Scary stuff.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-QSB
--------------------------------
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended November 30, 2006
| | 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: 0-9879
CAPITAL SOLUTIONS I, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 13-2648442
--------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One N.E. First Avenue, Suite 306, Ocala, Florida 34470
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(Address of principal executive offices)
(352) 867-5183
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(Issuer's telephone number)
---------------------------------------------------------------
(Former Name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 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 |X|
No |_|
Indicate by check mark whether the issuer is a shell company (as defined in rule
12b-2 of the Exchange Act) Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required by Section
12, 13, or 15(d) of the Exchange Act after the distribution of securities under
a plan confirmed by a court Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of January 22, 2007, there were 66,732 shares of the Registrant's
Common Stock, $0.0000001 par value per share, outstanding.
Transitional Small Business Disclosure Format Yes | | No |X|
CAPITAL SOLUTIONS I, INC.
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................................ 4
Item 2. Management's Discussion and Analysis or Plan of Operation........... 18
Item 3. Controls and Procedures............................................. 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......... 25
Item 3. Defaults upon Senior Securities..................................... 25
Item 4. Submission of Matters to a Vote of Securities Holders............... 25
Item 5. Other Information................................................... 25
Item 6. Exhibits............................................................ 25
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS,
ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY. FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE,
ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION
TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW
INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of November 30, 2006 5
Statements of Income for the Six and Three Months Ended
November 30, 2006 and 2005 6
Statements of Cash Flows for the Six Months Ended
November 30, 2006 and 2005 7
Notes to Condensed Consolidated Financial Statements 8
4
CAPITAL SOLUTIONS I, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF NOVEMBER 30, 2006
ASSETS
2006
--------------------
CURRENT ASSETS
Cash and cash equivalents $ 687
--------------------
TOTAL CURRENT ASSETS 687
--------------------
TOTAL ASSETS $ 687
====================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Loan payable - related party 20,000
--------------------
TOTAL CURRENT LIABILITIES 20,000
--------------------
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.0000001 par value, 20,000,000 shares authorized, 50,000
issued and outstanding at November 30, 2006
Common stock, $.0000001 par value, 900,000,000 shares
authorized, 66,732 issued and outstanding at November 30, 2006 -
Additional paid-in capital 531,530
Accumulated deficit (550,843)
--------------------
TOTAL STOCKHOLDERS' (DEFICIT) (19,313)
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 687
====================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
CAPITAL SOLUTIONS I, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS AND THREE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
SIX MONTHS ENDED THREE MONTHS ENDED
November 30, November 30, November 30, November 30,
2006 2005 2006 2005
------------ ------------ ------------ ------------
REVENUES $ - $ - $ - $ -
COST OF REVENUES - - - -
------------ ------------ ------------ ------------
GROSS PROFIT - - - -
------------ ------------ ------------ ------------
OPERATING EXPENSES
Professional fees and consulting - 864 - 864
Accounting and audit fees 18,000 - 18,000 -
Stock transfer fees - 165 - 165
Administrative and other 1,745 162 1,708 126
------------ ------------ ------------ ------------
Total operating expenses 19,745 1,191 19,708 1,155
------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (19,745) (1,191) (19,708) (1,155)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Expiration of debt 629,707 -
Interest expense - (16,008) - (8,004)
------------ ------------ ------------ ------------
Total other Income (expense) 629,707 (16,008) - (8,004)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES (19,745) (17,199) (19,708) (9,159)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS APPLICABLE TO COMMON SHARES 609,962 (17,199) (19,708) (9,159)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS
(Loss on disposal) - (21,000) - (21,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM OPERATIONS APPLICABLE TO COMMON SHARES $ 609,962 $ (38,199) $ (19,708) $ (30,159)
============ ============ ============ ============
NET INCOME (LOSS) FROM CONTINUING OPERATIONS PER BASIC AND DILUTED SHARES $ 7.03 $ (0.39) $ (0.26) $ (0.31)
============ ============ ============ ============
NET (LOSS) FROM DISCONTINUED OPERATIONS PER BASIC AND DILUTED SHARES $ - $ (0.00) $ - $ (0.00)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 86,732 96,732 76,732 96,732
============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
CAPITAL SOLUTIONS I, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2006 AND 2005
2006 2005
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
CONTINUING OPERATIONS:
Net Income (Loss) $ 609,962 $ (17,199)
------------------- -------------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Goodwill impairment - 91,970
Expiration of debt (629,707) -
CHANGES IN ASSETS AND LIABILITIES
Increase in accounts payable and accrued expenses - 16,008
------------------- -------------------
TOTAL ADJUSTMENTS (629,707) 107,978
------------------- -------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (19,745) 90,779
------------------- -------------------
DISCONTINUED OPERATIONS:
(Loss on discontinued operations) - (21,000)
------------------- -------------------
Net cash (used in) operating activities - discontinuing operations - (21,000)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
CONTINUING OPERATIONS:
Purchase of investments - 26
------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS - 26
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
CONTINUING OPERATIONS:
Increase in Loan payable - related party 20,000 -
(Payments) on short-term notes payable and advances - (3,352)
(Payments) of line of credit - (64,777)
------------------- -------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS 20,000 (68,129)
------------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 255 1,676
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 432 137
------------------- -------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 687 $ 1,813
=================== ===================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
CAPITAL SOLUTIONS I, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 2006 AND 2005
NOTE 1 - ORGANIZATION
The condensed consolidated unaudited interim financial statements
included herein have been prepared by Capital Solutions I, Inc.
