THC Therapeutics, Inc. - Quarter Report: 2013 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Harmonic Energy, Inc.

(Exact name of registrant as specified in its charter)

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 [X] 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 [X] 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.

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 63,037,262 as of March 19, 2013.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our financial statements included in this Form 10-Q are as follows:

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended January 31, 2013 are not necessarily indicative of the results that can be expected for the full year.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS (unaudited)

AS OF JANUARY 31, 2013 AND JULY 31, 2012

See accompanying notes to financial statements.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS (unaudited)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 2013 AND 2012

FOR THE PERIOD FROM MAY 1, 2007 (INCEPTION) TO JANUARY 31, 2013

See accompanying notes to financial statements.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS (unaudited)

FOR THE SIX MONTHS ENDED JANUARY 31, 2013 AND 2012

FOR THE PERIOD FROM MAY 1, 2007 (INCEPTION) TO JANUARY 31, 2013

See accompanying notes to financial statements.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

JANUARY 31, 2013

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Harmonic Energy, Inc. (the Company), formerly known as Aviation Surveillance Systems, Inc. and Fairytale Ventures, Inc., was incorporated in the State of Nevada on May 1, 2007.  The Company is currently developing a new business focused on the disposition and recycling of scrap tires through tire re-manufacturing and carbonization of scrap tire components.  The Company has not realized significant revenues to date and therefore is classified as a development stage company.

Development Stage Company

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles related to development-stage companies. A development-stage company is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the period ended July 31, 2012. In the opinion of management, all adjustments necessary for the financial statements to be not misleading for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The Company has adopted a July 31 fiscal year end.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accrued expenses, and a license fees payable. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Basic (Loss) per Common Share

Basic (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are 666,667 common stock warrants outstanding as of January 31, 2013.

Revenue Recognition

The Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

JANUARY 31, 2013

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred. The Company has not incurred any advertising expense as of January 31, 2013 and 2012.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

Reclassifications

Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements.

Income Taxes

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, the Company has not adopted a stock option plan and has not granted any stock options. As of January 31, 2013, the Company has not issued any stock-based payments to its employees.

Recent Accounting Pronouncements

Harmonic Energy does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

NOTE 2 – PREPAID EXPENSES

Prepaid expenses consisted of $1,515 of prepaid transfer agent services and $12,432 of prepaid legal services as well as $ 2,500 of site lease deposits.

NOTE 3 – LICENSE AGREEMENT

On March 14, 2012, the Company entered into a License Purchase Agreement with Kouei International, Inc. The Company acquired the exclusive rights in North America and Europe to use the Tyrolysis™ technology owned by Kouei Industries Co., Ltd. of Japan. Kouei International holds these rights under license from Kouei Industries and, pursuant to the agreement, has assigned them to the Company. The Tyrolysis™ technology is a comprehensive ‘closed-loop’ solution for the management of scrap tires, which allows for all scrap tires to be either re-manufactured into new tires or reduced, through a carbonization process, into marketable chemical products such as diesel fuel, carbon black and syn-gas.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

JANUARY 31, 2013

NOTE 3 – LICENSE AGREEMENT (CONTINUED)

Under the terms of the agreement, the Company is required to pay a total of $525,000 of which $175,000 was due within 90 days of the closing of the agreement (which has been paid), as well as $175,000 due 90 days after the first payment and $175,000 due 90 days after the second payment has been made. The balance due on the license fee payable was $350,000 as of January 31, 2013.

During the period ended January 31, 2013, Kouei Industries agreed to extend the second payment due date to June 30, 2013 and the third payment due date to September 30, 2013. All other terms of the agreement remain the same.

In addition, the Company is to pay a royalty of 3% of all revenues in respect of gross sales for a period of 5 years, and a royalty of $2.50 per remanufactured passenger tire and a royalty of $3.00 per remanufactured light truck and truck tire at the end of each month for a period of 5 years. There have been no revenues generated from the license agreement as of January 31, 2013.

