Rebel Group, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

or

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

For the transition period from __________________ to __________________

Commission File Number:  333-177786

REBEL GROUP, INC.

(Exact name of registrant as specified in its charter)

 7500A Beach Road, Unit 12-313, The Plaza

Singapore 199591

(Address of Principal Executive Offices)

Tel. +6562940423

 (Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☐  No  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of November 16, 2015, the registrant had 23,000,118 shares of common stock, par value $.0001 per share, issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REBEL GROUP, INC.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(Stated in US Dollars)

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

REBEL GROUP, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

*The number of shares of common stock has been retroactively restated to reflect the 1-for-5 reverse stock split effected on July 9, 2014, and reflect the 1-for-20 reverse stock split of its issued and outstanding common stock effected on December 5, 2014.

See accompanying notes to unaudited consolidated financial statements

REBEL GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Stated in US Dollars)

*The number of shares of common stock has been retroactively restated to reflect the 1-for-5 reverse stock split effected on July 9, 2014, and reflect the 1-for-20 reverse stock split of its issued and outstanding common stock effected on December 5, 2014.

See accompanying notes to unaudited consolidated financial statements

REBEL GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’EQUITY

(Stated in US Dollars)

*The number of shares of common stock has been retroactively restated to reflect the 1-for-5 reverse stock split effected on July 9, 2014, and reflect the 1-for-20 reverse stock split of its issued and outstanding common stock effected on December 5, 2014.

See accompanying notes to unaudited consolidated financial statements

REBEL GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS,

(Stated in US Dollars)

See accompanying notes to unaudited consolidated financial statements

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

Rebel Group, Inc. (f/k/a Inception Technology Group, Inc., the “Company”) was incorporated under the laws of the State of Florida on September 13, 2011. The Company organizes, promotes and hosts mixed martial arts (“MMA”) events featuring top level athletic talent. With assistance from contracted production crews, the Company also produces and distributes, through the internet and social media, and sells the rights to distribute to television stations, videos of its MMA events. The Company seeks to promote MMA in Asian countries through hosting events that attract talented fighters from all over the world.

On January 30, 2015, we completed the acquisition of Rebel Holdings Limited (“Rebel FC”) pursuant to a Share Exchange Agreement. (“Share Exchange Agreement,” such transaction, the “Share Exchange Transaction”), whereby the Company issued to the Rebel FC Stockholder an aggregate of 20,700,000 shares of its Common Stock, in exchange for 100% of the equity interests of Rebel FC held by the Rebel FC Stockholder. The shares of our Common Stock received by the Rebel FC Stockholder in the Share Exchange Transaction constitute approximately 90% of our issued and outstanding Common Stock giving effect to the issuance of shares pursuant to the Share Exchange Agreement. As a result of the Share Exchange Transaction, Rebel FC, together with its subsidiaries, Pure Heart Entertainment Pte Ltd. (“Pure Heart”) and SCA Capital Limited (“SCA Capital”), became the Company’s wholly-owned subsidiaries. The acquisition was accounted for as a reverse merger and recapitalization effected by the Share Exchange Transaction. Rebel FC is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.

Also on January 30, 2015, we transferred 100% equity interests of Moxian Intellectual Property Limited (“Moxian IP), our subsidiary, to Moxian, Inc. (“MOXC”) pursuant to the Equity Transfer Agreement. As a result of the Equity Transfer Transaction, Moxian IP ceased to be a subsidiary of the Company.

Rebel FC, which utilizes the trade name of Rebel Fighting Championship, was incorporated on October 28, 2014 in British Virgin Islands and engages in hosting and promoting MMA events since its corporation.

Pure Heart was incorporated under the laws of the Singapore on August 24, 2000 under the name “Sook Kee Coffeeshop Pte. Ltd.” Effective on November 27, 2002, it changed its name to “Asia Pacific Export International Pte Ltd.” It later changed its name from “Asia Pacific Export International Pte Ltd.” to “Pure Heart Entertainment Pte Ltd.” on June 7, 2013. As of October 30, 2014, it became a wholly owned subsidiary of Rebel FC. Pure Heart is an operating subsidiary of the Company and is dedicated to hosting and promoting MMA events.

SCA Capital, a British Virgin Islands company, was incorporated on January 7, 2011 and holds the intellectual property rights relating to the Rebel FC business. On October 28, 2014, SCA Capital became the wholly-owned subsidiary of Rebel FC.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

Fair value of financial instruments

The carrying values of the Company’s financial instruments, including cash and cash equivalents, trade and other receivable, deposits, trade and other payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.

