amended and Restated Bylaws of Don Marcos Trading Co., dated February 2, 20071
 
10.1
Form of Stock Purchase Agreement Used in Private Offering1
 
10.2
2007 Incentive and Nonstatutory Stock Option Plan, dated February 1, 20071
 
10.3
Distributorship Agreement dated January 23, 20031
 
10.4
Stock Purchase Agreement with Earl T. Shannon, dated December 12, 20072
 
10.5
Stock Purchase Agreement with Steven W. Hudson, dated December 12, 20072
 
10.6
Stock Purchase Agreement with Scott W. Bodenweber, dated December 12, 20072
 
10.7
Stock Purchase Agreement with Earl T. Shannon, dated April 1, 20083
 
10.8
Stock Purchase Agreement with Steven W. Hudson, dated April 1, 20083
 
10.9
Stock Purchase Agreement with Scott W. Bodenweber, dated April 1, 20083
 
10.10
Stock Purchase Agreement with Earl T. Shannon, dated August 4, 20084
 
10.11
Stock Purchase Agreement with Steven W. Hudson, dated August 4, 20084
 
10.12
Stock Purchase Agreement with Scott W. Bodenweber, dated August 4, 20084
 
10.13
Stock Purchase Agreement with Earl T. Shannon, dated April 13, 2009
 
10.14
Stock Purchase Agreement with Steven W. Hudson, dated April 13, 2009
 
10.15
Stock Purchase Agreement with Scott W. Bodenweber, dated April 13, 2009
 
14
Code of Ethics5
  23 Consent of Weaver & Martin LLC
 
31.1
Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2
Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002


 
1   Incorporated by reference from our Registration Statement on Form SB-2, filed on May 15, 2007, as amended (Registration No. 333-142976).
 
2   Incorporated by reference from our Current Report on Form 8-K, filed on December 14, 2007.
 
3   Incorporated by reference from our Current Report on Form 8-K, filed on April 30, 2008.
 
4   Incorporated by reference from our Current Report on Form 8-K, filed on August 14, 2008.
 
5   Incorporated by reference from our Annual Report on Form 10-KSB, filed on March 31, 2008.

 
17
 

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, duly authorized.

 
 
DON MARCOS TRADING CO. 
DATED:  April 14, 2009  
 
 
By: /s/ Earl T. Shannon                                                                 
Earl T. Shannon
Director, President
(Principal Executive Officer)
   
   
DATED:  April 14, 2009 
By: /s/ Scott W. Bodenweber                                                       
Scott W. Bodenweber
Director, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
 
                                                                   
 

 
18
 
 
WEAVER & MARTIN
 
 
To the Board of Directors and Stockholders
Don Marcos Trading Co.
Ft. Lauderdale, FL
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We have audited the balance sheet of Don Marcos Trading Co. as of December 31, 2008 and 2007 and the related statements of operations, stockholders' equity, and cash flows for the year then ended. Don Marcos Trading Co.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit 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 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 audit 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 of the financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Don Marcos Trading Co. as of December 31, 2008 and 2007, and the results of its operations, stockholders' equity, and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and is dependent upon the continued sale of its securities or obtaining debt financing for funds to meet its cash requirements.  These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

/s/ Weaver & Martin LLC
Weaver & Martin LLC
Kansas City, Missouri
April 14, 2009

 
Certified Public Accountants & Consultants
411 Valentine, Suite 300
Kansas City, Missouri 64111
Phone: (816) 756-5525
Fax: (816) 756-2252
 
 
F-1
 

DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2008 AND 2007


   
2008
    
2007
  
ASSETS
            
             
CURRENT ASSETS
            
     Cash
   $ 2,613     $ 11,166  
     Inventory
     8,891       4,255  
                 
TOTAL CURRENT ASSETS
   $ 11,504     $ 15,421  
                 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                
                 