NOTE 4 – ACCRUED EXPENSES

Accrued expenses consisted of the following as of January 31, 2013 and July 31, 2012:

NOTE 5 – LOAN PAYABLE – RELATED PARTY

On June 14, 2010, the Company signed a promissory note for $20,000 with an officer.  The loan was due on June 14, 2011, bears 6% interest and is unsecured. The terms of the notes were revised to adjust maturity to due on demand during the year ended July 31, 2011. Interest expense on this loan was $1,200 for the years ended July 31, 2012 and 2011. During the year ended July 31, 2012, the shareholder forgave the balance of the loan and all accrued interest. The forgiveness of debt of $22,554 was recorded as contributed capital.

In association with the change in control during the year ended July 31, 2012, the selling shareholders paid certain legal and accounting expenses on behalf of the company. A total of $58,437 was paid by the shareholder and has been recorded as contributed capital.

NOTE 6 – NOTE PAYABLE

On January 9, 2013, the Company signed a promissory note for $50,000. The loan is due on January 9, 2014, bears interest at 8% and is unsecured.

Finance costs related to the issuance of the note in the amount of $5,000 have been deferred and are being amortized over the term of the note payable.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

JANUARY 31, 2013

NOTE 7 – CAPITAL STOCK

The Company has 90,000,000 shares of $0.001 par value common stock authorized.

The Company has 10,000,000 shares of $0.001 par value preferred stock authorized.

On May 14, 2007, the Company received $4,000 from its founders for 58,994,015 shares of its common stock. On June 22, 2007, the Company completed an unregistered private offering under the Securities Act of 1933, as amended, relying upon the exemption from registration afforded by Rule 504 of Regulation D promulgated there under.  The Company sold 23,450,110 shares of its $0.001 par value common stock at a price of $0.004 per share for $11,925 in cash.

On July 21, 2008, the Company’s shares of common stock were forward split on the basis of 1.84356289 shares for 1.

On May 1, 2009, the Company’s shares of common stock were forward split on the basis of 1.6 shares for 1.

On March 15, 2010, the Company sold 191,176,470 shares of common stock for total cash proceeds of $65,000.

On November 3, 2011, a shareholder of the company voluntarily returned 1,250,000 shares of common stock to treasury for cancellation.

On February 22, 2012, a shareholder of the company voluntarily returned 210,000,000 shares of common stock to treasury for cancellation

On March 12, 2012, the Company the Company’s shares of common stock were forward split on the basis of 5 shares for 1. All share and per share data in the accompanying financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.

On March 27, 2012, the Company received subscription proceeds of $500,000 related to a subscription agreement for 666,667 shares of common stock and common stock warrants $0.75 per unit. The common stock warrants were valued using the Black-Scholes valuation method. The valuation was made using the following assumptions and the proceeds were allocated based on the fair value of the common stock and common stock warrants;

As of January 31, 2013, the Company had 63,037,262 shares of common stock issued and outstanding.

There are no shares of preferred stock issued and outstanding as of January 31, 2013.

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

JANUARY 31, 2013

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Harmonic Energy neither owns nor leases any real or personal property. An officer has provided office services without charge. There is no obligation for this arrangement to continue. Such costs are immaterial to the financial statements and accordingly are not reflected herein. The officers and directors are involved in other business activities and most likely will become involved in other business activities in the future.

NOTE 9 – GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern.  However, the Company has an accumulated deficit of $459,917 as of January 31, 2013.  The Company currently has a working capital deficit, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

NOTE 10 – INCOME TAXES

As of January 31, 2013, the Company had net operating loss carry forwards of approximately $459,917 that may be available to reduce future years’ taxable income in various amounts through 20321. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

The provision for Federal income tax consists of the following for the six months ended January 31, 2013 and 2012:

The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of January 31, 2013 and July 31, 2012:

HARMONIC ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

JANUARY 31, 2013

NOTE 10 – INCOME TAXES (CONTINUED)

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $409,035 for Federal income tax reporting purposes are subject to annual limitations. Should another change in ownership occur net operating loss carry forwards may be further limited as to use in future years.