(formerly Vacation Ownership Marketing, Inc.) (the "Company") without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in the condensed consolidated financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
as allowed by such rules and regulations, and the Company believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the May 31, 2006 audited
consolidated financial statements and the accompanying notes thereto.
While management believes the procedures followed in preparing these
condensed consolidated financial statements are reasonable, the
accuracy of the amounts are in some respects dependent upon the facts
that will exist, and the procedures that will be accomplished by the
Company later in the year.
The management of the Company believes that the accompanying unaudited
condensed consolidated financial statements contain all adjustments
including normal recurring adjustments necessary to present fairly the
operations, changes in stockholders' (deficit), and cash flows for the
period presented.
Capital Solutions I, Inc., "CSI" (formerly Vacation Ownership
Marketing, Inc.) (the "Company") was incorporated in Delaware as Magnum
Communications Corp in 1969. It changed names to its present name on
May 10, 2004. Before changing its name to Capital Solutions I, Inc.
they changed to Vacation Ownership Marketing, Inc. Coinciding with the
name change, the Company did not change its business structure, which
was the development and marketing of time-shared condominiums, which it
continued until 1983. During the year 1983, the Company experienced
financial difficulties and encountered adverse litigation. The
Company's charter expired until May 7, 2000, when a certificate of
renewal was issued.
8
CAPITAL SOLUTIONS I, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 2006 AND 2005
NOTE 1 - ORGANIZATION (CONTINUED)
On January 21, 2004, the Company took the following actions in lieu of
an annual meeting of the stockholders pursuant to Section 228 of the
Delaware General Corporation Law: re-election of directors; the Company
increased its authorized common stock from 50,000,000 to 1,000,000,000
shares; the ratification of the issuance of common stock; the
ratification of the assignment of Encore Builders common stock; and the
approval of the Amended and Restated Articles of Incorporation. An
Amended and Restated Certificate of Incorporation was filed with the
Secretary of State on January 22, 2004.
As of May 10, 2004, the Company merged with Vacation Ownership
Marketing, Inc. A 1:50 reverse stock split of the company's common
stock became effective. As a result of the reverse stock split,
Vacation Ownership Marketing, Inc. changed its name to Capital
Solutions I, Inc. "the Company". The stock split decreased the issued
and outstanding common stock from 61,110,595 to 1,222,005. Capital
Solutions I, Inc. had no assets or liabilities. After the consummation
of the merger, Capital Solutions I, Inc. will cease to exist.
Additionally, the authorized shares of common stock increased from 1
billion to 20 billion and the authorized shares of preferred stock
increased from 10 million to 200 million. The par value of the common
stock and preferred stock authorized was reduced from $.001 par value
per share to $.0000001 par value per share. The Company does not
believe the merger will have any effect on the Company of its finances
other than the amendment and restatement of the Company's Certificate
of Incorporation.
On June 17, 2005 the Company took the following actions in lieu of an
annual meeting of the stockholders pursuant to Section 228 of the
Delaware General Corporation Law: the Company decreased its authorized
common stock from 20,000,000,000 to 900,000,000 shares; decreased its
authorized preferred stock from 200,000,000 to 20,000,000; engaged in a
1:10 reverse stock split of its common stock, decreasing the Company's
issued outstanding common stock from 783,667,072 to 78,366,672; and the
approval of the Amended and Restated Articles of Incorporation. An
amended and Restate Certificate of Incorporation was filed with the
Delaware Secretary of State on June 17, 2005.
