UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
x
Annual
Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934
for
the
fiscal year ended December
31, 2006
¨
Transition Report Under Section 13 or 15(D) of the Securities Exchange Act
of
1934
for
the
transition period from _______________ to _______________
Commission
File Number: 333-55166
SMI
PRODUCTS, INC.
(Exact
name of small Business Issuer as specified in its charter)
Nevada
|
88-0363465
|
(State
or other jurisdiction of incorporation or
|
(IRS
Employer Identification No.)
|
organization)
|
|
|
|
122
Ocean Park Blvd., Suite 307
|
|
Santa
Monica, CA
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90405
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(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer's
telephone number, including area code: (310)
396-1691
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $0.001 per share
Check
whether the issuer (1) 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.x
Yes
[X]
No [ ]
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in
this
form, and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or
information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to
this
Form
10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[X]
Yes
[ ] No
State
issuer's revenues for its most recent fiscal year: $0.00
The
aggregate market value of voting Common Stock held by non-affiliates of the
registrant was
$800,000,
based upon the closing price of such Common Stock on the OTCBB of $0.40 per
share
on
January 20, 2007, and determined by subtracting from the total number of shares
of Common
Stock
issued and outstanding on that date all shares held by the directors and
executive officers of the
registrant
and by persons holding at least 10% of such number of shares of Common Stock
as
of that date.
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest
practicable
date: 7,551,000 shares of common stock as of January 20, 2007.
Transitional
Small Business Disclosure Format (check one): Yes [ ]
No
[X]
TABLE
OF CONTENTS
PART
I
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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ITEM
2.
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PROPERTIES
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|
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ITEM
3.
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LEGAL
PROCEEDINGS
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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|
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PART
II
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ITEM
5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
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|
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ITEM
6.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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ITEM
7.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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ITEM
8.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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ITEM
8a
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CONTROLS
AND PROCEDURES
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|
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PART
III
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ITEM
9.
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DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
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PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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ITEM
10.
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EXECUTIVE
COMPENSATION
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ITEM
11.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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ITEM
12.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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ITEM
13.
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EXHIBITS
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ITEM
14
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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SIGNATURES
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INDEX
TO EXHIBITS
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FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-KSB contains statements that constitute
"forward-looking statements." These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology like
"believes," "anticipates," "expects," "estimates," "may," or similar terms.
These statements appear in a number of places in this annual report and include
statements regarding our intent, belief or current expectations and those of
our
directors or officers with respect to, among other things:(i) trends affecting
our financial condition or results of operations, (ii) our business and growth
strategies, and (iii) our financing plans. You are cautioned that
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as a result
of
various factors. Factors that could adversely affect actual results and
performance include, among others, our need for additional capital, our history
of losses, the intense competition we face in our business, the fact that our
stock is a “penny stock” and the other material risks described under “ITEM 6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION- Risk Factors”. The
accompanying information contained in this annual report, including, without
limitation, the information set forth under the heading "Risk Factors" and
in
"ITEM 1. DESCRIPTION OF BUSINESS" identifies important additional factors that
could materially adversely affect actual results and performance. You are urged
to carefully consider these factors. All forward-looking statements attributable
to us are expressly qualified in their entirety by the foregoing cautionary
statement.
PART
I
ITEM
1. DESCRIPTION
OF BUSINESS.
Background
The
Company was incorporated in the State of Nevada on June 17, 1996. From inception
through August 11, 2006, the Company was a development stage company in the
business of internet real estate mortgage services. From and after August 11,
2006, the Company ceased its prior business. The Company’s business plan now
consists of exploring potential targets for a business combination with the
Company through a purchase of assets, share purchase or exchange, merger or
similar type of transaction.
Employees
As
of
December 31, 2006, the Company had no employees.
ITEM
2. PROPERTIES.
As
of
December 31, 2006, the Company did not own or lease any properties.
ITEM
3.
LEGAL PROCEEDINGS
As
of
December 31, 2006, the Company was not a party to any pending or threatened
legel proceedings.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
Company agreeing to the adoption of the Agreement and Plan of Merger (the
“Reincorporation Merger Agreement”) between the Company and SMI Products, Inc.,
a Delaware corporation formed by us (“SMI-Delaware”), in the form of
Exhibit
A
attached
to the Company’s Schedule 14C Information Statement (“Information Statement”)
filed with the U. S. Securities and Exchange Commission on October 16, 2006.
The
Reincorporation Merger Agreement provides for the merger of the Company with
and
into SMI Delaware (the “Reincorporation Merger”), and will result
in:
|
·
|
a
change of domicile of the Company from the State of Nevada to
the State of Delaware;
|
|
·
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The
right of the Company’s shareholders to receive one (1) share of common
stock, par value $0.001 per share, of SMI-Delaware for each ten (10)
shares of the Company’s common stock, par value $0.001 per share, owned as
of the effective time of the reincorporation
merger;
|
|
·
|
the
persons presently serving as the Company’s executive officers and
directors serving in their same respective positions with SMI
Delaware;
|
|
·
|
the
adoption of a new Certificate of Incorporation under the laws of
Delaware
in the form of Exhibit
B
attached to the Information Statement, pursuant to which the Company’s
authorized capital stock will be changed from 100,000,000 shares
of
authorized capital stock, all of which are common stock, par value
$0.001
per share, to 110,000,000 shares of authorized capital stock, consisting
of 500,000,000 shares of common stock, par value $0.001 per share,
and
10,000,000 shares of “blank check” preferred stock, par value $0.001 per
share, with the right conferred upon the Board of Directors to set
the
dividend, voting, conversion, liquidation and other rights, as well
as the
qualifications, limitations and restrictions, with respect to the
preferred stock as the Board of Directors may determine from time
to time;
and
the
adoption of new Bylaws under the laws of the State of Delaware in
the form
of Exhibit
C
attached to the Information
Statement.
|
Copies
of
the Company’s Information Statement were mailed to the stockholders of the
Company on December 12, 2006 and the action was deemed effective twenty (20)
calendar days following such mailing. The Company expects to implement this
action in the first quarter of 2007.
Other
than the foregoing, no matters were submitted to a vote or for the written
consent of security shareholders, through the solicitation of proxies or
otherwise, during the fiscal year ended Dcember 31, 2006 and no meeting of
shareholders was held.
PART
II.
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Market
Price
The
Company became subject to Securities Exchange Act Reporting Requirements in
August 2001. The symbol "SMIP": was assigned for our securities. There is a
very
limited trading market for our stockDuring calendar year 2006, approximately
194,500 shares of our stock traded on the OTCBB with a high price of $0.75
and a
low price of $0.35. There can be no assurance that a highly-liquid market for
our securities will ever develop. The last trade was 5,000 shares at $0.40
per
share on December 13, 2006.
Options
and Warrants
None
of
the shares of our common stock are subject to outstanding options or warrants.
Convertible
Securities
At
Dcember 31, 2006, the Company had loans outstanding from certain shareholders
in
the aggregate amount of $124,750, which represents amounts loaned to the Company
to pay the Company’s expenses of operation. Of this amount, $124,195 is
evidenced by a Loan Agreements and Convertible Promissory Notes (each a “Note”)
bearing interest at a rate of 2% per annum. Maturities of the Notes range from
August 11, 2007 to September 30, 2007. At the option of the payee, the principal
balance of each Note and all accrued interest thereunder is convertible, in
whole or in part, into shares of the Company’s common stock at any time prior to
maturity. The number of shares of the Company’s common stock issuable upon such
conversion shall be determined by the Board of Directors of the Company based
on
what it determines is the fair market value of the Company at the time of such
conversion.
Status
of Outstanding Common Stock
As
of
December 31, 2006, we had a total of 7,551,000 shares of our common stock
outstanding. Of these shares, 5,551,000 are held by “affiliates” of the Company
and the remaining shares are either registered or may be transferred subject
to
the requirements of Rule 144. We have not agreed to register any additional
outstanding shares of our common stock under the Securities Act.
Holders
We
have
issued an aggregate of 7,551,000 shares of our common stock to approximately
16
holders.
Dividends
We
have
not paid any dividends to date, and have no plans to do so in the immediate
future.
Recent
Sales of Unregistered Securities
None.
Purchases
of Equity Securities
The
Company has never purchased nor does it own any equity securities of any other
issuer.
ITEM
6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The
Company’s current business
plan
is to seek, investigate, and, if warranted, acquire one or more properties
or
businesses, and to pursue other related activities intended to enhance
shareholder value. The acquisition of a business opportunity may be made by
purchase, merger, exchange of stock, or otherwise, and may encompass assets
or a
business entity, such as a corporation, joint venture, or partnership. The
Company has limited capital, and it is unlikely that the Company will be able
to
take advantage of more than one such business opportunity. The Company intends
to seek opportunities demonstrating the potential of long-term growth as opposed
to short-term earnings.
