NOTE 2 – GOING CONCERN MATTERS
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements during six months ended June 30, 2012, the Company incurred a net loss of $408,803, had accumulated deficit since its inception from October 14, 1999 through June 30, 2012 of $10,255,466 and used $6,237,782 in cash for operating activities from its inception through June 30, 2012. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its products and services and there can be no assurance that the Company's efforts will be successful. However, the planned principal operations have not commenced and no assurance can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The Company is also pursuing additional debt or equity financing through discussions with private investors. There can be no assurance that the Company will be successful in its effort to secure additional financing. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE 3 – PROPERTY AND EQUIPMENT
Major classes of property and equipment at June 30, 2012 and December 31, 2011 consisted of the following:
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
Land
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
Equipment
|
|
|
32,167
|
|
|
|
32,167
|
|
|
Building improvements
|
|
|
261,307
|
|
|
|
261,307
|
|
|
|
|
|
1,293,474
|
|
|
|
1,293,474
|
|
|
Less - accumulated depreciation
|
|
|
(97,487
|
)
|
|
|
(90,955
|
)
|
|
|
|
$
|
1,195,987
|
|
|
$
|
1,202,519
|
|
NOTE 4 – NOTES PAYABLE
Notes payable at June 30, 2012 and December 31, 2011 are as follows:
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
24% per annum Notes payable due to Charter House, LLC, collateralized by land. The notes are past due and the Company is in default under the terms of the note agreements.
|
|
$
|
1,137,400
|
|
|
$
|
993,700
|
|
|
|
|
|
|
|
|
|
|
|
|
1% per month note payable
due to Theodore J. Kanakis, collateralized by land. The note is past due and the Company is in default under the terms of the note agreement.
|
|
|
212,190
|
|
|
|
203,235
|
|
SEAWRIGHT HOLDINGS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(UNAUDITED)
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
6% per annum note payable due to related party, Next Generation Energy Corporation due March 25, 2012, uncollateralized. The note is past due and the Company is in default under the terms of the note agreement.
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
12% per annum (default rate 18%) note payable due to Kent Carr, originally due November 1, 2011 and collateralized by land. On May 1, 2012, the Company further extended the maturity to October 30, 2012.
|
|
|
550,000
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
6% per annum note payable, due November 15, 2008, collateralized by personal guarantee of principle stockholder. The note is past due and the Company is in default under the terms of the note agreement.
|
|
|
47,300
|
|
|
|
47,300
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan against cash value of principle stockholder's life insurance
|
|
|
20,592
|
|
|
|
20,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing note payable due to related party, Next Generation Energy Corporation, due on demand, uncollateralized
|
|
|
65,000
|
|
|
|
65,000
|
|
|
Total
|
|
|
2,157,482
|
|
|
|
2,104,827
|
|
|
Less: Note payable, current portion
|
|
|
(1,967,482
|
)
|
|
|
(1,914,827
|
)
|
|
Less: Notes payable due to related party, current portion
|
|
|
(190,000
|
)
|
|
|
(190,000
|
)
|
|
Long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
Charter House and Pierre Palian Loans
The Company had notes payable in an aggregate amount of $993,700 due to Charter House LLC at December 31, 2011. These notes payable included a loan of $375,000 that was assigned to Charter House by Pierre Palian in April 2011. On March 20, 2012, the Company entered into a note agreement with Nova Capital, LLC ("Nova Capital") whereby Nova Capital contemporaneously entered into an Option Agreement with Charter House, LLC, to purchase part or all of notes held by Charter House, LLC that are obligations of the Company. The Company agreed that all purchased debt shall bear an annual interest rate of 8% and will be due in full with accrued interest on May 30, 2012. Nova Capital (the "Optionee") shall be entitled, at its option, to convert at any time, any portion of the purchased debt plus accrued interest to the Company's common stock. The conversion price shall be a) $0.001 per share for the first $5,000 of purchased debt, b) $0.10 per share for the second $300,000 of purchased debt and c) $0.15 per share for any remaining purchased debt. The termination date of the Option Agreement is November 15, 2012.