                 
CURRENT LIABILITIES
                
        Accounts payable and accrued expenses
   $ 12,176     $ 9,466  
                 
STOCKHOLDERS’ EQUITY
                
     Preferred stock, no stated value
                
        Authorized 10,000,000 shares
                
        Issued and outstanding -0- shares
                
     Common stock, no par value
                
        Authorized 100,000,000 shares
                
        Issued and outstanding - 44,300,000 shares at December 31, 2008 and 37,100,000 shares at December 31, 2007
     223,454       187,454  
     Deficit accumulated during the development stage
     (224,126 )     (181,499 )
                 
          TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
     (672 )     5,955  
                 
               TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
   $ 11,504     $ 15,421  


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

 
F-2
 
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
AND FOR THE PERIOD FROM MAY 11, 1999 TO DECEMBER 31, 2008


               
May 11, 1999
  
               
(Date of Inception)
  
               
To
  
   
2008
    
2007
    
December 31, 2008
  
                   
REVENUES
   $ 480     $ -     $ 480  
                         
OPERATING EXPENSES
     43,107       132,650       224,606  
                         
         NET (LOSS)
   $ (42,627 )   $ (132,650 )   $ (224,126 )
                         
NET (LOSS) PER COMMON SHARE
                        
                         
         Basic and diluted
   $ (0.00 )   $ (0.00 )        
                         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
                        
                         
         Basic and diluted
     40,861,096       29,872,055          


The accompanying notes are an integral part of these financial statements
 
 
F-3
 

DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)


               
Deficit
        
               
Accumulated
        
   
Common Stock
    
During The
        
   
Shares
    
Amount
    
Development Stage
    
Total
  
                         
BALANCE, JANUARY 1, 2007
     16,500,000       38,980       ( 48,849 )     ( 9,869 )
                                 
Common stock issued for cash
     20,600,000       103,000       -       103,000  
                                 
Stock based compensation
     -       45,474       -       45,474  
                                 
Net (loss) for the year ended December 31, 2007
     -       -       ( 132,650 )     ( 132,650 )
                                 
BALANCE, DECEMBER 31, 2007
     37,100,000       187,454       ( 181,499 )     5,955  
                                 
Common stock issued for cash
     7,200,000       36,000       -       36,000  
                                 
Net (loss) for the year ended December 31, 2008
      -       -       ( 42,627 )     ( 42,627 )
                                 
BALANCE, DECEMBER 31, 2008
     44,300,000     $ 223,454     $ ( 224,126 )   $ ( 672 )


The accompanying notes are an integral part of these financial statements

 
F-4
 
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
AND FOR THE PERIOD FROM MAY 11, 1999 (INCEPTION) TO DECEMBER 31, 2008


               
May 11, 1999
  
               
(Inception)
  
               
To
  
   
2008
    
2007
    
December 31, 2008
  
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
        Net loss
   $ (42,627 )   $ (132,650 )   $ (224,126 )
        Adjustments to reconcile net loss to net cash used by operating activities:
                        
            Common stock issued for services
     -       -       3,635  
            Stock based compensation
     -       45,474       45,474  
        Changes in operating assets and liabilities:
                        
            Inventory
     (4,636 )     (4,255 )     (8,891 )
            Accounts payable and accrued expenses
     2,710       (534 )     12,176  
                         
        NET CASH USED IN OPERATING ACTIVITIES
     (44,553 )     (91,965 )     (171,732 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
     -       -       -  
                         
CASH FLOWS FROM FINANCING ACTIVIITES
                        
        Issuance of common stock for cash
     36,000       103,000       172,000  
        Cash contributed by stockholder
     -       -       2,345  
                         
        NET CASH PROVIDED BY FINANCING ACTIVITIES
     36,000       103,000       174,345  
                         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     (8,553 )     11,035       2,613  
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
     11,166       131       -  
                         
CASH AND CASH EQUIVALENTS, END OF YEAR
   $ 2,613     $ 11,166     $ 2,613  


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

 
F-5
 
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
AND FOR THE PERIOD FROM MAY 11, 1999 (INCEPTION) TO DECEMBER 31, 2008