The
Company’s principal shareholders are in contact with broker-dealers and other
persons with whom they are acquainted who are involved in corporate finance
matters to advise them of the Company’s existence and to determine if any
companies or businesses they represent have an interest in considering a merger
or acquisition with the Company. No assurance can be given
that the Company will be successful in finding or acquiring a desirable business
opportunity, given that limited funds are available for acquisitions, or that
any acquisition that occurs will be on terms that are favorable to the Company
or its stockholders.
The
Company’s search is directed toward small and medium-sized enterprises which
have a desire to become public corporations and which are able to satisfy,
or
anticipate in the reasonably near future being able to satisfy, the minimum
asset and other requirements in order to qualify shares for trading on NASDAQ
SmallCap Market or a stock exchange (See “Investigation and Selection of
Business Opportunities”). The Company anticipates that the business
opportunities presented to it may (i) be recently
organized with no operating history, or a history of losses attributable to
under-capitalization or other factors; (ii) be experiencing financial or
operating difficulties; (iii) be in need of funds to develop a new product
or
service or to expand into a new market; (iv) be relying upon an untested product
or marketing concept; or (v) have a combination of the characteristics mentioned
in (i) through (iv). The Company intends to concentrate its acquisition efforts
on properties or businesses that it believes to be undervalued. Given the above
factors, investors should expect that any acquisition candidate may have a
history of losses or low profitability.
The
Company does not propose to restrict its search for investment opportunities
to
any particular geographical area or industry, and may, therefore, engage in
essentially any business, to the extent of its limited resources. This includes
industries such as service, finance, natural resources, manufacturing, high
technology, product development, medical,
communications and others. The Company’s discretion in the selection of business
opportunities is unrestricted, subject to the availability of such
opportunities, economic conditions, and other factors.
Any
entity which has an interest in being acquired by, or merging into the Company,
is expected to be an entity that desires to become a public company and
establish a public trading market for its securities. In connection with such
a
merger or acquisition, it is highly likely that an amount of stock constituting
control of the Company would be issued by the Company or purchased from the
current principal shareholders of the Company by the acquiring entity or its
affiliates. If stock is purchased from the current shareholders, the transaction
is very
likely
to result in substantial gains to them relative to their purchase price for
such
stock. In the Company’s judgment, none of its officers and directors would
thereby become an “underwriter” within the meaning of the Section 2(11) of the
Securities Act
of
1933, as amended. The sale of a controlling interest by certain principal
shareholders of the Company could occur at a time when the other shareholders
of
the Company remain subject to restrictions on the transfer of their shares.
It
is
anticipated that
business opportunities will come to the Company’s attention from various
sources, including its principal shareholders, professional advisors such as
attorneys and accountants, securities broker-dealers, venture capitalists,
members of the financial community,
and others who may present unsolicited proposals. The Company has no plans,
understandings, agreements, or commitments with any individual for such person
to act as a finder of opportunities for the Company.
The
Company does not foresee that it would enter into a merger or acquisition
transaction with any business with which its officers, directors or principal
shareholders are currently affiliated. Should the Company determine in the
future, contrary to foregoing expectations, that a transaction with an affiliate
would be in the best interests of the Company and its stockholders, the Company
is, in general, permitted by Delaware law to enter into such a transaction
if:
1.
The
material facts as to the relationship or interest of the affiliate and as to
the
contract or transaction are disclosed or are known to the Board of Directors,
and the Board in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though
the
disinterested directors constitute less than a quorum; or
2.
The
material facts as to the relationship or interest of the affiliate and as to
the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
3.
The
contract or transaction is fair as to the Company as of the time it is
authorized, approved or ratified, by the Board of Directors or the stockholders.
Investigation
and Selection of Business Opportunities
To
a
large extent, a decision to participate in a specific business opportunity
may
be made upon the principal shareholders’ analysis of the quality of the other
company’s management and personnel, the anticipated
acceptability of new products or marketing concepts, the merit of technological
changes, the perceived benefit the Company will derive from becoming a publicly
held entity, and numerous other factors which are difficult, if not impossible,
to analyze through the application of any objective criteria. In many instances,
it is anticipated that the historical operations of a specific business
opportunity may not necessarily be indicative of the potential for the future
because of the possible need to access capital, shift marketing approaches
substantially, expand significantly, change product emphasis, change or
substantially augment management, or make other changes. The Company will be
dependent upon the owners of a business opportunity to identify any such
problems which may exist and to implement, or be primarily responsible for
the
implementation of, required changes. Because the Company may participate in
a
business opportunity with a newly organized firm or with a firm which is
entering a new phase
of
growth, it should be emphasized that the Company will incur further risks,
because management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company’s products or services will
likely not be established,
and
such company may not be profitable when acquired.
It
is
anticipated that the Company will not be able to diversify, but will essentially
be limited to one such venture because of the Company’s limited financial
resources. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another,
and
should be considered an adverse factor affecting any decision to purchase the
Company’s securities.
It
is
emphasized that the Company
may effect transactions having a potentially adverse impact upon the Company’s
shareholders pursuant to the authority and discretion of the Company’s
management and board of directors to complete acquisitions without submitting
any proposal to the stockholders for their consideration. Holders of the
Company’s securities should not anticipate that the Company will necessarily
furnish such holders, prior to any merger or acquisition, with financial
statements, or any other documentation, concerning a target company or its
business. In some instances, however, the proposed participation in a business
opportunity may be submitted to the stockholders for their consideration, either
voluntarily by such directors to seek the stockholders’ advice and
consent
or
because state law so requires.
The
analysis of business opportunities will be undertaken by or under the
supervision of the Company’s principal shareholders, who are not professional
business analysts. Although there are no current plans to do so, the Company
might hire outside consultants to assist in the investigation and selection
of
business opportunities, and might pay a finder’s fee. Since the Company has no
current plans to use any outside consultants or advisors to assist in the
investigation
and
selection of business opportunities, no policies have been adopted regarding
use
of such consultants or advisors, the criteria to be used in selecting such
consultants or advisors, the services to be provided, the term of service,
or
regarding the total amount of fees that may be paid. However, because of the
limited resources of the Company, it is likely that any such fees the Company
agrees to pay would be paid in stock and not in cash. Otherwise, the Company
anticipates that it will consider, among other things, the following factors:
1.
Potential for growth and profitability, indicated by new technology, anticipated
market expansion, or new products;
2.
The
Company’s perception of how any particular business opportunity will be received
by the investment community and by the Company’s stockholders;
3.
Whether, following the business combination, the financial condition of the
business opportunity would be, or would have a significant prospect in the
foreseeable future of becoming sufficient to enable the securities of the
Company to qualify for listing on an exchange or on a national automated
securities quotation system, such as NASDAQ, so as to permit the trading of
such
securities to be exempt from the requirements of Rule 15c2-6 adopted
by
the
Securities and Exchange Commission. See “Risk Factors—The Company Regulation of
Penny Stocks.”
4.
Capital requirements and anticipated availability of required funds, to be
provided by the Company or from operations, through the sale of additional
securities, through joint ventures or similar arrangements, or from other
sources;
5.
The
extent to which the business opportunity can be advanced;
6.
Competitive position as compared to other companies of similar size and
experience within the industry segment as well as within the industry as a
whole;
7.
Strength and diversity of existing management, or management prospects that
are
scheduled for recruitment;
8.
The
cost of participation by the Company as compared to the perceived tangible
and
intangible values and potential; and
9.
The
accessibility of required management expertise, personnel, raw materials,
services, professional assistance, and other required items.
In
regard
to the possibility that the shares of the Company would qualify for listing
on
the NASDAQ SmallCap Market, the current standards include the requirements
that
the issuer of the securities satisfy, among other requirements, certain minimum
levels of shareholder equity, market value or net income. Many of the business
opportunities that might be potential candidates for a combination with the
Company would not satisfy the NASDAQ SmallCap Market listing criteria.
Not
one
of the factors described above will be controlling in the selection of a
business opportunity, and the Company will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries
and at
various stages of development, all of which will make the task of comparative
investigation and analysis of such business opportunities difficult and complex.
Potential investors must recognize that, because of the Company’s limited
capital available
for
investigation, the Company may not discover or adequately evaluate adverse
facts
about the opportunity to be acquired.
The
Company is unable to predict when it may participate in a business opportunity.