Income taxes

The Company utilizes FASB Accounting Standard Codification Topic 740 (“ASC 740”) “Income taxes” (formerly known as SFAS No. 109, “Accounting for Income Taxes”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the combined financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 “Income taxes” (formerly known as Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (“FIN 48”)) clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognizes in the unaudited consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the statements of operations. The adoption of ASC 740 did not have a significant effect on the unaudited consolidated financial statements.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

Earnings per share

Basic earnings per share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share.  The average market price during the year is used to compute equivalent shares.

FASB Accounting Standard Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited, unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted in share-based payment transactions provided in ASC 260 to determine diluted earnings per share.

Plant and equipment

Plant and equipment are recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

Long-term investment

Investments comprise marketable securities which are classified as available-for-sale securities and are carried at fair value with unrealized gains and losses, net of taxes, reported as a separate component of shareholders’ equity (deficit). The Company determines any realized gains or losses on the sale of marketable securities on a specific identification method, and records such gains and losses as a component of other income (expense), net in the consolidated statement of income.

Comprehensive income

The Company has adopted FASB Accounting Standard Codification Topic 220 (“ASC 220”) “Comprehensive income” (formerly known as SFAS No. 130, “Reporting Comprehensive Income”), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments of the Company.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

The depreciation expenses for the nine months ended September 30, 2015 and 2014 were $12,147 and $11,016, respectively.

On January 30, 2015, MOXC issued a convertible promissory note to us for $7,782,000 (the “MOXC Note”). The MOXC Note will become due and payable on October 30, 2015 and accrues interest at 1% per annum. Under the MOXC Note, MOXC has the option to convert any and all amounts due under the MOXC Note into the shares of MOXC’s shares of common stock (the “MOXC Common Stock”) at the conversion price of $1.00 per share (“Conversion Price”), if the VWAP of MOXC Common Stock for 30 trading days immediately prior to the date of conversion is higher than the Conversion Price. MOXC also has a right of first refusal to purchase the shares issuable upon conversion of the MOXC Note at the price of 80% of the VWAP of MOXC Common Stock for 30 trading days immediately prior to the date of the proposed repurchase by MOXC.

On August 14, 2015, due to the VWAP of the MOXC Common Stock for 30 trading day prior to August 14, 2015 is higher than $1.00, which triggered the clause of conversion under the MOXC Note, MOXC notified us that it elected to convert the amount of $3,891,000 under the MOXC Note into 3,891,000 shares of the MOXC Common Stock at the conversion price of $1.00 (“August Conversion”). As a result of the August Conversion, the remainder amount of the MOXC Note is $3,891,000.

On September 30, 2015, MOXC notified us that it elected to convert the remainder of the MOXC Note, of $3,891,000 into 3,891,000 shares of the MOXC Common Stock (“September Conversion”) at the conversion price of $1.00. After the August Conversion and September Conversion, consequently, all of the MOXC Note was converted into the total of 7,782,000 shares of the MOXC Common Stock with no amount of the MOXC Note is outstanding.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

The interest expenses for the nine months ended September 30, 2015 and 2014 were $2,032 and nil, respectively.

On August 15, 2014, Pure Heart and DBS Bank entered into a banking facility (the “Banking Facility”), pursuant to which DBS Bank disbursed Singapore dollar $50,000 to Pure Heart for working capital. The interest rate of the loan is 6.00% per annum on monthly outstanding balance. The term for the banking facility is three years. Pure Heart shall repay in 36 installments for Singapore dollar $1,522 each month. Mr. Leong Khian Kiee and Mr. Leong Aan Yee, Justin, the directors of Pure Heart personally guaranteed the Banking Facility jointly and severally.

As of September 30, 2015 and December 31, 2014, the due to shareholder is $648,802 and $227,779 respectively. The amount is unsecured, interest free and has no fixed terms of repayment.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

Prior to April 16, 2013, the authorized capital stock of the Company consisted of 250,000,000 shares of Common Stock with a par value of $0.0001. The Company issued 9,000,000 shares of our Common Stock to Marilyn Stark (the “Stark”), our former CEO and former sold Director, on September 13, 2011 for cash in the amount of $9,000 (per share price of $0.001).

The Company sold 2,500,000 shares of Common Stock to a group of Investors on March 14, 2012 for cash in the amount of $37,500 (per share price of $0.015).

On February 27, 2013, Stark entered into a Securities Purchase Agreement with (the “Purchase Agreement”) with three accredited investors (the “Purchasers”), pursuant to which Stark sold to the Purchasers her 9,000,000 shares of Common Stock of the Company.

On April 16, 2013, the Company amended its Articles of Incorporation to implement a 20-for-1 forward split (“Forward Split”). As a result of the Forward Split, the number of outstanding Common Stock increased from 11,500,000 shares to 230,000,000 shares and the par value of Common Stock remains the same.