NOTE 11 – SUBSEQUENT EVENTS

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to January 31, 2013 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Company Overview

We are a Nevada corporation, formed May 1, 2007.  We are currently developing a new business which will provide a comprehensive solution for the disposition and recycling of scrap tires through tire re-manufacturing and carbonization of scrap tire components. Tire re-manufacturing is a process that takes high quality used tires, removes the old tread and sidewall markings, and then applies new rubber to the tread and sidewall. The used casing along with the new rubber is vulcanized under high pressure and heat to produce a new tire. This is the same process used by new tire manufacturers except that they make the casing (the most costly part of the tire). Carbonization is a technology that heats tires in an oxygen free environment and turns spent tire casings into diesel fuel, carbon black, steel, and syn-gas.

On March 14, 2012, we entered into a License Purchase Agreement (the “Agreement”) with Kouei International, Inc. (“Kouei International”). Under the Agreement, we have acquired the exclusive rights in North America and Europe to use the Tyrolysis™ technology owned by Kouei Industries Co., Ltd. of Japan (“Kouei Industries”). Kouei International holds these rights under license from Kouei Industries and, pursuant to the Agreement, has assigned them to us. The Tyrolysis™ technology is a comprehensive ‘closed-loop’ solution for the management of scrap tires, which allows for all scrap tires to be either re-manufactured into new tires or reduced, through a carbonization process, into marketable chemical products such as diesel fuel, and steel. The carbon char material will be upgraded to produce a general purpose carbon black that can be used again in the rubber, plastic and asphalt industries. Syn-gas is used for process heat within the system.

Under the Agreement, as currently extended, we have agreed to pay Kouei International a total purchase price of $525,000 as follows:

• $175,000 – due within ninety (90) days of closing (which has been paid)
• $175,000 – due on or before June 30, 2013
• $175,000 – due on or before September 30, 2013

In addition, the Agreement calls for Kouei International to be paid ongoing royalties for the next five (5) years as follows:

• 3% of gross sales
• $2.50 per remanufactured passenger tire
• $3.50 per remanufactured light truck and truck tire

The Agreement provides us with full access to Kouei International’s properties, books, records, information, technical drawings, contacts and equipment supplied by Kouei Industries. In addition, Kouei International will be contracted for a two year period to help with the transaction and successful implementation of the technology transfer. During this term, Kouei International may be required to provide its engineering expertise and/or participate in industry technology presentations.

Management is currently evaluating facilities locations in Europe and North America. We plan for our facilities to receive scrap tires and produce both re-manufactured tires and commodity chemicals produced through the Tyrolysis™ carbonization technology. We hope to have 6 to 10 plants operational in Europe and North America within the next 5 years.

Our planned facilities will need to be located near suitable sources of scrap tires and other scrap rubber materials. In preparation for a potential recycling plant to be located in Michigan, we entered into a Tire Feedstock Agreement (the “Agreement”) with Enertech R.D., LLC (“Enertech”) on April 11, 2012. Under the Agreement, we have agreed to purchase all of Enertech’s output of scrap tires and other low-value rubber-based materials (referred to as “Feedstock”) for a term of ten (10) years. We intend to use the Feedstock to supply a planned tire recycling facility. Enertech’s estimated daily output of Feedstock is approximately 200 tons per day, though actual output will fluctuate in response to Enertech’s flow of business operations. The maximum daily output that we are required to accept under the Agreement is 300 tons. If Enertech’s output diminishes to less than 100 tons on each of five successive days, we may rescind the Agreement on 20 days written notice.

The Agreement requires us to pay Enertech a fee of $30 per ton for chipped, two-inch-minus scrap tires which are 90% to 95% steel free. The price per ton will be adjusted annually in accordance with future negotiations between the parties. The Feedstock will be delivered to us at a distance of up to 2 miles from Enertech’s facility in Michigan. We will be required to pay for delivery costs for distances beyond two miles.

The Agreement is conditional upon:

1. Our building and operating a tire recycling facility, located within 2 miles of Enertech’s facility in Michigan, that is capable of processing Enertech’s total Feedstock output, and
2. Our registering with the Michigan Environmental Protection Agency and complying with all permit and license requirements for the tire recycling facility which will accept Enertech’s output of Feedstock.
   