Prior to making a decision to participate in a business opportunity, the Company
will generally request that it be provided with written materials regarding
the
business opportunity containing such items as a description of products,
services and company history; management resumes; financial information;
available projections, with related assumptions upon which they are based;
an
explanation of proprietary products and services; evidence of existing patents,
trademarks, or services marks, or rights thereto; present and proposed forms
of
compensation to management; a description of transactions between such company
and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements, or if they are not available, unaudited financial
statements, together with reasonable assurances that audited financial
statements would be able to be produced within a reasonable period of time
following completion of a merger transaction; and other information deemed
relevant.
As
part
of the Company’s investigation, the Company’s principal shareholders may meet
personally with management and key personnel, may visit and inspect material
facilities, obtain independent analysis or verification of certain information
provided, check references of management and key personnel, and take other
reasonable investigative measures, to the extent of the Company’s limited
financial resources.
It
is
possible that
the
range of business opportunities that might be available for consideration by
the
Company could be limited by the impact of Securities and Exchange Commission
regulations regarding purchase and sale of “penny stocks.” The regulations would
affect, and possibly impair, any market that might develop in the Company’s
securities until such time as they qualify for listing on NASDAQ or on another
exchange which would make them exempt from applicability of the “penny stock”
regulations. See “Risk Factors - Regulation of Penny Stocks.”
The
Company believes that various types of potential merger or acquisition
candidates might find a business combination with the Company to be attractive.
These include acquisition candidates desiring to create a public market for
their shares in order to enhance liquidity for current shareholders, acquisition
candidates which have long-term plans for raising capital through the public
sale of securities and believe that the possible prior existence of a public
market for their securities would be beneficial, and acquisition candidates
which plan to acquire additional assets through issuance of securities rather
than for cash, and believe that the possibility of development of a public
market for their securities will be of assistance in that process. Acquisition
candidates which have a need for an immediate cash infusion are not likely
to
find a potential business combination with the Company to be an attractive
alternative.
There
are
no loan arrangements or arrangements for any financing whatsoever relating
to
any business opportunities currently available.
Form
of Acquisition
It
is
impossible to predict the manner in which the Company may participate in a
business opportunity. Specific business opportunities will be reviewed as well
as the respective needs and desires of the Company and the promoters of the
opportunity and, upon the basis of that review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include,
but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization, and although it is likely, there is no assurance that the Company
would be the surviving entity. In addition, the present management, board of
directors and stockholders of the Company most likely will not have control
of a
majority of the voting shares of the Company following a reorganization
transaction.
As part of such a transaction, the Company’s existing management and directors
may resign and new management and directors may be appointed without any vote
by
stockholders.
It
is
likely that the Company will acquire its participation in a business opportunity
through the issuance of Common Stock or other securities of the Company.
Although the terms of any such transaction cannot be predicted, it should be
noted that in certain circumstances the criteria for determining whether or
not
an acquisition
is a so-called “tax free” reorganization under the Internal Revenue Code of
1986, depends upon the issuance to the stockholders of the acquired company
of a
controlling interest (i.e. 80% or more) of the common stock of the combined
entities immediately following the reorganization. If a transaction were
structured to take advantage of these provisions rather than other “tax free”
provisions provided under the Internal Revenue Code, the Company’s current
stockholders would retain in the aggregate 20%
or
less of the total issued and outstanding shares. This could result in
substantial additional dilution in the equity of those who were stockholders
of
the Company prior to such reorganization. Any such issuance of additional shares
might also be done simultaneously with a sale or transfer of shares representing
a controlling interest in the Company by the principal
shareholders.
It
is
anticipated that any new securities issued in any reorganization would be issued
in reliance upon exemptions, if any are available, from registration under
applicable federal and state securities laws. In some circumstances, however,
as
a negotiated element of the transaction, the Company may agree to register
such
securities either at the time the transaction is consummated,
or
under certain conditions or at specified times thereafter. The issuance of
substantial additional securities and their potential sale into any trading
market that might develop in the Company’s securities may have a depressive
effect upon such market.
The
Company will participate in a business opportunity only after the negotiation
and execution of a written agreement. Although the terms of such agreement
cannot be predicted, generally such an agreement would require specific
representations and warranties by all of the parties thereto, specify certain
events of default, detail the terms of closing and the conditions which must
be
satisfied by each of the parties thereto prior to such closing, outline the
manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms normally found in an
agreement of that type.
As
a
general matter, the Company anticipates that it, and/or its officers and
principal shareholders will enter into a letter of intent with the management,
principals or owners of a prospective business opportunity prior to signing
a
binding agreement. Such letter of intent will set forth the terms of the
proposed acquisition but will generally not bind any of the parties to
consummate the transaction. Execution of a letter of intent will by no means
indicate that consummation of an acquisition is probable. Neither the Company
nor any of the other parties to the letter of intent will be bound to consummate
the acquisition unless and until a definitive agreement concerning the
acquisition as described in the preceding paragraph is executed. Even after
a
definitive agreement is executed, it is possible that the acquisition would
not
be consummated should any party elect to exercise any right provided in the
agreement to terminate it on specified grounds.
It
is
anticipated that the investigation of specific business opportunities and the
negotiation, drafting and execution of relevant agreements, disclosure documents
and other instruments will require substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation might
not be recoverable. Moreover, because many providers of goods and services
require compensation at the time or soon after the goods and services are
provided, the inability of the Company to pay until an indeterminate future
time
may make it impossible to procure such goods and services.
In
all
probability, upon completion of an acquisition or merger, there will be a change
in control through issuance of substantially more shares of common stock.
Further, in conjunction with an acquisition or merger, it is likely that the
principal shareholders may offer to sell a controlling interest at a price
not
relative to or reflective of a price which could be achieved by individual
shareholders at the time.
Investment
Company Act and Other Regulation
The
Company may participate in a business opportunity by purchasing, trading or
selling the securities of such business. The Company does not, however, intend
to engage primarily in such activities. Specifically, the Company intends to
conduct its activities so as to avoid being classified as an
“investment company” under the Investment Company Act of 1940 (the “Investment
Act”), and therefore to avoid application of the costly and restrictive
registration and other provisions of the Investment Act, and the regulations
promulgated thereunder.
Section
3(a) of the Investment Act contains the definition of an “investment company,”
and it excludes any entity that does not engage primarily in the business of
investing, reinvesting or trading in securities, or that does not engage in
the
business of investing, owning, holding or trading “investment securities”
(defined as “all securities other than government securities or securities of
majority-owned subsidiaries”) the value of which exceeds 40% of the value of its
total assets (excluding government securities, cash or cash items). The Company
intends to implement its business plan in a manner which will result in the
availability of this exception from the definition of “investment company.”
Consequently, the Company’s participation in a business or
opportunity through the purchase and sale of investment securities will be
limited.
The
Company’s plan of business may involve changes in its capital structure,
management, control and business, especially if it consummates a reorganization
as discussed
above.
Each of these areas is regulated by the Investment Act, in order to protect
purchasers of investment company securities. Since the Company will not register
as an investment company, stockholders will not be afforded these protections.
Any
securities
which the Company might acquire in exchange for its Common Stock are expected
to
be “restricted securities” within the meaning of the Securities Act of 1933, as
amended (the “Act”). If the Company elects to resell such securities, such sale
cannot proceed
unless a registration statement has been declared effective by the U. S.
Securities and Exchange Commission or an exemption from registration is
available. Section 4(1) of the Act, which exempts sales of securities not
involving a distribution, would in all likelihood be available to permit a
private sale. Although the plan of operation does not contemplate resale of
securities acquired, if such a sale were to be necessary, the Company would
be
required to comply with the provisions of the Act to effect such resale.
An
acquisition made by the Company may be in an industry which is regulated or
licensed by federal, state or local authorities. Compliance with such
regulations can be expected to be a time-consuming and expensive process.
Competition
The
Company expects to encounter substantial competition in its efforts to locate
attractive opportunities, primarily from business development companies, venture
capital partnerships and corporations, venture capital affiliates of large
industrial and financial companies, small investment companies, and wealthy
individuals. Many of these entities will have significantly greater experience,
resources and managerial capabilities than the Company and will therefore be
in
a better position than the Company to obtain access to attractive business
opportunities.
No
Rights of Dissenting Shareholders
The
Company does not intend to provide Company shareholders with complete disclosure
documentation including audited financial statements, concerning a possible
target company prior to acquisition, because Delaware law vests authority in
the
Board of Directors to decide and approve matters involving acquisitions within
certain restrictions. Any transaction would be structured as an acquisition,
not
a merger, with the Registrant being the parent company and the acquiree being
merged into a wholly owned subsidiary.
Risk
Factors
There
are several material risks associated with the Company. You should carefully
consider the risks and uncertainties described below, which constitute all
of
the material risks relating to the Company. If any of the following risks are
realized, our business, operating results and financial condition could be
harmed. This means investors could lose all or a part of their
investment.