               
May 11, 1999
  
               
(Inception)
  
               
To
  
   
2008
    
2007
    
December 31, 2008
  
                   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                  
                   
   CASH PAID DURING THE YEAR FOR:
                  
                   
        Interest
   $ -     $ -     $ -  
                         
        Taxes
   $ -     $ -     $ -  
                         
                         
NON-CASH INVESTING ACTIVITIES
                        
                         
        Stock-based compensation
   $ -     $ 45,474     $ 45,474  
 
 
The accompanying notes are an integral part of these unaudited financial statements

 
F-6
 
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007


NOTE 1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and History of Company

Don Marcos Trading Co. (“the Company”) is a development stage enterprise incorporated on May 11, 1999 in the state of Florida.  The Company is the sole importer and distributor of Don Marcos coffee.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Fair value of financial instruments

For certain of the Company’s instruments, including cash and accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.

Net Loss Per Share

The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, any anti-dilutive effects on net income (loss) per share are excluded.

 
F-7
 
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007


NOTE 1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company recognizes revenue from product sales when shipment of product to the customer has been made, which is when title passes. The Company estimates and records provisions for rebates, sales returns and allowances in the period the sale is recorded. Shipping and handling charges are included in gross sales, with the related costs included in selling, general and administrative expenses.

Inventory

Inventory is stated at the lower of cost (determined by the first-in, first-out method) or market.  Inventories are adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.
 
Common Stock Issued for Non-Cash Transaction
 
It is the Company’s policy to value stock issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated.

Stock Based Compensation

Effective November 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment: An Amendment of FASB Statements No. 123 and 95” using the modified prospective method. Under this method, compensation cost is recognized on or after the effective date for the portion of outstanding awards, for which the requisite service has not yet been rendered, based on the grant date fair value of those awards. For stock-based awards issued on or after November 1, 2005, the Company recognizes the compensation cost on a straight-line basis over the requisite service period for the entire award. Measurement and attribution of compensation cost for awards that are unvested as of the effective date of SFAS No. 123(R) are based on the same estimate of the grant-date or modification-date fair value and the same attribution method used previously under SFAS No. 12.

Development Stage Enterprise

The Company is a development stage enterprise, as defined in Financial Accounting Standards Board No. 7. The Company’s planned principal operations have not commenced, and accordingly, only nominal revenue has been derived during this period.

 
F-8
 

DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007


NOTE 1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in enterprises’ financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”  FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosures and transitions.  FIN 48 is effective for fiscal yeas beginning after December 15, 2006.  The Company is currently reviewing the effect, if any, FIN 48 will have on its financial position and operations.

In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’ (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements.  SFAS No. 157 does not require any new fair value measurements, however the current FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company is currently reviewing the effect, if any SFAS No. 157 will have on its financial position and operations.

In September 2006, FASB issued SFAS 158 ‘Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans--an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006.   The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operations.

 
F-9
 

DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007


NOTE 1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In February 2007, FASB issued FASB Statement No. 159 (“SFAS 159) - The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of SFAS 115.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This statement is expected to expand the use of fair value measurement objectives for accounting for financial instruments.  This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted subject as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB statement No. 157, Fair value measurements.  The Company is currently evaluating the impact of SFAS 159 on its financial statements

NOTE 2     GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.

The Company’s development activities since inception have been financially sustained through stockholder contribution to the Company and issuance of common stock. The Company may raise additional funding to continue its operations through contributions from the current shareholders and stock issuance to other investors.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.

NOTE 3     INVENTORY

Inventory consists of the following for the years ended December 31, 2008 and 2007:

   
2008
    
2007
  
             
Finished goods inventory
   $ 54     $ -  
Materials
     8,837       4,255  
    $ 8,891     $ 4,255  

 
F-10
 

DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007


NOTE 4     PREFERRED STOCK

The Company has not assigned any preference rights to the preferred stock.