On April 25, 2013, the Company entered into a Share Exchange Agreement with Moxian BVI and Medicode Group Limited, the sole stockholder of Moxian BVI (the “Moxian Stockholder”), pursuant to which .the Company acquired the operating business of Moxian BVI and its subsidiaries and the Company ceased being a shell company as such term is defined under Rule 12b-2 under the Exchange Act. Since the incorporation of the business of Moxian BVI, the Company changed its business to develop social network platform that integrates social media and business into one single platform.

On July 9, 2014, the Company amended its Articles of Incorporation (the “Amendments”) to implement a 1-for-5 reverse split of its issued and outstanding Common Stock (“Reverse Split”).

On July 23, 2014, the Financial Industry Regulatory Authority approved and declared the Amendments to be effective. As a result, 230,000,000 shares of Common Stock prior to the Reverse Split decreased and without any further action from the Company’s stockholders, to 46,000,000 shares of common stock. The Reverse Split will not alter the total number of the authorized shares or the par value of the shares of the Company.

On December 5, 2014, the Company implemented a 1-for-20 reverse stock split of its issued and outstanding Common Stock. As a result, the number of total outstanding shares become 2,300,118.

On January 30, 2015, the Company, Rebel FC and the stockholder of Rebel FC who owned 100% of Rebel FC (the “Rebel FC Stockholder”) entered into and consummated transactions pursuant to a Share Exchange Agreement, whereby the Company issued to the Rebel FC Stockholder an aggregate of 20,700,000 shares of its Common Stock, in exchange for 100% of the equity interests of Rebel FC held by the Rebel FC Stockholder. The shares of our Common Stock received by the Rebel FC Stockholder in the Share Exchange Transaction constitute approximately 90% of our issued and outstanding Common Stock giving effect to the issuance of shares pursuant to the Share Exchange Agreement. As a result of the Share Exchange Transaction, Rebel FC, together with its subsidiaries, Pure Heart and SCA Capital, became the Company’s wholly-owned subsidiaries.

As of the date of this report, there were 23,000,118 shares of common stock issued and outstanding.

There are no warrants or options outstanding to acquire any additional shares of common stock of the Company.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

*The number of shares of common stock has been retroactively restated to reflect the 1-for-5 reverse stock split effected on July 9, 2014, and reflect the 1-for-20 reverse stock split of its issued and outstanding common stock effected on December 5, 2014.

Rebel FC and SCA Capital are incorporated in the British Virgin Islands and are not subject to income taxes under the current laws of the British Virgin Islands.

Pure Heart was incorporated in Singapore and is subject to Singapore corporate income tax at 17%. No income tax expenses for the nine months ended September 30, 2015 and 2014.

REBEL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

Operating Lease

Significant commitment as at September 30, 2015 are as follows:

Legal Proceeding

There has been no legal proceeding in which the Company is a party for the nine months ended September 30, 2015.

There were no events or transactions other than those disclosed in this report, if any, that would require recognition or disclosure in our Financial Statements for the nine months ended September 30, 2015. 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.

Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

The "Company", "we," "us," and "our," refer to (i) Rebel Group, Inc., a Florida corporation (“REBL”), (ii) Rebel Holdings Limited, a company incorporated under the laws of British Virgin Islands and a wholly-owned subsidiary of REBL (“Rebel FC”); (iii) Pure Heart Entertainment Pte. Ltd., a company incorporated under the laws of Singapore and a wholly-owned subsidiary of Rebel FC (“Pure Heart,”); (iv) SCA Capital Limited, a company incorporated under the laws of British Virgin Islands and a wholly-owned subsidiary of Rebel FC (“SCA Capital”).

Overview

REBL was incorporated in Florida on September 13, 2011. The business plan of the Company was originally to utilize a social networking platform that integrates social media and business into one single platform to promote the retail business of interested merchants and assist consumers online and bring them into real-world stores. Immediately after the completion of the Share Exchange Transaction by and among REBL, Rebel FC, and the sole stockholder of Rebel FC on January 5, 2015 as well as the Equity Transfer Transaction by and among REBL and Moxian, Inc., a Neveda corporation (“MOXC”), the Company discontinued its social media business and changed its business to producing dynamic mixed martial arts (“MMA”) fighting events and promoting the sport of MMA fighting in China, Singapore and Australia.

Under the Equity Transfer Agreement, MOXC issued to the Company a convertible promissory note for $7,782,000 (the “MOXC Note”). The MOXC Note will become due and payable on October 30, 2015 and accrues interest at 1% per annum. MOXC has the option to convert any and all amounts due under the MOXC Note into the MOXC’s common stock (“MOXC Common Stock”) at the conversion price of $1.00 per share, if the VWAP of MOXC Common Stock for a period of thirty (30) trading days immediately prior to the date of conversion is higher than $1.00. MOXC also has a right of first refusal to purchase the shares issuable upon conversion of the MOXC Note at the price of 80% of the VWAP of the MOXC Common Stock for 30 trading days immediately prior to the date of the proposed repurchase by MOXC.