(a)
CONFLICTS OF INTEREST. Certain conflicts of interest may exist between the
Company and its officers, directors and principal shareholders. They have other
business interests to which they devote their attention, and they will devote
little time to the
business of the Company. As a result, conflicts of interest may arise that
can
be resolved only through exercise of such judgment as is consistent with
fiduciary duties to the Company. See “Management” and “Conflicts of Interest.”
(b)
NEED
FOR ADDITIONAL
FINANCING. The Company has very limited funds, and such funds may not be
adequate to take advantage of any available business opportunities. Even if
the
Company’s funds prove to be sufficient to acquire an interest in, or complete a
transaction with, a
business opportunity, the Company may not have enough capital to exploit the
opportunity. The ultimate success of the Company may depend upon its ability
to
raise additional capital. The Company has not investigated the availability,
source, or terms that might govern the acquisition of additional capital and
will not do so until it determines a need for additional financing. If
additional capital is needed, there is no assurance that funds will be available
from any source or, if available, that they can
be
obtained on terms acceptable to the Company. If not available, the Company’s
operations will be limited to those that can be financed with its modest
capital.
(c)
REGULATION OF PENNY STOCKS. The Company’s securities may be subject to a
Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other
than
established customers or accredited investors. For purposes of the rule, the
phrase “accredited investors” means, in general terms, institutions with assets
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse’s income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser’s written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell the Company’s securities and also may affect the ability
of purchasers in this offering to sell their securities in any market that
might
develop therefore.
In
addition, the Securities and Exchange Commission has adopted a number of rules
to regulate “penny stocks.” Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange
Act
of 1934, as amended. Because the securities of the Company may constitute “penny
stocks” within the meaning of the rules, the rules would apply to the Company
and to its securities. The rules may further affect the ability of owners of
Shares to sell the securities of the Company in any market that might develop
for them.
Shareholders
should be aware that, according to Securities and Exchange Commission, the
market for penny stocks has suffered in recent years from patterns of fraud
and
abuse. Such patterns include (i) control of the market for the security by
one
or a few broker-dealers that are often related to
the
promoter or issuer; (ii) manipulation of prices through prearranged matching
of
purchases and sales and false and misleading press releases; (iii) “boiler room”
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differentials and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses.
(d)
LACK
OF OPERATING HISTORY. The majority interest in the Company was purchased in
August 2006 for the purpose of seeking a business opportunity. Due to the
special risks inherent in the investigation, acquisition, or involvement in
a
new business opportunity, the Company must be regarded as a new or start-up
venture with all of the unforeseen costs, expenses, problems, and difficulties
to which such ventures are subject.
(e)
NO
ASSURANCE OF SUCCESS OR PROFITABILITY. There is no assurance that the Company
will acquire a favorable business opportunity. Even if the Company should become
involved in a business opportunity, there is no assurance that it
will
generate
revenues or profits, or that the market price of the Company’s Common Stock will
be increased thereby.
(f)
POSSIBLE BUSINESS - NOT IDENTIFIED AND HIGHLY RISKY. The Company has not
identified and has no commitments to enter into or acquire a specific business
opportunity and therefore can disclose the risks and hazards of a business
or
opportunity that it may enter into in only a general manner, and cannot disclose
the risks and hazards of any specific business or opportunity that it may enter
into.
An
investor can expect a potential business opportunity to be quite risky. The
Company’s acquisition of or participation in a business opportunity will likely
be highly illiquid and could result in a total loss of investment to the Company
and its stockholders if the business or opportunity proves to be unsuccessful.
See Item 1 “Description of Business.”
(g)
TYPE
OF BUSINESS ACQUIRED. The type of business to be acquired may be one that
desires to avoid effecting its own public offering and the accompanying
expense, delays, uncertainties, and federal and state requirements which purport
to protect investors. Because of the Company’s limited capital, it is more
likely than not that any acquisition by the Company will involve other parties
whose primary
interest
is the acquisition of control of a publicly traded company. Moreover, any
business opportunity acquired may be currently unprofitable or present other
negative factors.
(h)
IMPRACTICABILITY OF EXHAUSTIVE INVESTIGATION. The Company’s limited
funds
and
the lack of full-time management will likely make it impracticable to conduct
a
complete and exhaustive investigation and analysis of a business opportunity
before the Company commits its capital or other resources thereto. Decisions
will therefore likely be made without detailed feasibility studies, independent
analysis, market surveys and the like which, if the Company had more funds
available to it, would be desirable. The Company will be particularly dependent
in making decisions upon information
provided by the promoter, owner, sponsor, or others associated with the business
opportunity seeking the Company’s participation. A significant portion of the
Company’s available funds may be expended for investigative expenses and other
expenses related
to
preliminary aspects of completing an acquisition transaction, whether or not
any
business opportunity investigated is eventually acquired.
(i)
LACK
OF DIVERSIFICATION. Because of the limited financial resources that the Company
has, it is unlikely that
the
Company will be able to diversify its acquisitions or operations. The Company’s
probable inability to diversify its activities into more than one area will
subject the Company to economic fluctuations within a particular business or
industry and therefore increase the risks associated with the Company’s
operations.
(j)
RELIANCE UPON FINANCIAL STATEMENTS. The Company generally will require audited
financial statements from companies that it proposes to acquire. In cases where
no audited financials are available, the Company will have to rely upon interim
period unaudited information received from target companies’ management that has
not been verified by outside auditors. The lack of the type of independent
verification which audited financial statements would provide, increases the
risk that the Company, in evaluating an acquisition with such a target company,
will not have the benefit of full and accurate information about the financial
condition and recent interim operating history of the target company. This
risk
increases the prospect that the acquisition of such a company might prove to
be
an unfavorable one for the Company or the holders of the Company’s securities.
Moreover,
the Company will be subject to the reporting provisions of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and thus will be required
to furnish certain information about significant acquisitions, including audited
financial statements for any business that it acquires. Consequently,
acquisition prospects
that do not have, or are unable to provide reasonable assurances that they
will
be able to obtain, the required audited statements would not be considered
by
the Company to be appropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable. Should the Company, during
the
time it remains subject to the reporting provisions of the Exchange Act,
complete an acquisition of an entity for which audited financial statements
prove to be unobtainable, the Company would be exposed
to enforcement actions by the Securities and Exchange Commission (the
“Commission”) and to corresponding administrative sanctions, including permanent
injunctions against the Company and its management. The legal and other costs
of
defending a Commission
enforcement action would have material, adverse consequences for the Company
and
its business. The imposition of administrative sanctions would subject the
Company to further adverse consequences. In addition, the lack of audited
financial statements would prevent the securities of the Company from becoming
eligible for listing on NASDAQ, or on any existing stock exchange.
Moreover,
the lack of such financial statements is likely to discourage broker-dealers
from becoming or continuing to serve as market makers in the securities of
the
Company. Without audited financial statements, the Company would almost
certainly be unable to offer securities under a registration statement pursuant
to the Securities Act of 1933, and the ability of the Company to raise capital
would be significantly limited until such financial statements were to become
available.
(k)
OTHER
REGULATION. An acquisition made by the Company may be of a business that is
subject to regulation or licensing by federal, state, or local authorities.
Compliance with such regulations and licensing can be expected to be a
time-consuming, expensive process and may limit other investment opportunities
of the Company.
(l)
LIMITED PARTICIPATION OF MANAGEMENT. The Company currently has only one
individual who is serving as its sole officer
and
director on a very limited-time basis. The Company is therefore heavily
dependent upon the skills, talents, and abilities of the principal shareholders
to implement its business plan. See “Management.”
(m)
LACK
OF CONTINUITY IN MANAGEMENT. The Company does not have any employment agreements
with its officers and directors, and as a result, there is no assurance they
will continue to be associated with the Company in the future. In connection
with acquisition of a business opportunity, it is likely the current officers
and directors of the Company may resign subject to compliance with Section
14f
of the Securities Exchange Act of 1934. A decision to resign will be based
upon
the identity of the business opportunity and the nature of the transaction,
and
is likely to occur without the vote or consent of the stockholders of the
Company.
(n)
NO
INDEPENDENT AUDIT COMMITTEE OF BOARD OF DIRECTORS. The Company does not have
an
independent Audit Committee of its
Board
of Directors. The entire Board of Directors functions as the Company’s Audit
Committee. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and rules and
regulations adopted by the U.S. Securities and Exchange Commission Rules to
implement the Sarbanes-Oxley
Act impose certain standards on listed companies relative to the maintenance
and
operations of Board of Directors Audit Committees, including but not limited
to
the requirement that Audit Committees be appointed, that membership of such
committees comprise only independent directors, that a financial professional
be
among the membership of such committee and that such committee be afforded
an
adequate operating budget and be able to employ independent professional
advisors. The Sarbanes-Oxley Act
also
requires that the Audit Committee oversee the work of a company’s outside
auditors and that the outside auditors be responsible to the Audit Committee.