NOTE 5     COMMON STOCK

The Company effected a 1:5 forward split of the stock in February, 2007. All per share amounts and number of shares outstanding have been retroactively restated for this adjustment.

On March 14, 2007, the Company offered a private placement of 16,400,000 shares of common stock, no par value, and received $82,000 cash for the shares sold.

The Company effected a 1:10 forward split of the stock on March 30, 2007. All per share amounts and number of shares outstanding have been retroactively restated for this adjustment.

On April 1, 2008, the Company sold 2,400,000 shares of its common stock, no par value, with an aggregate value of $12,000, to three officers of the company.

On August 4, 2008, the Company sold 4,800,000 shares of its common stock, no par value, for cash in the amount of $24,000 to three officers of the company.

NOTE 6     STOCK OPTIONS

The officers of the Company approved the Don Marcos Trading Co., Inc. 2007 Incentive and Nonstatutory Stock Option Plan which permits the officers to grant, for a ten year period, both stock purchase rights and stock options.  The Company has reserved 5,000,000 shares of its common stock for issuance to the directors, employees and consultants under the Plan.  The Plan is administered by the officers of the Company.  The administrators have the authority and discretion, subject to the provisions of the Plan, to select persons to whom stock purchase rights or options will be granted, to designate the number of shares to be covered by each option or stock purchase right, to specify the type of consideration to be paid, and to establish all other terms and conditions of each option or stock purchase right.  Options granted under the Plan will not have a term that exceeds ten years from date of grant.  The stock subject to the plan and issuable upon exercise of options granted under the plan are shares of the Company’s common stock, no par value, which may be restricted, or grants of options to purchase shares of common stock.

During the year ended December 31, 2008, there were no options issued.  During the year ended December 31, 2007, there were 5,000,000 options granted to the officers of the Company.

 
F-11
 

DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007


NOTE 6     STOCK OPTIONS (CONTINUED)

A summary of the option and warranty activity for the year ended December 31, 2007 follows:

   
Shares
Under
Option
    
Weighted Average
Exercise Price
  
Options outstanding at January 1, 2007
     -     $ -  
Issuances
     5,000,000       0.005  
Options outstanding at December 31, 2007
     5,000,000     $ 0.005  

Information regarding stock options outstanding as of December 31, 2007 is as follows:

Price
  
$ 0.005    
Weighted average exercise price
  
$ 0.005    
Weighted average remaining contractual life
  
9 years, 1 month    


A summary of the option and warranty activity for the year ended December 31, 2008 follows:

   
Shares
Under
Option
    
Weighted Average
Exercise Price
  
Options outstanding at January 1, 2008
     5,000,000     $ 0.005  
Cancelled, expired or new issuances
     -       -  
Options outstanding at December 31, 2008
     5,000,000     $ 0.005  

Information regarding stock options outstanding as of December 31, 2008 is as follows:

Price
  
$ 0.005    
Weighted average exercise price
  
$ 0.005    
Weighted average remaining contractual life
  
8 years, 1 month    
 
 
 
F-12
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007



NOTE 7             SUBSEQUENT EVENT

 
On April 13, 2009, the Company entered into Stock Purchase Agreements with certain of the Company’s officers for the sale to those officers of the Company’s common stock as follows:

Name of Officer
  
Number of
Common Stock
Shares Purchased
    
Purchase
Price Paid
  
Earl Shannon
     1,000,000     $ 5,000  
Steven W. Hudson
     1,000,000     $ 5,000  
Scott W. Bodenweber
     1,000,000     $ 5,000  

 
Pursuant to the Stock Purchase Agreements described above, the Company sold an aggregate of 3,000,000 shares of its common stock at a price of $0.005 per share to three accredited investors for gross proceeds of $15,000.  The Company relied on the exemption from registration relating to offerings that do not involve any public offering pursuant to Section 4(2) under the Act and/or Rule 506 of Regulation D promulgated pursuant thereto.  The Company believes that the investors are “accredited investors” under Rule 501 under Regulation D of the Act and had adequate access to information about the Company.


 
 
 
 
F-13