On February 19, 2013, we entered into a Purchase Order (the “Agreement”) with Carbon Black Sales (“CBS”). Under the Agreement, we have agreed to sell to CBS, and CBS has agreed to purchase from us, a minimum of 30,000 tons per year of refined carbon black made from tires during the term of the agreement. The Agreement is conditioned upon our having a tire recycling facility in commercial operation within the next three (3) years. The term of the Agreement is ten years from the date of our initial delivery of product to CBS. The carbon black to be supplied by us under the agreement must meet certain quality standards. The price per-ton for all carbon black sold to CBS under the Agreement will be 60% below the prices established by the Sid Richardson Carbon Ltd. price list for N660 carbon black. The site and specific facility from which the carbon black will be supplied to CBS will be confirmed in the future and prior to our first delivery of product. The Agreement calls for us to supply carbon black from the designated facility exclusively to CBS. CBS has agreed to purchase its carbon black exclusively from our designated facility and may not purchase from another supplier except upon our written consent, which will not be unreasonably withheld. CBS may terminate the Agreement if, for any period of forty-five (45) days after our initial delivery of product, we are unable to produce any additional product. We may terminate the Agreement if CBS is unable to take delivery of product for a period of ten (10) consecutive days.

Management estimates that approximately $50 million in new equity will be required in order to procure the necessary equipment, facilities, and supplies for our planned business and to commence our planned tire recycling operations. We currently do not have any firm arrangements for equity or debt financing and we may not be able to obtain financing when required, in the amount necessary to commence our planned operations, or on terms which are feasible in the opinion of management.

Results of operations for the three and six months ended January 31, 2013 and 2012, and for the period from May 1, 2007 (date of inception) through January 31, 2013.

We have not earned significant revenues since the inception of our business and we earned no revenues during the three and six months ended January 31, 2013 and 2012.  We are presently in the development stage of our business and we can provide no assurance that we will produce significant revenues or, if revenues are earned, that we will be profitable.

We have incurred net losses in the amount of $459,917 from our inception on May 1, 2007 through the period ending January 31, 2013.  During the three months ended January 31, 2013, we incurred expenses and a net loss of $51,182, compared to expenses and a net loss of $2,400 for the three months ended January 31, 2012. During the six months ended January 31, 2013, we incurred expenses and a net loss of $70,994, compared to expenses and a net loss of $4,100 for the six months ended January 31, 2012. Our losses are attributable to our operating expenses combined with a lack of significant revenues during our current stage of development. Our expenses have increased in the three and six months ended January 31, 2013 primarily as a result of increased consulting and professional fees incurred as we prepare to launch our new tire recycling business.

Prior to the generation of revenues, we expect that our expenses will continue to increase significantly as we progress with the development of our new business.

Liquidity and Capital Resources

As of January 31, 2013, we had current assets of $47,948, consisting of cash in the amount of $26,917, prepaid expenses in the amount of $16,447, and deferred financing costs of $4,584. As of January 31, 2013, we had current liabilities of $262,930, consisting of license fees payable of $175,000, a note payable of $50,000, accrued expenses of $37,680, and accrued interest of $250.  Thus, we had a working capital deficit of $214,982 as of January 31, 2013. The largest component of our current liabilities is a $175,000 license fee payable under our License Purchase Agreement with Kouei International. This represents the second of the three installment payments called for under the agreement.

On January 9, 2013, we received financing in the amount of $50,000 under Note issued to Legacy Global Markets. The Note bears interest at a rate of eight percent (8%) per year, with all principal and interest coming due on January 9, 2014.

On May 15, 2012, we raised a total of $500,000 in a private offering of common stock and warrants. Our efforts to secure equity financing for our planned operations is ongoing. We will need additional funding in order to complete our payments under the License Purchase Agreement with Kouei International. We have not established profitable operations and will be dependent upon obtaining financing to pursue a long-term business plan. As discussed above, we will also require substantial new equity financing in the approximate amount of $50 million to successfully pursue the full scope of our planned tire recycling operations. We currently do not have any arrangements for financing and we may not be able to obtain financing when required. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.

Off Balance Sheet Arrangements

As of January 31, 2013, there were no off balance sheet arrangements.

Going Concern

We have negative working capital, have incurred losses since inception, and not yet established a source of revenues. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of January 31, 2013. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Jamie Mann. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 31, 2013, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended January 31, 2013.

Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A: Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

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

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.