At
this time, the Company is not in compliance with the requirements of the
Sarbanes-Oxley Act as
they
relate to independent Board of Directors Audit Committees. The Company believes
that under rules and regulations adopted by the U.S. Securities and Exchange
Commission to implement these provisions of the Sarbanes-Oxley Act it is not
required to comply
with
its requirements relating to the appointment of an Audit Committee of its Board
of Directors and conforming with the enumerated standards and guidelines because
the Company is not a “Listed Company” as defined therein. Notwithstanding, the
Company may ultimately be determined not to be incompliance therewith and may
therefore face penalties and restrictions on its operations until it comes
into
full compliance. Additionally, the Company’s failure to comply with the
provisions of the Sarbanes-Oxley Act could preclude it from being listed on
NASDAQ or any other stock exchanges until it can show that it is in compliance.
The Company’s failure to be in compliance with the Sarbanes-Oxley Act could also
present an impediment to a potential business combination
where the target company intends that the Company apply for listing on NASDAQ
or
any other applicable stock exchanges.
(o)
INDEMNIFICATION OF OFFICERS AND DIRECTORS. Delaware Statutes provide for the
indemnification of its directors, officers, employees,
and agents, under certain circumstances, against attorney’s fees and other
expenses incurred by them in any litigation to which they become a party arising
from their association with or activities on behalf of the Company. The Company
will also bear the expenses of such litigation for any of its directors,
officers, employees, or agents, upon such person’s promise to repay the Company
therefor if it is ultimately determined that any such person shall not have
been
entitled to indemnification. This indemnification
policy could result in substantial expenditures by the Company which it will
be
unable to recoup.
(p)
DEPENDENCE UPON OUTSIDE ADVISORS. To supplement the Company’s officers,
directors and principal shareholders, the Company may be required
to
employ accountants, technical experts, appraisers, attorneys, or other
consultants or advisors. The selection of any such advisors will be made by
the
Company without any input from stockholders. Furthermore, it is anticipated
that
such persons may be
engaged
on an “as needed” basis without a continuing fiduciary or other obligation to
the Company. In the event the Company considers it necessary to hire outside
advisors, such persons may be affiliates of the Company, if they are able to
provide the required
services.
(q)
LEVERAGED TRANSACTIONS. There is a possibility that any acquisition of a
business opportunity by the Company may be leveraged, i.e., the Company may
finance the acquisition of the business opportunity by borrowing against the
assets
of the
business opportunity to be acquired, or against the projected future revenues
or
profits of the business opportunity. This could increase the Company’s exposure
to larger losses. A business opportunity acquired through a leveraged
transaction is profitable
only if it generates enough revenues to cover the related debt and expenses.
Failure to make payments on the debt incurred to purchase the business
opportunity could result in the loss of a portion or all of the assets acquired.
There is no assurance that any business opportunity acquired through a leveraged
transaction will generate sufficient revenues to cover the related debt and
expenses.
(r)
COMPETITION. The search for potentially profitable business opportunities is
intensely competitive. The Company expects to be at a disadvantage when
competing with many firms that have substantially greater financial and
management resources and capabilities than the Company. These competitive
conditions will exist in any industry in which the Company may become
interested.
(s)
NO
FORESEEABLE DIVIDENDS. The Company has not paid dividends on its Common Stock
and does not anticipate paying such dividends in the foreseeable future.
(t)
LOSS
OF CONTROL BY PRESENT MANAGEMENT AND STOCKHOLDERS. The Company
may
consider an acquisition in which the Company would issue as consideration for
the business opportunity to be acquired an amount of the Company’s authorized
but unissued Common Stock that would, upon issuance, represent the great
majority of the voting power and equity of the Company. The result of such
an
acquisition would be that the acquired company’s stockholders and management
would control the Company, and the Company’s board of directors and management
could be replaced by persons unknown at this
time.
Such a merger would result in a greatly reduced percentage of ownership of
the
Company by its current shareholders.
(u)
RULE
144 SALES. The
majority of the outstanding shares of Common Stock held by present stockholders
are “restricted securities” within the meaning of Rule 144 under the Securities
Act of 1933, as amended. As restricted shares, these shares may be resold only
pursuant to an effective registration statement or under the requirements of
Rule 144 or other applicable exemptions from registration under the Act and
as
required under applicable state securities laws. Rule 144 provides in essence
that a person who has held restricted securities for one year may, under certain
conditions, sell every three months, in brokerage transactions, a number of
shares that does not exceed the greater of 1.0% of a company’s outstanding
common stock or the average weekly trading volume during the four calendar
weeks
prior to the sale. There is no limit on the amount of restricted securities
that
may be sold by a nonaffiliate after the restricted securities have been held
by
the owner for a period of two years. Nonaffiliate shareholders who have held
their shares under Rule 144 for two years are eligible to have freely tradable
shares. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of Common Stock
of
present stockholders, may have a depressive effect upon the price of the Common
Stock in any market that may develop. All shares become available for resale
(subject to volume limitations for affiliates) under Rule 144, one year after
date of purchase subject to applicable volume restrictions under the Rule.
Going
Concern Qualification
Our
auditors have prepared their report on the auditied financial statements
contained in this Annual Report on a going concern basis which contemplates
the
realization of assets and liquidation of liabilities in the ordinary course
of
business; however, currently such realization of assets and liquidation of
liabilities are subject to significant uncertainties.
As
shown
in the accompanying audited financial statements, as of December 31, 2006 our
current liabilities exceed our current assets by $134,778 and our total
liabilities exceed our total assets by $134,778. These factors, among others,
indicate that we may be unable to continue existence. The financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities
that
might be necessary should the we be unable to continue in
existence.
The
appropriateness by the Company of continuing to use the aforementioned basis
of
accounting is dependent upon, among other things, the ability to maintain and
increase existing credit facilities or raise additional capital.
Results
of Operations
Liquidity
and Capital Resources
As
of
December 31, 2006, we had $0.00 in cash and cash equivalents and a working
capital deficit of $134,778.
We used $55,597 in operating activities for the fiscal year period ended
December 31, 2006. For the fiscal year ended December 31, 2005, our operations
used $17,790 in cash. We used more cash in operations in 2006 as compared to
2005, primarily due to an increase due to an increase in professional fees.
We
received $0.00 in revenue during the fiscal year ended December 31,
2006.
As
a
result, the Company will require a cash infusion of at least $50,000 for the
next twelve months. Historically,
we have depended on loans from our principal shareholders and their affiliated
companies (to provide us with working capital as required. There is no guarantee
that such funding will be available when required and there can be no assurance
that our stockholders, or any of them, will continue making loans or advances
to
us in the future.
As
of
December 31, 2006, we owed $124,750 in the aggregate to our stockholders,
comprising $124,195 in the form of Convertible Promissory Notes and a
shareholder payable of $555.00.
Twelve
Months Ended December 31, 2006 Compared to December 31, 2005
The
following table summarizes the results of our operations during the fiscal
years
ended December 31, 2006 and 2005, respectively, and provides information
regarding the dollar and percentage increase or (decrease) from the current
12-month period to the prior 12-month period:
Line
Item
|
|
12/31/06
(audited)
|
|
12/31/05
(audited)
|
|
Increase
(Decrease)
|
|
Percentage
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
0.0
|
%
|
Net
loss
|
|
|
(61,354
|
)
|
|
(18,861
|
)
|
|
(42,493
|
)
|
|
(225.8
|
%)
|
Operating
Expenses
|
|
|
60,404
|
|
|
18,861
|
|
|
41,543
|
|
|
220.3
|
%
|
Loss
per share of common stock
|
|
|
(0.01
|
)
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
(100.0
|
%)
|
During
the fiscal year ended December 31, 2006, S, G & A expenses increased
principally due to an increase in professional fees.
We
incurred a net loss of $61,354 for the fiscal year ended December 31, 2006
as
compared with a net loss of $18,861 for the fiscal year ended December 31,
2005.
This increase of $42,493 was mainly due to a change in our business plan and
increased expenditures for professional fees.
Off
Balance Sheet Arrangements
We
do not
have any off balance sheet arrangements that have or are reasonably likely
to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.
Seasonality
Our
operating results are not affected by seasonality.
Inflation
Our
business and operating results are not affected in any material way by
inflation.
