donmarcos_10q-093009.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-52692

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

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

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

(954) 356-8111
(Registrant’s telephone number)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company þ
(Do not check if a smaller reporting company)
  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ
 
As of October 28, 2009, the number of shares of common stock outstanding was 48,300,000.
 
 
INDEX

 
    
   
Page
Number
PART I - FINANCIAL INFORMATION
     
Item 1.
Financial Statements (Unaudited)
1
     
 
Condensed Balance Sheets– September 30, 2009 and 2008
1
     
 
 Condensed Statement of Operations – For the three and nine months ended September 30, 2009 and 2008
2
     
 
Condensed Statements of Cash Flows –  For the nine months ended September 30, 2009 and 2008
3
     
 
Condensed Notes to Financial Statements
5
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
8
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
12
     
Item 4.
Controls and Procedures
12
     
Item 4T.
Controls and Procedures
12
     
PART II - OTHER INFORMATION
   
 
Item 1.
Legal Proceedings
13
     
Item 1A.
Risk Factors
13
 
 
  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
13
     
Item 3.
Defaults Upon Senior Securities
13
     
Item 4.
Submission of Matters to a Vote of Security Holders
13
   
 
Item 5.
Other Information
13
     
Item 6.
Exhibits
13
     
SIGNATURES
 
14

i

PART I - FINANCIAL INFORMATION
 
 
ITEM 1.     FINANCIAL STATEMENTS

 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
 
   
Unaudited
September 30, 2009
    
Audited
December 31, 2008
  
ASSETS
             
CURRENT ASSETS
            
Cash
   $ 807     $ 2,613  
Accounts receivable
     96       -  
Inventory
     8,850       8,891  
                 
TOTAL CURRENT ASSETS
   $ 9,753     $ 11,504  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
CURRENT LIABILITIES                
Accounts payable and accrued expenses
   $ 10,591     $ 12,176  
                 
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 - 48,300,000 shares at
               
September 30, 2009and 44,300,000 shares
               
at December 31, 2008
     243,454       223,454  
                 
Deficit accumulated during the development stage
     ( 244,292 )     ( 224,126 )
                 
TOTAL STOCKHOLDERS’ EQUITY
     ( 838 )     ( 672 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   $ 9,753     $ 11,504  
 
The accompanying notes are an integral part of these unaudited financial statements.
 
1
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND FOR THE PERIOD FROM MAY 11, 1999 TO SEPTEMBER 30, 2009
(UNAUDITED)
 
 
   
Three Month Periods Ended
September 30,
      
Nine Month Periods Ended
September 30,
     May 11, 1999
(Inception) To
September 30,
   
2009
    
2008
    
2009
     2008     
2009
  
                                         
REVENUES
   $ 288     $ 288     $
864
     $ 288     $ 1,344  
                                         
OPERATING EXPENSES
     7,527       11,983     $
21,030
     $ 36,429      
245,636
  
                                         
NET (LOSS)
   $ ( 7,239 )   $ ( 11,695 )   $
(20,166
 )   $
(36,141
 )   $ (244,292
)
                                         
NET (LOSS) PER SHARE
                                        
                                         
Basic and diluted
   $ (.00 )   $ ( .00 )   $
(.00
 )   $
(.00
 )        
                                         
WEIGHTED AVERAGE NUMBER
                                        
    OF SHARES OUTSTANDING
                                        
                                         
Basic and diluted
     48,158,696       42,526,087      
46,567,399
      
39,718,978
          
 
The accompanying notes are an integral part of these unaudited financial statements
 
2
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND FOR THE PERIOD FROM MAY 11, 1999 (INCEPTION) TO SEPTEMBER 30, 2009
UNAUDITED
 
 
         
 
     (May 11, 1999 Inception) To September 30,  
   
2009
    
2008
     2009  
CASH FLOWS FROM
                  
OPERATING ACTIVITIES:
                  
Net (loss)
   $ ( 20,166 )   $ ( 36,141 )   $ ( 244,292 )
Adjustments to reconcile net
 
                      
(loss) to net cash (used)
                        
by operating activities:
 
                      
Common stock issued for services
     -       -       3,635  
Stock based compensation
     -       -       45,474  
Changes in operating assets and liabilities:
                        
Accounts receivable
     ( 96 )     ( 96 )     ( 96 )
Inventory
     41       ( 4,645 )     ( 8,850 )
Accounts payable and accrued expenses
     (1,585 )     1,358       10,591  
                         
NET CASH (USED) IN
                        
OPERATING ACTIVITIES
     ( 21,806 )     ( 39,524 )     ( 193,538 )
                         
CASH FLOWS FROM
                        
INVESTING ACTIVITIES
     -       -       -  
                         
CASH FLOWS FROM
                        
FINANCING ACTIVIITES
                        
Issuance of common stock for cash
     20,000       36,000       192,000  
Cash contributed by stockholder
     -       -       2,345  
                         
NET CASH PROVIDED BY
                        
FINANCING ACTIVITIES
     20,000       36,000       194,345  
                         
NET INCREASE (DECREASE) IN CASH
                        
AND CASH EQUIVALENTS     ( 1,806 )     ( 3,524 )     807  
                         
CASH AND CASH EQUIVALENTS,
                        
BEGINNING OF PERIOD
     2,613       11,166       -  
                         
CASH AND CASH EQUIVALENTS,
                        
END OF PERIOD
   $ 807     $ 7,642     $ 807  
 
The accompanying notes are an integral part of these unaudited financial statements
 
3
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
AND FOR THE PERIOD FROM MAY 11, 1999 (INCEPTION) TO SEPTEMBER 30, 2009
(UNAUDITED)
 
 
         
 
     (May 11, 1999 Inception) To September 30,  
   
2009
    
2008
     2009  
SUPPLEMENTAL DISCLOSURE                  
OF CASH FLOW INFORMATION
                  
 
 
                      
CASH PAID DURING THE YEAR FOR:
                        
 
 
                      
Interest
   $ -     $ -     $ -  
                         
Taxes
   $  -     $  -     $  -  
 
The accompanying notes are an integral part of these unaudited financial statements
 
4
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
 
 
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 Company instruments, including cash and accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.