On October 19, 2005, the Company took the following actions based on
the Rescission Agreement to cancel 30,000,000 shares of common stock,
which had been issued to the Bedrock Shareholders, and certain other
individuals have been cancelled and returned to the treasury.
9
NOTE 1 - ORGANIZATION (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements for the six and three
months ended November 30, 2006 and 2005 include the accounts of the
Company and all of its wholly-owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or less
to be cash or cash equivalents.
The Company maintains cash and cash equivalent balances at several
financial institutions, which are insured by the Federal Deposit
Insurance Corporation up to $100,000.
START-UP COSTS
The Company adopted Statement of Position No. 98-5 ("SOP 98-5"),
"Reporting the Costs of Start-Up Activities." SOP 98-5 requires that
all non-governmental entities expense the cost of start-up activities,
including organizational costs as those costs are incurred.
REVENUE AND COST RECOGNITION
The Company records its transactions under the accrual method of
accounting whereby income gets recognized when the services are
rendered and collection is reasonably assured.
10
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are computed on the pretax loss based on the current tax
law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates. All deferred tax
assets that arose from the carryforward of net operating losses have
been offset by a valuation allowance due to the uncertainty of the
realization of these tax assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet for
cash and cash equivalents, and loan payable - related party approximate
fair value because of the immediate or short-term maturity of these
condensed consolidated financial instruments.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Historical net income (loss) per common share is computed using the
weighted average number of CSI Common Stock outstanding. Diluted
earnings per share (EPS) include additional dilution from CSI Common
Stock equivalents, such as stock issuable pursuant to the exercise of
stock options and warrants. CSI Common Stock equivalents were not
included in the computation of diluted earnings per share when the
Company reported a loss because to do so would be antidilutive for
periods presented.
11
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK (CONTINUED)
The following is a reconciliation of the computation for basic and
diluted EPS:
November 30, November 30,
2006 2005
-------------------- -------------------
Net Income (Loss) $ 609,962 $ (38,199)
==================== ===================
Weighted-average common shares
Outstanding (Basic) 86,732 96,732
Weighted-average common stock
Equivalents
Stock options - -
Warrants - -
-------------------- -------------------
Weighted-average common shares
Outstanding (Diluted) 86,732 96,732
==================== ===================
There are no options and warrants outstanding to purchase stock at
November 30, 2006 and 2005.
12
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001.
The FASB's new rules on asset impairment supersede SFAS 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
and portions of Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations." This Standard provides a single accounting
model for long-lived assets to be disposed of and significantly changes
the criteria that would have to be met to classify an asset as
held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the
lower of fair value or carrying amount. This Standard also requires
expected future operating losses from discontinued operations to be
displayed in the period (s) in which the losses are incurred, rather
than as of the measurement date as presently required. The Company
disposed of its wholly-owned subsidiary Bedrock Holdings Corporation,
Inc. during the quarter ended November 30, 2005. The loss from disposal
of those assets was $21,000.
There were no disposal of assets or impairment of goodwill for the six
months ended November 30, 2006
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 151,
"Inventory Costs." SFAS No. 151 requires abnormal amounts of inventory
costs related to idle facility, freight handling and wasted material
expenses to be recognized as current period charges. Additionally, SFAS
No. 151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. The standard is effective for fiscal years beginning after
June 15, 2005. The adoption of SFAS No. 151 did not have a material
impact on the Company's financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections." SFAS No. 154 replaces Accounting Principles Board
("APB") Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements." SFAS No. 154
requires retrospective application to prior periods' financial
13
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
statements of a voluntary change in accounting principle unless it is
impracticable. APB No. 20 previously required that most voluntary
changes in accounting principle be recognized by including the
cumulative effect of changing to the new accounting principle in net
income in the period of the change. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The adoption of SFAS No. 154 did not
have a material impact on the Company's financial position or results
of operations.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133
and 140." SFAS No. 155 resolves issues addressed in SFAS No. 133
Implementation Issue No. D1, "Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets," and permits fair
value remeasurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not
subject to the requirements of SFAS No. 133, establishes a requirement
to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in the form
of subordination are not embedded derivatives and amends SFAS No. 140
to eliminate the prohibition on a qualifying special-purpose entity
from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument.