Critical
Accounting Policies
The
Securities and Exchange Commission issued Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies"
suggesting that companies provide additional disclosure and commentary on their
most critical accounting policies. In Financial Reporting Release No. 60, the
Securities and Exchange Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. The nature of our business
generally does not call for the preparation or use of estimates. Due to the
fact
that the Company does not have any operating business, we do not believe that
we
do not have any such critical accounting policies.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA.
|
Set
forth
below are the audited financial statements for the Company for the fiscal years
ended December 31, 2006 and 2005, and the reports thereon of Paritz & Co, PA
and Amisano Hanson Chartered Accountants.
Paritz
& Company, P.A.
|
15
Warren Street, Suite 25
Hackensack,
New Jersey 07601
(201)342-7753
Fax:
(201) 342-7598
E-Mail:
paritz @paritz.com
|
Certified
Public Accountants
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
SMI
Products, Inc.
(A
Development Stage Company)
Santa
Monica, California
We
have
audited the accompanying balance sheet of
SMI
Products, Inc. (A Development Stage Company) as
of
December 31, 2006 and the related statements of operations, changes in
stockholders‘ deficiency and cash flows for the year ended December 31, 2006 and
the period from inception (June 17, 1996) to December 31, 2006. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on
our audit. The financial statements of SMI Products, Inc. as of December 31,
2005 were audited by other auditors whose report dated March 22, 2006 expressed
an unqualified opinion on those statements.
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. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the 2006 financial statement referred to above presents fairly, in
all
material respects, the financial position of SMI Products, Inc. as of December
31, 2006 and the results of its operations and its cash flows for the period
from inception (June 17, 1996) to December 31, 2006 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. The Company has suffered recurring net losses
and as of December 31, 2006 its current liabilities and total liabilities
exceeded its current assets and total assets by $134,778. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Hackensack,
New Jersey
January
29, 2007
A
PARTNERSHIP
OF
INCORPORATED
PROFESSIONALS
|
Amisano Hanson
|
|
Chartered Accountants
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Stockholders,
SMI
Products, Inc.
We
have
audited the accompanying statements of operations, stockholders' deficiency
and
cash flows of SMI Products, Inc. for the year ended December 31, 2005 and for
the period June 17, 1996 (Date of Inception) to December 31, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform an audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, these financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of SMI Products,
Inc. for the year ended December 31, 2005 and for the period from June 17,
1996
(Date of Inception) to December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the
financial statements, the Company is in the development stage, and has no
established source of revenue and is dependent on its ability to raise capital
from shareholders or other sources to sustain operations. These factors, along
with other matters as set forth in Note 1, raise substantial doubt that the
Company will be able to continue as a going concern. The financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
Vancouver,
Canada
|
/s/
Amisano Hanson
|
March
22, 2006
|
Chartered
Accountants
|
750 WEST PENDER STREET, SUITE 604 |
TELEPHONE: 604-689-0188
|
VANCOUVER
CANADA
|
FACSIMILE: 604-689-9773
|
V6C
2T7
|
E-MAIL: amishan@telus.net
|
SMI
PRODUCTS, INC.
(A
Development Stage Company)
BALANCE
SHEET
DECEMBER
31, 2006
ASSETS
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$
|
9,078
|
|
Interest
payable
|
|
|
950
|
|
Loans
payable
|
|
|
124,750
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
134,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIENCY:
|
|
|
|
|
Common
stock
|
|
|
7,551
|
|
Additional
paid-in capital
|
|
|
47,249
|
|
Accumulated
deficit
|
|
|
(189,578
|
)
|
TOTAL
STOCKHOLDERS’ DEFICIENCY
|
|
|
(134,778
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
$
|
-
|
|
See
notes
to financial statements
SMI
PRODUCTS, INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
|
|
---YEAR
ENDED DECEMBER 31,---
|
|
FROM
INCEPTION
(JUNE
17, 1996)
TO
DECEMBER
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
$
|
-
|
|
$
|
13,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
10,267
|
|
|
4,394
|
|
|
65,148
|
|
Consulting
|
|
|
453
|
|
|
-
|
|
|
23,801
|
|
Professional
fees
|
|
|
48,259
|
|
|
14,467
|
|
|
115,014
|
|
Taxes
|
|
|
1,425
|
|
|
-
|
|
|
1,425
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
60,404
|
|
|
18,861
|
|
|
205,388
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
950
|
|
|
-
|
|
|
950
|
|
Write-off
of accounts payable
|
|
|
-
|
|
|
-
|
|
|
(2,192
|
)
|
Write-off
of loans payable
|
|
|
-
|
|
|
-
|
|
|
(900
|
)
|
TOTAL
OTHER EXPENSES
|
|
|
950
|
|
|
-
|
|
|
(2,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
61,354
|
|
|
18.861
|
|
|
203,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(61,354
|
)
|
$
|
(18,861
|
)
|
$
|
(189,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHARE
|
|
$
|
(0.01
|
)
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
7,551
|
|
|
7,551
|
|
|
-
|
|
See
notes
to financial statements
SMI
PRODUCTS, INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
|
|
|
YEAR
ENDED DECEMBER 31
|
|
FROM
INCEPTION(JUNE
17, 1996)TO
DECEMBER
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(61,354
|
)
|
$
|
(18,861
|
)
|
$
|
(189,578
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
expenses
|
|
|
4,200
|
|
|
-
|
|
|
4,200
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts payable
|
|
|
607
|
|
|
1,071
|
|
|
9,078
|
|
Increase
in interest payable
|
|
|
950
|
|
|
|
|
|
950
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(55,597
|
)
|
|
(17,790
|
)
|
|
(175,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
-
|
|
|
-
|
|
|
50,600
|
|
Increase
in loans payable
|
|
|
55,316
|
|
|
17,436
|
|
|
124,750
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
55,316
|
|
|
17,436
|
|
|
175,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH
|
|
|
(281
|
)
|
|
(354
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
- BEGINNING OF YEAR
|
|
|
281
|
|
|
635
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
- END OF YEAR
|
|
$
|
-
|
|
$
|
281
|
|
$
|
-
|
|
See
notes
to financial statements
SMI
PRODUCTS, INC.
(A
Development Stage Company)
STATEMENT
OF STOCKHOLDERS’ DEFICIENCY
FROM
INCEPTION (JUNE 17, 1996) TO DECEMBER 31, 2006
|
|
|
NUMBER
OF
SHARES
|
|
|
AMOUNT
|
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
|
DEFICIT
ACCUMULATED
DURING
DEVELOPMENT
STAGE
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
for services - at
$0.00002
|
|
|
5,000,000
|
|
$
|
1
|
|
$
|
99
|
|
$
|
-
|
|
$
|
100
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(117
|
)
|
|
(117
|
)
|
BALANCE
DECEMBER
31, 1996
|
|
|
5,000,000
|
|
|
1
|
|
|
99
|
|
|
(117
|
)
|
|
(17
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(200
|
)
|
|
(200
|
)
|
BALANCE
DECEMBER
31, 1997
|
|
|
5,000,000
|
|
|
1
|
|
|
99
|
|
|
(317
|
)
|
|
(217
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(200
|
)
|
|
(200
|
)
|
BALANCE
DECEMBER
31, 1998
|
|
|
5,000,000
|
|
|
1
|
|
|
99
|
|
|
(517
|
)
|
|
(417
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(200
|
)
|
|
(200
|
)
|
BALANCE
DECEMBER
31, 1999
|
|
|
5,000,000
|
|
|
1
|
|
|
99
|
|
|
(717
|
)
|
|
(617
|
)
|
Stock
Split
|
|
|
-
|
|
|
4,999
|
|
|
(4,999
|
)
|
|
-
|
|
|
-
|
|
Issued
for cash at $0.01
|
|
|
2,500,000
|
|
|
2,500
|
|
|
22,500
|
|
|
-
|
|
|
25,000
|
|
at
$0.50
|
|
|
51,000
|
|
|
51
|
|
|
25,449
|
|
|
-
|
|
|
25,500
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(36,522
|
)
|
|
(36,522
|
)
|
BALANCE
DECEMBER
31, 2000
|
|
|
7,551,000
|
|
|
7,551
|
|
|
43,049
|
|
|
(37,239
|
)
|
|
13,361
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(22,303
|
)
|
|
(22,303
|
)
|
BALANCE
DECEMBER
31, 2001
|
|
|
7,551,000
|
|
|
7,551
|
|
|
43,049
|
|
|
(59,542
|
)
|
|
(8,942
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,587
|
)
|
|
(15,587
|
)
|
BALANCE
DECEMBER
31, 2002
|
|
|
7,551,000
|
|
|
7,551
|
|
|
43,049
|
|
|
(75,129
|
)
|
|
(24,529
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16,157
|
)
|
|
(16,157
|
)
|
BALANCE
DECEMBER
31, 2003
|
|
|
7,551,000
|
|
|
7,551
|
|
|
43,049
|
|
|
(91,286
|
)
|
|
(40,686
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(18,077
|
)
|
|
(18,077
|
)
|
BALANCE
DECEMBER
31, 2004
|
|
|
7,551,000
|
|
|
7,551
|
|
|
43,049
|
|
|
(109,363
|
)
|
|
(58,763
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(18,861
|
)
|
|
(18,861
|
)
|
BALANCE
DECEMBER
31, 2005
|
|
|
7,551,000
|
|
|
7,551
|
|
|
43,049
|
|
|
(128,224
|
)
|
|
(77,624
|
)
|
Fair
value of administrative
services
|
|
|
-
|
|
|
-
|
|
|
4,200
|
|
|
-
|
|
|
4,200
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61,354
|
)
|
|
(61,354
|
)
|
BALANCE
DECEMBER
31, 2006
|
|
|
7,551,000
|
|
$
|
7,551
|
|
$
|
47,249
|
|
$
|
(189,578
|
)
|
$
|
(134,778
|
)
|
The
number of shares issued and outstanding has been restated to give retroactive
effect for a forward stock split on a five thousand for one basis approved
by
the stockholders on January 15, 2000. The par value and contributed surplus
were
adjusted during the year ended December 31, 2000 to adjust the par value amount
in conformity with the number of shares then issued.