On August 14, 2015, due to the VWAP of the MOXC Common Stock for 30 trading day prior to August 14, 2015 is higher than $1.00, which triggered the clause of conversion under the MOXC Note, MOXC notified us that it elected to convert the amount of $3,891,000 under the MOXC Note into 3,891,000 shares of the MOXC Common Stock at the conversion price of $1.00 (“August Conversion”). As a result of the August Conversion, the remainder amount of the MOXC Note is $3,891,000.

On September 30, 2015, MOXC notified us that it elected to convert the remainder of the MOXC Note, of $3,891,000 into 3,891,000 shares of the MOXC Common Stock (“September Conversion”). After the August Conversion and September Conversion, consequently, all of the MOXC Note was converted in to the total of 7,782,000 shares of the MOXC Common Stock with no amount of the MOXC Note is outstanding.

As of September 30, 2015, our net income was $156,329 and our total stockholders’ equity was $8,108,217.

Results of Operations

Three months ended September 30, 2015 compared with Three months ended September 30, 2014.

Gross Revenues

The Company made sales revenues from continuing operations of $193,194 in the three months ended September 30, 2015, compared to $600,105 being generated in the three months ended September 30, 2014.

Operating Expenses

Operating expenses from continuing operations for the three months ended September 30, 2015 and the three months ended September 30, 2014, were $56,496 and $353,416 respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.

Net Profit (Loss)

Net profit (loss) for the three months ended September 30, 2015 and the three months ended September 30, 2014 were $156,329 and $246,689, respectively. Basic and diluted net loss per share amounted to $(0.01) for the three months ended September 30, 2015 and $(0.01) for the three months ended September 30, 2014.

Nine months ended September 30, 2015 compared with Nine months ended September 30, 2014.

Gross Revenues

The Company made sales revenues from continuing operations of $541,664 in the nine months ended September 30, 2015 compared to $600,105 being generated in the nine months ended September 30, 2014.

Operating Expenses

Operating expenses for the nine months from continuing operations ended September 30, 2015 and the nine months ended September 30, 2014, were $354,329 and $532,562 respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.

Net Profit (Loss)

Net profit (loss) for the nine months ended September 30, 2015 and the nine months ended September 30, 2014 were $7,021,360 and $67,543, respectively. Basic and diluted net loss per share amounted to $(0.31) for the nine months ended September 30, 2015 and $(0.00) for the nine months ended September 30, 2014.

Liquidity and Capital Resources 

As of September 30, 2015 we had working capital of $7,930,379, consisting of cash on hand of $3,826, compared to working capital of $95,418 with cash on hand of $135,034 as of December 31, 2014.

Net cash used in operating activities for the nine months ended September 30, 2015 was $(548,188) as compared to $(80,477) for the nine months ended September 30, 2014. The cash used in operating activities are mainly for filing fees, professional fees, payroll and benefits and general expenses.

The Company will require additional capital for its operational needs and expansion. We are actively sourcing for additional capital through equity transactions and arrangements with third parties. Our major shareholders will to provide continued support to the Company as and when the needs arise.

Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. Our significant estimates and assumptions include depreciation and the fair value of our stock, stock-based compensation, debt discount and the valuation allowance relating to the Company’s deferred tax assets.

Recently Issued Accounting Pronouncements

Reference is made to the “Recent Accounting Pronouncements” in Note 2 to the Financial Statements included in this Report for information related to new accounting pronouncement, none of which had a material impact on our consolidated financial statements, and the future adoption of recently issued accounting pronouncements, which we do not expect will have a material impact on our consolidated financial statements.

Off-Balance Sheet Arrangements

As of September 30, 2015, we did not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1). 

ITEM 4. CONTROLS AND PROCEDURES

Disclosures Control and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of September 30, 2015, our CEO evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedure include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure. Our Management is responsible for monitoring the process pursuant to which information is gathered and analyze such information to determine the extent to which such information requires disclosure in the reports filed with the Securities and Exchange Commission. Based on such evaluation, our CEO has concluded that as of September 30, 2015, the Company’s disclosure controls and procedures were ineffective due to the Company’s lacks of formal documented controls and procedures applicable to all officers and directors. The Company is in the process of adopting formal documented controls and anticipates having them in place by December 31, 2015.

As of September 30, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in by the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 Internal Control - Integrated Framework and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2015.

Management believes that the material weaknesses set forth in items (1), (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

Management’s Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

We anticipate that these initiatives will be at least partially, if not fully, implemented by December 2015. Additionally, we plan to test our updated controls and remediate our deficiencies by December 2015.

Changes in internal controls over financial reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not applicable to a smaller reporting company.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS.

* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

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