During the six months ended June 30, 2012, Nova Capital purchased $2,800 of debt pursuant to the option agreement that was the obligation of the Company from Charter House LLC. On March 21, 2012, the Company issued 2,800,000 shares of its common stock to Nova Capital in exchange for the $2,800 of debt.
May 1, 2012, the Company further extended the maturity of the Kent Carr loan to October 30, 2012. As the considerations for the extension, Charter House LLC paid to Kent Carr on behalf of the Company all accrued interest through April 30, 2012 of $39,000, payment of principal of $100,000, and an extension fee of 1% of the outstanding principal balance ($7,500). The payments by Charter House LLC were added to the carrying amount of the loan.
SEAWRIGHT HOLDINGS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(UNAUDITED)
The Company evaluated the original note agreement with Charter House LLC and the new convertible note agreement with Nova Capital, under ASC 470-50-40 “Extinguishments of Debt” (“ASC 470”). ASC 470 requires modifications to debt instruments to be evaluated to assess whether the modifications are considered “substantial modifications”. A substantial modification of terms shall be accounted for as an extinguishment. For extinguished debt, a difference between the re-acquisition price and the net carrying amount of the extinguished debt shall be recognized in income of the period of extinguishment as losses or gains. The Company determined that the change in terms pursuant to the convertible note agreement with Nova Capital met the criteria for substantial modification under ASC 470, and accordingly accounted for the modification as extinguishment of the original note, replaced by the new convertible note under the modified terms. The Company recorded a loss on extinguishment of debt of $123,200 for the six months ended June 30, 2012.
On March 20, 2012, the Company entered into an Assignment Agreement to assign 100% membership interest in Seawright Springs, LLC, a wholly owned subsidiary of the Company with substantially all of the Company's assets to Charter House LLC (the "Assignee") in exchange for an conditional agreement to forbear for a limited time pursuing certain remedies under the terms of the Charter House loans pursuant to the option agreement described above. The Charter House loans are personally guaranteed by the Company's President. An Escrow Agreement was simultaneously entered into among the parties that the Assignment Agreement is held in escrow and not to release to any party unless and until the Assignee gives written notice of the termination of the Option Agreement between the Assignee and Nova Capital. And in the event that the Optionee pays the entire option price on or before the termination date, the Assignment Agreement will become null and void.
Kent Carr Loan Transaction
At December 31, 2012, the Company had outstanding note payable due to Kent Carr in the amount of $650,000, secured by a first lien on certain real estate property of the Company in Augusta County, Virginia. On May 1, 2012, the Company further extended the maturity of the loan to October 30, 2012. As the considerations for the extension, Charter House LLC paid to Kent Carr on behalf of the Company all accrued interest through April 30, 2012, payment of principal of $100,000, and an extension fee of 1% of the outstanding principal balance.
May 1, 2012, the Company further extended the maturity of the Kent Carr loan to October 30, 2012. As the considerations for the extension, Charter House LLC paid to Kent Carr on behalf of the Company all accrued interest through April 30, 2012 of $39,000, payment of principal of $100,000, and an extension fee of 1% of the outstanding principal balance ($7,500).
Kanakis Settlement
The Company had a note payable dated January 15, 2010 due to Theodore Kanakis in the original principal amount of $150,000, which had an adjusted balance due of $212,190 and $203,235 at June 30, 2012 and December 31, 2011, respectively, pursuant to the terms of the note agreement. On April 30, 2012, the Company entered into a modification agreement with Theodore Kanakis, under which Mr. Kanakis agreed to try to sell 400,000 shares of common stock of the Company held by his IRA account at a price of $0.125 or greater per share (minimum total proceeds of $50,000). If the shares sell for $50,000 or more by May 30, 2012, then Mr. Kanakis agreed that he would accept a single payment of $70,000, minus the portion of proceeds from sale of shares that exceeded $50,000, to settle the Company’s liability under the January 15, 2010 promissory note, provided that Mr. Kanakis receives the payment in certified funds on or before July 15, 2012. Upon receipt of payment as described above, Mr. Kanakis will release his deed of trust lien on the Company’s real estate. The agreement further provides that it will be null and void in the event the Company enters into negotiations to sell the real estate that collateralizes the note before receipt of final payment on the note.