See
notes
to financial statements
SMI
PRODUCTS, INC.
(A
Development Stage Company)
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2006
1
NATURE
AND CONTINUANCE OF OPERATIONS
SMI
Products, Inc. (the “Company”) was incorporated in the State of Nevada on June
17, 1996. From inception through August 11, 2006 the Company was a development
stage company in the business of internet real estate mortgage services. From
and after August 11, 2006, the Company ceased its prior business. The Company’s
business plan now consists of exploring potential targets for a business
combination with the Company through the purchase of assets, share purchase
or
exchange, merger or similar type of transaction
These
financial statements have been prepared in accordance with generally accepted
accounting principles applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for
its
next fiscal year. Realization values may be substantially different from
carrying values as shown, and these financial statements do not give effect
to
adjustments that would be necessary to the carrying values and classification
of
assets and liabilities should the Company be unable to continue as a going
concern. At December 31, 2006, the Company has not yet achieved profitable
operations, has accumulated losses of $189,579 since its inception, has a
working capital deficiency of $134,779 and expects to incur further losses
in
the development of its business, all of which casts substantial doubt about
the
Company’s ability to continue as a going concern. The Company’s ability to
continue as a going concern is dependent upon its ability to generate future
profitable operations and/or to obtain the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations
when they come due. Management has no formal plan in place to address this
concern, but considers that the Company will be able to obtain additional funds
by equity financing and/or related party advances. However, there is no
assurance of additional funding being available.
2
SIGNIFICANT
ACCOUNTING POLICIES
Uses
of estimates in the preparation of financial
statements
|
The
financial statements of the Company have been prepared in accordance
with
accounting principles generally accepted in the United States of
America.
Because a precise determination of many assets and liabilities is
dependent upon future events, the preparation of these financial
statements necessarily involved the use of estimates, which have
been made
using careful judgment. Actual results may differ from these
estimates.
|
|
These
financial statements, in management’s opinion, have been properly prepared
within the framework of the significant accounting policies summarized
below.
|
|
Development
stage company
|
The
Company is a development stage company as defined in Statement of Financial
Accounting Standards (“FAS”) No, 7.
Income
taxes
The
Company uses the asset and liability method of accounting for income taxes
pursuant to FAS No. 109, “Accounting
for Income Taxes”.
Under
the assets and liability method of FAS 109, deferred tax assets and liabilities
are recognize for the future tax consequences attributable to temporary
differences between the financial statements carrying amounts of existing assets
and liabilities and loss carryforwards and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled
Basic
loss per share
The
Company reports basic loss per share in accordance with FAS No. 128,
“Earnings
per Share”.
Basic
loss per share is computed using the weighted average number of shares
outstanding during the year.
Financial
instruments
The
carrying values of cash and accounts payable approximates fair value because
of
the short maturity of those instruments. Loans payable also approximates fair
value. Unless otherwise notes, it is management’s opinion that the Company is
not exposed to significant interest, currency or credit risks arising from
these
financial instruments.
New
accounting standards
Management
does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted could have a material effect on the accompanying
financial statements.
3
RELATED
PARTY TRANSACTIONS
The
Company was charged the following amount by former directors and officers of
the
Company:
|
|
|
DECEMBER
31
|
|
FROM
INCEPTION(JUNE
17, 1996)TO
DECEMBER
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Organizational
costs
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,000
|
|
Consulting
fees
|
|
|
-
|
|
|
-
|
|
|
3,740
|
|
|
|
$ |
-
|
|
$
|
-
|
|
$
|
4,740
|
|
These
charges were measured by the exchange amount, which is the amount agreed upon
by
the transacting parties.
4
LOANS
PAYABLE - RELATED PARTIES
At
December 31, 2006 the Company was indebted to Fountainhead Capital Partners
Limited, a shareholder holding approximately 73.5% of the Company’s issued and
outstanding common shares, in the amount of $124,750, comprising (i) six
convertible promissory notes aggregating a principal balance of $92,558 due
and
payable on August 11, 2007; (ii) a convertible promissory note with a principal
balance of $31,637 due on September 30, 2007, and (iii) a shareholder loan
payable of $555. The principal balance of the convertible promissory notes
and
all accrued interest thereunder are convertible, in whole or in part, into
shares of the Company’s common stock at the option of the payee or other holder
thereof at any time prior to maturity, upon ten days advance written notice
to
the Company. The number of shares of the Company’s common stock issuable upon
such conversion shall be determined by the Board of Directors of the Company
based on what it determines the fair market value of the Company is at the
time
of such conversion. Upon conversion, the notes shall be cancelled and a
replacement note in identical terms shall be promptly issued by the maker to
the
holder thereof to evidence the remaining outstanding principal amounts thereof
as of the date of the conversion, if applicable. In the event of a stock split,
combination, stock dividend, recapitalization of the Company or similar event,
the conversion price and number of hares issuable upon conversion shall be
equitable adjusted to reflect the occurrence of such event. The following is
a
summary of loans payable to related parties:
|
|
|
DECEMBER
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
Unsecured,
bearing interest at 2% per annum, due within one year
|
|
$
|
124,195
|
|
$
|
69,434
|
|
5 DEFERRED
TAX ASSETS
Deferred
tax assets consist of the following:
|
|
DECEMBER
31,
|
|
|
|
2006
|
|
2005
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
189,579
|
|
$
|
128,224
|
|
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
$
|
64,457
|
|
$
|
33,257
|
|
Valuation
allowance for deferred tax assets
|
|
|
64,457
|
|
|
33,257
|
|
|
|
$ |
- |
|
$
|
-
|
|
The
amount taken into income as deferred tax assets must reflect that portion of
the
income tax loss carryforwards which is more likely than not to be realized
from
future operations. The Company has chosen to provide an allowance of 100%
against all available income tax loss carryforwards, regardless of their time
of
expiry.
6
INCOME
TAXES
No
provision for income taxes has been provided in these financial statements
due
to the net loss. At December 31, 2006, the Company has net operating loss
carryforwards, which expire commencing in 2017, totaling approximately $189,579.
The potential tax benefit of these losses, if any, has not been recorded in
the
financial statements.
7
COMPARATIVE
FIGURES
Certain
of the December 31, 2005 comparative figures have been reclassified in order
to
conform to the current year’s presentation.
ITEM
8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
October 31, 2006, the Company’s Board of Directors decided to engage Paritz
& Co., Hackensack, NJ as independent principal accountant and auditor to
report on the Company's
financial
statements for the fiscal year ended December 31, 2006,including performing
the
required quarterly reviews. In conjunction with the new engagement, the Company
has dismissed its
former
accountant, Amisano Hanson Chartered Accountants, Vancouver, Canada as the
Company's principal accountant effective October 31, 2006. Amisano Hanson has
served the Company well since 1996. Under Item 304 of Regulation S-K, the reason
for the auditor change is dismissal, not
resignation
nor declining to stand for re-election. During the two most recent fiscal years
and the interim period through the date of the dismissal, there were no
disagreements with Amisano Hanson on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to Amisano Hanson's satisfaction, would have
caused Amisano Hanson to make reference to the subject matter of the
disagreements in
connection
with its reports. During the two most recent fiscal years through the date
of
dismissal, the
reports
of Amisano Hanson did not contain any adverse opinion or disclaimer of opinion,
or was modified as to uncertainty, audit scope, or accounting principles other
than the issuance of a “going concern” opinion with respect to its Reports
issued with respect to the Company’s financial statements dated December 31,
2005 and December 2004, respectively. On October 31, 2006, the Company approved
the engagement of Paritz & Co.as the Company's new independent registered
public accounting firm for the fiscal year ending December 31, 2006.