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.
 
5
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)


NOTE 1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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.
 
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 as of September 30, 2009 and December 31, 2008:
 
 
   2009    
2008
  
Finished goods inventory
   $ 12     $ 54  
Materials
     8,838       8,837  
    $ 8,850     $ 8,891  
 
NOTE 4     COMMON STOCK

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 for cash as follows:
 
6
 
DON MARCOS TRADING CO.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
 
 
NOTE 4     COMMON STOCK (CONTINUED)

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  

On July 14, 2009, the Company entered into a Stock Purchase Agreement with Mark Tupper, a director of the Company, for the sale of 1,000,000 shares of common stock for cash for an aggregate value of $5,000.

NOTE 5     SUBSEQUENT EVENT

Management has evaluated subsequent events through October 28, 2009, the date which the financial statements were available for issue.
 
7
 
ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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.
 
8

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.

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 nine months ended September 30, 2009 and 2008.

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.
 
9

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 unaudited 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.

   
Nine Months Ended
September 30,
    
Three Months Ended
September 30,
  
   
2009
(unaudited)
    
2008
(unaudited)
    
2009
(unaudited)
    
2008
(unaudited)
  
Revenue
   $ 864     $ 288     $ 288     $ 288  
Operating expenses
     21,030       36,429       7,527       11,983  
Net (loss)
   $ (20,166 )   $ (36,141 )   $ (7,239 )   $ (11,695 )
Net (loss) per share
   $ (.00 )   $ (.00 )   $ (.00 )   $ (.00 )

Results for the Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008 (unaudited)

Revenues

We had revenue of $864 and $288 for the nine months dated September 30, 2009 and 2008, respectively.

Operating Expenses

Operating expenses decreased by $15,399 to $21,030 for the nine months ended September 30, 2009 as compared to $36,429 for the nine months ended September 30, 2008.  The decrease arose from reduction in legal and accounting fees required for our SEC filings.

Net Loss

Primarily as a result of our operating expenses, we had a net loss of $20,166 for the nine months ended September 30, 2009 compared to a net loss of $36,141 for the same period in the prior year.

Impact of Inflation

We believe that inflation has had a negligible effect on our operations over the past three years.
 
10

Results for the Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008 (unaudited)

Revenues

We had revenue from operations in the amount of $288 for the three months ended September 30, 2009 and 2008.

Operating Expenses

Our total operating expenses for the three months ended September 30, 2009 were $7,527 compared to $11,983 for the three months ended September 30, 2008.  Our expenses for the three months ended September 30, 2009 and 2008 were primarily for legal and accounting fees associated with our SEC filings required of a public company.

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:
 
   
September 30,
    
September 30,
  
   
2009
    
2008
  
Current assets
   $ 9,753     $ 9,022  
Current liabilities
     10,591       7,621  
                 
Working Capital (Deficit)
   $ (838 )   $ (1,401 )
 
Changes in cash flows is summarized as follows:

Our net cash used by operations was $21,806 for the nine months ended September 30, 2009 as compared to $39,524 for the nine months ended September 30, 2008.  During the nine months ended September 30, 2009, we experienced a net loss of $20,166.   In addition, we had an increase in accounts receivable of $96 and a decrease in accounts payable of $1,585.  This was offset by a decrease in inventory of $41.  During the nine months ended September 30, 2008, we experienced a net loss of $36,141.  In addition, we had an increase in accounts receivable of $96 and an increase in inventory of $4,645.  These were offset by an increase in accounts payable and accrued expenses of $1,358.

There was no net cash used or provided from investing activities for the nine months ended September 30, 2009 and 2008.
 
11

Our net cash provided from financing activities was $20,000 during the nine months ended September 30, 2009 and $36,000 during the nine months ended September 30, 2008, due to the sale of common stock for cash in each respective period.

Off-Balance Sheet Arrangements

None.

ITEM 3.     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 information under this item.

ITEM 4.             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 in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 4T.          CONTROLS AND PROCEDURES

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 information under this item.
 
12

PART II - OTHER INFORMATION
 
 
ITEM 1.             LEGAL PROCEEDINGS

To the best knowledge of our management, there are no legal proceedings pending or threatened against us.

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 information under this item.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.             OTHER INFORMATION

None.

ITEM 6.             EXHIBITS

The following Exhibits are filed herein:
 
No.
Title
   
31.1
Certification of President Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), 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(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
13
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
     
    DON MARCOS TRADING CO.  
       
DATED: October 28, 2009 
 
 /s/ Earl T. Shannon  
   
BY: Earl T. Shannon
ITS: President
(Principal Executive Officer)
  
 
     
 
 
 /s/ Scott W. Bodenweber  
   
BY: Scott W. Bodenweber
ITS: Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
  
 
 
14