SFAS No. 155 is effective for all financial instruments acquired or
issued after the beginning of the first fiscal year that begins after
September 15, 2006. The Company is currently evaluating the effect the
adoption of SFAS No. 155 will have on its financial position or results
of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets, an amendment of FASB Statement No. 140." SFAS No.
156 requires an entity to recognize a servicing asset or liability each
time it undertakes an obligation to service a financial asset by
entering into a servicing contract under a transfer of the servicer's
financial assets that meets the requirements for sale accounting, a
transfer of the servicer's financial assets to a qualified
special-purpose entity in a guaranteed mortgage securitization in which
the transferor retains all of
14
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
the resulting securities and classifies them as either
available-for-sale or trading securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
and an acquisition or assumption of an obligation to service a
financial asset that does not relate to financial assets of the
servicer or its consolidated affiliates. Additionally, SFAS No. 156
requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, permits an entity
to choose either the use of an amortization or fair value method for
subsequent measurements, permits at initial adoption a one-time
reclassification of available-for-sale securities to trading securities
by entities with recognized servicing rights and requires separate
presentation of servicing assets and liabilities subsequently measured
at fair value and additional disclosures for all separately recognized
servicing assets and liabilities. SFAS No. 156 is effective for
transactions entered into after the beginning of the first fiscal year
that begins after September 15, 2006. The Company is currently
evaluating the effect the adoption of SFAS No. 156 will have on its
financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157 "Fair Value
Measurements," which provides a definition of fair value, establishes a
framework for measuring fair value and requires expanded disclosures
about fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. The provisions of SFAS
No. 157 should be applied prospectively. Management is assessing the
potential impact on Company's financial condition and results of
operations.
In September 2006, the FASB issued SFAS No. 158 "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans", which
amends SFAS No. 87 "Employers' Accounting for Pensions" (SFAS No. 87),
SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" (SFAS No.
88), SFAS No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (SFAS No. 106), and SFAS No. 132R "Employers'
Disclosures about Pensions and Other Postretirement Benefits (revised
2003)" (SFAS No. 132R). This Statement requires companies to recognize
an asset or liability for the overfunded or underfunded status of their
benefit plans in their financial statements. SFAS No. 158 also requires
the measurement date for plan assets and liabilities to coincide with
the sponsor's year end. The standard provides
15
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
two transition alternatives related to the change in measurement date
provisions. The recognition of an asset and liability related to the
funded status provision is effective for fiscal year ending after
December 15, 2006 and the change in measurement date provisions is
effective for fiscal years ending after December 15, 2008. This
pronouncement has no effect on the Company at this time.
NOTE 3 - STOCKHOLDERS' EQUITY
There were 30,000 shares cancelled and returned to the treasury for the
period ended November 30, 2006.
NOTE 4 - PROVISION FOR INCOME TAXES
The Company did not provide for income taxes in the six months ended
November 30, 2006 and 2005. Additionally, the Company established a
valuation allowance equal to the full amount of the deferred tax assets
due to the uncertainty of the utilization of the operating losses in
future periods.
At November 30, 2006 and 2005, the deferred tax assets consists of the
following:
2006 2005
----------------- ------------------
Deferred taxes due to net operating loss
carryforwards $ 165,316 $ 346,235
Less: Valuation allowance (165,316) (346,235)
----------------- ------------------
Net deferred tax asset $ - $ -
================= ==================
Due to the uncertainty of utilizing the approximate $550,843 and $
1,154,116 in net operating losses for the six months ended November 30,
2006 and 2005, respectively, recognizing the deferred tax assets, an
offsetting valuation allowance has been established.
16
NOTE 5 - GOING CONCERN
As shown in the accompanying condensed consolidated financial
statements the Company has incurred capital deficits and has had net
operating losses from continuing operations for the six months ended
November 30, 2006 and 2005. The Company did however, with the exception
of the expiration of debt totaling $629,707, had income from operations
for the six months ended November 30, 2006. The Company has no revenues
to support itself.
In view of these matters, continuing as a going concern is dependent
upon the Company's ability to raise additional capital, and to secure a
future business combination. Management believes that actions planned
and presently being taken to revise the Company's operating and
financial requirements provide the opportunity for the Company to
continue as a going concern.
The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 6 - EXPIRATION OF DEBT
The Company has recognized $629,707 of income as certain debt and
related costs expired during the quarter ending August 31, 2006. The
Company had outstanding convertible debentures in the amount of
$400,202, which matured August 27, 2003. The debentures had been
reported as a current liability in previous quarters. Under Colorado
Law, these debentures along with the associated interest accrued and
expenses of $229,505 have expired.