ITEM
8a. CONTROLS
AND PROCEDURES.
Within
90
days of the filing of this Form 10-KSB, an evaluation was carried out under
the
supervision and with the participation of our sole officer and director, of
the
effectiveness of our disclosure controls and procedures. Disclosure controls
and
procedures are procedures that are designed with the objective of ensuring
that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this Form 10-KSB, is recorded, processed,
summarized and reported within the time period specified in the Securities
and
Exchange Commission's rules and forms. Based on that evaluation, our sole
officer and director concluded that as of December 31, 2006, and as of the
date
that the evaluation of the effectiveness of our disclosure controls and
procedures was completed, our disclosure controls and procedures were effective
to satisfy the objectives for which they are intended.
There
were no changes in our internal control over financial reporting identified
in
connection with the evaluation performed that occurred during the fiscal year
covered by this report that has materially affected or is reasonably likely
to
materially affect, our internal control over financial reporting.
PART
III.
ITEM
9. DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Set
forth
below is the name of our sole director and executive officer, his age, all
positions and offices that he held with us, the period during which he has
served as such, and his business experience during at least the last five
years.
Name
|
Age
|
Positions
Held
|
Geoffrey
Alison
|
34
|
CEO,
President,
Treasurer
and
Secretary since
2006
|
Geoffrey
Alison
Geoffrey
Alison has served as a President, Treasurer, Secretary and a director of
the Company since August 2006. Mr. Alison has been registered with the National
Association of Securities Dealers since 1999 and has worked as a General
Securities Principal for various securities firms including Stock USA, Inc
(January 1999 - October 2001) and Assent, LLC (November 2001 - August 2004).
From September 2004 through the present date, Mr. Alison has been a registered
General Securities Principal with ECHOtrade, a Philadelphia Exchange member
firm, as a securities trader for his own capital and benefit. From July 2003
through January 2005, he served as Chief Financial Officer, Secretary and
a
director of Intrac, Inc. (OTCBB:ITRD) and From January 2005 through January
2006, he served as President, Secretary and a director of Cape Coastal Trading
Corporation (OTCBB:CCTR). In October, 2002, Mr. Alison co-created Greenvest
Industries, Inc. which manufactures pet products under the brand name Happy
Tails Pet Beds. Mr. Alison is currently President and CEO of Greenvest
Industries, Inc.
Mr.
Alison devotes less than 5% of his business time to the affairs of the Company.
The time Mr. Alison spends on the business affairs of the Company varies from
week to week and is based upon the needs and requirements of the Company.
Audit
Committee and Audit Committee Financial Expert
We
do not
currently have an audit committee financial expert, nor do we have an audit
committee. Our entire board of directors, which currently consists of Mr.
Alison, handles the functions that would otherwise be handled by an audit
committee. We do not currently have the capital resources to pay director fees
to a qualified independent expert who would be willing to serve on our board
and
who would be willing to act as an audit committee financial expert. As our
business expands and as we appoint others to our board of directors we expect
that we will seek a qualified independent expert to become a member of our
board
of directors. Before retaining any such expert our board would make a
determination as to whether such person is independent.
Section
16(a) Beneficial Ownership Reporting Compliance.
Section
16(a) of the Securities Act of 1934 requires the Company's officers and
directors, and greater than 10% stockholders, to file reports of ownership
and
changes in ownership of its securities with the Securities and Exchange
Commission. Copies of the reports are required by SEC regulation to be furnished
to the Company. Based on management's review of these reports during the fiscal
year ended December 31, 2005, all reports required to be filed were filed on
a
timely basis.
Code
of Ethics
On
August
30, 2006, our board of directors adopted a code of ethics that our officers,
directors and any person who may perform similar functions is subject to.
Currently Mr. Alison is our only officer and our sole director, therefore,
he is
the only person subject to the Code of Ethics. If we retain additional officers
in the future to act as our principal financial officer, principal accounting
officer, controller or persons serving similar functions, they would become
subject to the Code of Ethics. The Code of Ethics does not indicate the
consequences of a breach of the code. If there is a breach, the board of
directors would review the facts and circumstances surrounding the breach and
take action that it deems appropriate, which action may include dismissal of
the
employee who breached the code. Currently, since Mr. Alison serves as the sole
director and sole officer, he is responsible for reviewing his own conduct
under
the Code of Ethics and determining what action to take in the event of his
own
breach of the Code of Ethics.
ITEM
10. EXECUTIVE COMPENSATION.
Our
sole
officer and director, Geoffrey Alison, does not receive any compensation for
the
services he renders to the Company, has not received compensation in the past,
and is not accruing any compensation pursuant to any agreement with the Company.
We currently have no formal written salary arrangement with our sole officer.
Mr. Alison may receive a salary or other compensation for services that he
provides to the Company in the future. No retirement, pension, profit sharing,
stock option or insurance programs or other similar programs have been adopted
by the Company for the benefit of the Company’s employees.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Name
|
|
Number
of Shares
Beneficially
Owned(1)
|
|
Percent
of
Outstanding
Shares(1)
|
|
Fountainhead
Capital Partners Limited
|
|
|
|
|
|
|
|
c/oJordans
(C.I.) Limited
PO
Box 456
Portman
House
Hue
Street
St
Helier
Jersey
JE4 5RP
|
|
|
5,551,000
|
|
|
73.50
|
%
|
|
|
|
|
|
|
|
|
Geoffrey
Alison
|
|
|
|
|
|
|
|
5000
Noeline Ave.
Encino,
CA 91436
|
|
|
0
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
Officers
and directors as a group (four persons)
|
|
|
0
|
|
|
0.00
|
%
|
___________________
(1)
|
For
the purposes of this table, a person is deemed to have “beneficial
ownership” of any shares of capital stock that such person has the right
to acquire within 60 days of December 31, 2006. All percentages for
common stock are calculated based upon a total of 7,551,000 shares
outstanding as of December 31, 2006, plus, in the case of the person
for
whom the calculation is made, that number of shares of common stock
that
such person has the right to acquire within 60 days of December 31,
2006.
|
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As
of
December
31, 2006, we owed approximately $125,750 in the aggregate to our stockholders,
comprising Convertible Notes in the face amount of $124,195 and a shareholder
payable of $555.
ITEM
13. EXHIBITS
Exhibit
|
|
Number
|
Description
|
|
|
23
|
Consent
of Amisano Hanson Chartered Accountants
|
|
|
31
|
Certification
of Principal Executive Officer and Principal
|
|
Financial
Officer filed pursuant to Section 302 of the
|
|
Sarbanes-Oxley
Act of 2002.
|
|
|
32
|
Certification
of Principal Executive Officer and Principal
|
|
Financial
Officer furnished pursuant to 18 U.S.C. Section
|
|
1350,
as adopted pursuant to Section 906 of the
|
|
Sarbanes-Oxley
Act of 2002.
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The
aggregate fees billed for professional services rendered by Paritz & Co. for
the audit of the annual financial statements and review of the quarterly
statements and review of the Company’s Quarterly and Annual Reports was $3,000
for the fiscal year ended December 31, 2006 and Amisano Hanson Chartered
Accountants, the Company’s former principal accountant’s fees for the fiscal
year ended December 31, 2005 was $10,929. The Company had no other audit-related
fees.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATED:
February 5, 2007
SMI
PRODUCTS,
INC.
By:
/s/ Geoffrey
Alison
Name: Geoffrey
Alison
Title: Chief
Executive Officer, Director,
President,Treasurer and Secretary
EXHIBIT
INDEX
Exhibit
|
|
Number
|
Description
|
|
|
23
|
Consent
of Amisano Hanson Chartered Accountants
|
|
|
31
|
Certification
of Principal Executive Officer and Principal
|
|
Financial
Officer filed pursuant to Section 302 of the
|
|
Sarbanes-Oxley
Act of 2002.
|
|
|
32
|
Certification
of Principal Executive Officer and Principal
|
|
Financial
Officer furnished pursuant to 18 U.S.C. Section
|
|
1350,
as adopted pursuant to Section 906 of the
|
|
Sarbanes-Oxley
Act of 2002.
|