NOTE 7 - LOANS PAYABLE-RELATED PARTY
During the six months ended November 30, 2006 and 2005, the Company has
received a total of $20,000 in the form of advances from affiliated
companies either in the form of cash or through the affiliated
companies payment of legal and professional fees on behalf of the
Company.
NOTE 8 - RELATED PARTY TRANSACTIONS
As discussed in Note 7, the Company from time to time has been advanced
through advances, or through the payment of legal and professional fees
from affiliated companies. As of November 30, 2006, the Company has
outstanding amounts due its affiliates of $20,000.
17
Item 2. Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL
INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
OVERVIEW
Capital Solutions I, Inc. (the "Company," "we," "our," "ours" and "us")
was incorporated in Delaware as "Magnum Communications Corp." in 1969 and
changed its name to Vacation Ownership Marketing, Inc. in 1980. Coinciding with
the name change, we changed our business to the development and marketing of
time-shared condominiums which continued until 1983. From 1983 until August 29,
2001, we were not engaged in any business. On August 29, 2001, we acquired
Encore Builders, Inc., a construction company, through what was then a
subsidiary of the Company. Beginning on August 29, 2001 we engaged in the
construction of Conquistador Plaza Apartments in Miami, Florida, pursuant to a
lump sum construction contract with Conquistador Plaza. These operations ceased
with the separation of Encore Builders from us in the first quarter of 2002. On
May 10, 2004 we changed our name to our present name, Capital Solutions I, Inc.
Management's plans
Our plan is to seek, investigate, and if such investigation warrants,
consummate a merger or other business combination, purchase of assets or other
strategic transaction (i.e. Merger) with a corporation, partnership, limited
liability company or other business entity (a "Merger Target") desiring the
perceived advantages of becoming a publicly reporting and publicly held
corporation. At this time, we have no binding agreement to enter into a Merger
with any specific business or company. Discussion of management's plan of
operation under this caption and throughout this filing is purposefully general
and is not meant to restrict our virtually unlimited discretion to search for
and enter into potential business opportunities.
We will not restrict our search to any specific business, industry, or
geographical location, and may participate in business ventures of virtually any
kind or nature. We may seek a Merger with an entity which only recently
commenced operations, or a developing company in need of additional funds to
expand into new products or markets or seeking to develop a new product or
service, or an established business which may be experiencing financial or
operating difficulties and needs additional capital which is perceived to be
easier to raise by a public company. Indeed, our most common merger candidates
are often companies that lack the ability to conduct an IPO, or whose business
industry is not well received by the investment banking community. In some
instances, a Merger may involve entering into a transaction with a corporation
which does not need substantial additional cash but which desires to establish a
public trading market for its common stock. We may purchase assets and establish
wholly-owned subsidiaries in various businesses or purchase existing businesses
as subsidiaries. It is impossible to predict at this time the status of any
business in which we may become engaged.
18
Selecting a Merger Target will be complex and involve a high degree of
risk. Because of general economic conditions, rapid technological advances being
made in some industries, and shortages of available capital, management believes
that there are numerous entities seeking the benefits of being a publicly-traded
corporation. Many potential Merger Targets are in industries that have
essentially not presented well in the conventional IPO market, regardless of
their financial success, and suffer from low initial valuations. The perceived
benefits of being a publicly traded corporation may include facilitating or
improving the terms on which additional equity financing may be sought,
providing liquidity (subject to restrictions of applicable statutes and
regulations) for the principals of a business, creating a means for providing
incentive stock options or similar benefits to key employees, providing
liquidity (subject to restrictions of applicable statutes and regulations) for
all stockholders, and other items. Potential Merger Targets may exist in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such Merger Targets
extremely difficult and complex.
We believe we can offer owners of Merger Targets the opportunity to
acquire a controlling ownership interest in a public company at substantially
less cost than is required to conduct an initial public offering. Nevertheless,
we have not conducted any specific market research and we are not aware of
statistical data which would support the perceived benefits of a Merger or
acquisition transaction for the owners of a Merger Target.
In implementing a structure for a particular business acquisition, we
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporate entity. We may also seek to acquire
stock or assets of an existing business. On the consummation of a transaction,
it is probable that our present management and stockholders will no longer be in
control of our company; In addition, our directors may, as part of the terms of
the acquisition transaction, resign and be replaced by new directors without a
vote of our stockholders or may sell their stock. Any terms of the sale of the
shares presently held by the officers and/or directors will be also afforded to
all other stockholders on similar term and conditions. Any and all such sales
will only be made in compliance with federal and applicable state securities
laws.
We anticipate that any securities issued in such any such
reorganization would be issued in reliance upon exemption from registration
under the applicable federal and state securities laws. In some circumstances,
however, as negotiated element of a transaction, we may agree to register all or
a part of such securities immediately after the transaction is consummated or at
specified times thereafter. If such registration occurs, of which there can be
no assurance, it will be undertaken by the surviving entity after we have
successfully consummated a merger or acquisition and we are no longer considered
a "shell" company. Until such time as this occurs, we will not attempt to
register any additional securities. The issuance of substantial additional
securities and their potential sale into the trading market which may develop in
our securities may have a depressive effect on the value of our securities in
the future, if such a market develops, of which there is no assurance.
19
While the actual terms of a transaction to which we may be a party
cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so-called "tax-free" reorganization under
Sections 368(a) (1) or 351 of the Internal Revenue Code. In order to obtain
tax-free treatment, it may be necessary for the owners of the acquired business
to own 80% or more of the voting stock of the surviving entity. In such event,
our stockholders would retain less then 20% of the issued and outstanding shares
of the surviving entity, which would result in significant dilution in the
equity of such holders.
We will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements, Although the terms
of such agreements cannot be predicted, generally such agreements will require
some specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to and after
such closing, will outline the manner of bearing costs, including costs
associated with our attorneys and accountants, will set forth remedies on
default and will include miscellaneous other terms.
We do not intend to make any loans to any prospective acquisition or
merger candidates or to unaffiliated third parties or to obtain funds in one or
more private placements to finance the operation of any acquired business
opportunity until such time as we have successfully consummated such a Merger,
if ever. We do not intend to provide our stockholders with any complete
disclosure documents, including audited financial statements, concerning an
acquisition or merger candidate and its business prior to the consummation of
any acquisition or merger transaction, so stockholders will be dependent upon
the judgment of current management and our Board of Directors regarding the
fairness of any transaction.
There can be no assurance that we will find a suitable Merger Target.
If no such Merger Target is found, no return on an investment in our securities
will be realized, and there will not, most likely, be a market for the Company's
stock.
RESULTS OF OPERATIONS
THREE MONTHS ENDED November 30, 2006
COMPARED TO THREE MONTHS ENDED November 30, 2005
Revenues
--------
Revenues were $0.00 for the three months ended November 30, 2006, as compared to
$0.00 for the three months ended November 30, 2005
Operating Expenses
------------------
Operating expenses for the three months ended November 30, 2006 were $19,708
compared to $1,155 for the three months ended November 30, 2005. This increase
was primarily attributed to the increase in accounting and auditing fees.
Loss From Operations
--------------------
Loss from operations before interest for the three months ended November 30,
2006 was $19,708 compared to $1,155 for the three months ended November 30,
2005.
20
Interest Expense
----------------
Interest expense was $0 and $8,004 for the three months ended November 30, 2006
and 2005, respectively. This was primarily attributable to the write off of
outstanding debentures in the first quarter of fiscal 2007.
Net Loss from Discontinued Operations
-------------------------------------
Net loss from discontinued operations was $0 and $21,000 for the three months
ended November 30, 2006 and 2005, respectively.
Net Loss Applicable To Common Stock
-----------------------------------
Net loss applicable to Common Stock was $19,708 for the three months ended
November 30, 2006, compared to $30,159 for the three months ended November 30,
2005. Net loss per common share was $0.26 for the three months ended November
30, 2006 and $0.31 for the three months ended November 30, 2005.
SIX MONTHS ENDED November 30, 2006
COMPARED TO SIX MONTHS ENDED November 30, 2005
Revenues
--------
Revenues were $0.00 for the six months ended November 30, 2006, as compared to
$0.00 for the six months ended November 30, 2005.
Operating Expenses
------------------
Operating expenses for the six months ended November 30, 2006 were $19,745
compared to $1,191 for the six months ended November 30, 2005. This increase was
primarily attributed to the increase in accounting and auditing fees.
Loss From Operations
--------------------
Loss from operations before interest for the six months ended November 30, 2006
was $19,745 compared to $1,191 for the six months ended November 30, 2005.
Interest Expense
----------------
Interest expense was $0 and $16,008 for the six months ended November 30, 2006
and 2005, respectively. This was primarily attributable to the write off of
outstanding debentures in the first quarter of fiscal 2007.
Net Loss from Discontinued Operations
-------------------------------------
Net loss from discontinued operations was $0 and $21,000 for the six months
ended November 30, 2006 and 2005, respectively.
Other Income
------------
Other income was $629,707 and $0 for the six months ended November 30, 2006 and
2005, respectively. The other income was the result of debt expiration due to
the write off of outstanding debentures payable.
21
Net Income (Loss) Applicable To Common Stock
--------------------------------------------
Net income applicable to Common Stock was $609,962 for the six months ended
November 30, 2006, compared to net loss of ($38,199) for the six months ended
November 30, 2005. Net loss per common share was ($7.03) for the six months
ended November 30, 2006 and net loss per common share was ($0.39) for the six
months ended November 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30 2006, we had current assets consisting of cash and
cash equivalents in the amount of $687. As of November 30, 2006, we had current
liabilities consisting of loans payable to an insider in the amount of $20,000.
During the six-month period ended November 30, 2006, we generated cash
from financing activities in the amount of $20,000 consisting of a related
party, compared to using cash in the amount of $68,129 during the six-month
period ended November 30, 2005.
In connection with the plan to seek new business opportunities and/or
effecting a business combination, we may seek to raise funds from the sale of
restricted stock or debt securities. We have no agreements to issue any debt or
equity securities and cannot predict whether equity or debt financing will
become available at acceptable terms, if at all.
Our limited resources and lack of recent operating history may make it
difficult to borrow funds or raise capital. Such inability to borrow funds or
raise funds through the issuance of restricted common stock required to effect
or facilitate a business combination may have a material adverse effect on our
financial condition and future prospects, including the ability to complete a
business combination. To the extent that debt financing ultimately proves to be
available, any borrowing will subject us to various risks traditionally
associated with indebtedness, including the risks of interest rate fluctuations
and insufficiency of cash flow to pay principal and interest, including debt of
an acquired business.
RECENT ACCOUNTING PRONOUNCEMENTS
We continue to assess the effects of recently issued accounting
standards. The impact of all recently adopted and issued accounting standards
has been disclosed in the Notes to the audited Consolidated Financial
Statements.
CRITICAL ACCOUNTING ESTIMATES
We are a shell company and, as such, do not employ critical accounting
estimates. Should we resume operations, we will employ critical accounting
estimates and will make any disclosures that are necessary and appropriate.
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS REPORT, YOU SHOULD CONSIDER THE
FOLLOWING RISK FACTORS CAREFULLY. THESE RISKS MAY IMPAIR OUR OPERATING RESULTS
AND BUSINESS PROSPECTS AS WELL AS THE MARKET PRICE OF OUR COMMON STOCK.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
OUR LIQUIDITY IS LIMITED AND WE MAY NOT
BE ABLE TO OBTAIN SUFFICIENT FUNDS TO FUND OUR BUSINESS
22
Our cash is currently very limited and may not be sufficient to fund
future operations. Although future operations are limited, we will incur
expenses in maintaining our filing requirements in accordance with the
Securities Exchange Act of 1934. If we are unable to raise additional capital,
any future operations could be impeded. If we obtain additional funding, the
issuance of additional capital stock may be dilutive to our stockholders.
WE CURRENTLY HAVE NO OPERATIONS
We have not had operations since March 20, 2002.
IT MAY BE DIFFICULT TO CONSUMMATE A
MERGER OR ACQUISITION WITH A PRIVATE ENTITY
Our purpose will include locating and consummating a merger or
acquisition with a private entity. We anticipate the selection of a business
opportunity in which to participate will be complex and extremely risky. We
have, and will continue to have, little or no capital with which to provide the
owners of business opportunities with any significant cash or other assets.
However, we will be able to offer owners of acquisition candidates the
opportunity to acquire a controlling ownership interest in a publicly registered
company without incurring the cost and time required to conduct an initial
public offering. Such an acquisition candidate will, however, incur significant
legal and accounting costs in connection with an acquisition of the Company,
including the costs of preparing current and periodic reports, various
agreements and other documents.
OTHER RISKS
OUR STOCK PRICE HAS DECLINED AND THE STOCK IS THINLY TRADED
The trading price of our common stock has declined significantly since
approximately October 2001. Although the stock price recovered for a short
period of time after the June, 2005 reverse split, and again after the January,
2006 reverse split, it has since declined again. The market for our common stock
is without significant volume and there can be no assurance of a change in the
immediate future.
PENNY STOCK REGULATIONS AND REQUIREMENTS FOR LOW PRICED STOCK
The SEC adopted regulations which generally define a "penny stock" to
be any non-Nasdaq equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Based upon the price of our common stock
as currently traded on the OTC Bulletin Board, we are subject to Rule 15g-9
under the Exchange Act which imposes additional sales practice requirements on
broker-dealers which sell securities to persons other than established customers
and "accredited investors." For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received a purchaser's written consent to the transaction prior to
sale. Consequently, this rule may have a negative effect on the ability of
stockholders to sell our common shares in the secondary market.
23
ADDITIONAL DEBT, CONVERTIBLE DEBT, OR EQUITY FINANCING MAY EFFECT ABILITY OF
INVESTORS TO SELL COMMON STOCK
Our common stock currently trades on the OTC Bulletin Board. Stocks
trading on the OTC Bulletin Board generally attract a smaller number of market
makers and a less active public market and may be subject to significant
volatility. If we raise additional capital from the sale of common stock, the
market price could drop and the ability of investors to sell our common stock
could be diminished.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive offices are located at One NE First Avenue,
Suite 306, Ocala, Florida 34470. We do not have a lease but rather shares office
space with our officers and directors and we pay no rent for the leased space.
We do not own any properties nor does we lease any other properties. We do not
believe we will need to maintain an office at any time in the foreseeable future
in order to carry out our plan of operations.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, Christopher
Astrom, has reviewed and evaluated the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
the end of the period covered by this quarterly report on Form 10-QSB. Based on
that evaluation, Christopher Astrom determined that he and Richard Astrom, our
only two directors and officers, are the only individuals involved in our
disclosure process. We have no specific procedures in place for processing and
assembling information to be disclosed in our periodic reports. Our system is
designed so that information is retained by us and relayed to counsel as it
becomes available. We currently operate as a shell corporation because we have
no revenue, significant assets or independent operations and plan to establish
more reliable disclosure controls and procedures before merging or entering into
any other business combination with another company. Our Chief Executive Officer
and Chief Financial Officer believe that, as of the end of the period covered by
this report, our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that it filed or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the required time periods. Further, we believe that, given its size, an
extensive disclosure controls and procedures system is not necessary.
Changes in Internal Control Over Financial Reporting
No significant changes in our internal control over financial reporting
have come to management's attention during the our previous fiscal quarter that
have materially affected, or are likely to materially affect, our internal
control over financial reporting.
24
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings nor is any of our
property the subject of any pending legal proceedings.
At about the time we discontinued business operations in 1993, we
experienced adverse litigation, and judgments were rendered against us. In
official records of Broward and Palm Beach counties in the State of Florida, the
persons holding judgments did not recertify or re-file their judgments within
the time limits as required by Florida statutes. We are not able to determine
whether the above would have a material impact on our condensed consolidated
financial statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
We did not submit any matters to a vote of our stockholders, through
the solicitation of proxies or otherwise, during the second quarter of fiscal
2007.
ITEM 5. OTHER INFORMATION
GOING CONCERN
We have incurred recurring operating losses and do not have any revenue
generating activities. These conditions raise substantial doubt about our
ability to continue as a going concern. If at any time we determine that we do
not have sufficient cash in order to execute the foregoing strategy, then we
intends to seek additional equity or other funding, if practicable. However,
there can be no assurance that we will be able to raise additional funding
necessary to operate.
ITEM 6. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------
31.1 Certification of Principal Executive Officer pursuant to
Sarbanes-Oxley Section 302
31.2 Certification of Principal Financial Officer pursuant to
Sarbanes-Oxley Section 302
32.1 Certification of Chief Executive Officer pursuant to
Sarbanes-Oxley Section 906
32.2 Certification of Chief Financial Officer pursuant to
Sarbanes-Oxley Section 906
25
SIGNATURES
In accordance with Section 13 or 15(d) 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.
CAPITAL SOLUTIONS I, INC.
/s/ CHRISTOPHER ASTROM
-------------------------
By: Christopher Astrom
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
Date: January 22, 2007
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
/s/ CHRISTOPHER ASTROM
By: Christopher Astrom
Director
Date: January 22, 2007
/s/ RICHARD ASTROM
-------------------------
By: Richard Astrom
Director
Date: January 22, 2007
26
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