SEAWRIGHT HOLDINGS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(UNAUDITED)
NOTE 5 – COMMON STOCK
The Company was incorporated under the laws of the State of Delaware on October 14, 1999 under the name of Pre-Settlement Funding Corporation. The Company has authorized 100,000 shares of preferred stock, with a par value of $0.001 per share. The Company has designated 60,000 of its preferred stock as Series A Convertible Preferred Stock. As of June 30, 2012 and December 31, 2011, the Company does not have any shares of Series A Convertible Preferred Stock issued and outstanding. The Company has authorized 19,900,000 shares of common stock, with a par value of $.001 per share. As of June 30, 2012 and December 31, 2011, there were 19,098,399 and 14,348,399 shares of common stock issued and outstanding, respectively.
In addition to the 2,800,000 shares of common stock issued to Nova Capital as described in Note 4, the Company issued 1,300,000 shares of common stock, valued at $55,250, to a consultant in March 2011 for services to be provided through June 1, 2012. During the six months ended June 30, 2012, the Company also issued an aggregate of 1,300,000 shares of common stock, valued at $55,250, to vendors to settle outstanding accounts payable of $201,546. As a result, the Company recognized $146,296 of gain from the settlement.
On May 29, 2012, the Company's President, Joel Sens, surrendered 650,000 shares of the Company's common stock for exchange into a future series of preferred stock. The shares were recorded as canceled and returned to authorized shares, although the Company remains obligated to either reissue the shares to Mr. Sens or issue Mr. Sens an equivalent amount of shares of the new series of preferred stock. (See Note 9 – Subsequent Events).
NOTE 6 – RELATED PARTY TRANSACTIONS
Due to/from Officer
From time to time, the Company’s President, Joel Sens, has advanced funds to the Company for working capital purposes. At times the total payment the Company repaid to the Company’s’ President and (or) the funds the President of the Company withdrew exceeded the total balance due. Consistent with ASC 505-10-45 (“Equity-Other Presentation”), the amount recorded on the balance sheet is presented as a deduction from stockholders’ equity (deficit). This is also consistent with Rule 5-02.30 Regulation S-X of the Code of Federal Regulations.
During the six months ended June 30, 2012, the aggregate contribution and loans to the benefit of the Company by Mr. Sens, was $72,860, which was accounted for as repayment of due from officer with the excess as advances from officer. As of June 30, 2012, the balance due to officer was $61,417.
The Company’s President has guaranteed certain loans to the Company, and/or pledged certain personal property to secure loans to the Company. The President of the Company pledged certain of his personal property including common shares of the Company he owned in connection with certain loan transactions.
Next Generation Energy Corp.
The Company's President is an officer, a director, and a significant shareholder of Next Generation Energy Corp. (“NGEC”). As of June 30, 2012 and December 31, 2011, the Company was indebted to NGEC for $125,000 under a promissory note dated March 25, 2010, which note bears interest at 6% per annum and is due 24 months after the date of the note (Note 4). As of June 30, 2012 and December 31, 2011, the Company was also indebted to NGEC for an aggregate of $65,000, which loan is non-interest-bearing and due on demand (Note 4). Interest expense to related parties for the six months ended June 30, 2012 and 2011 was $3,750 and $3,750, respectively.
SEAWRIGHT HOLDINGS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(UNAUDITED)
On April 16, 2010, the Company’s wholly owned subsidiary, Knox County Minerals, LLC ("Knox Minerals") entered into an Assignment and Assumption Agreement with NGEC, under which Knox Minerals assigned all of its right, title and interest under a land purchase option to NGEC. Under the Assignment and Assumption Agreement, NGEC paid Knox Minerals $600,000 in the form of a promissory note payable in full in sixty months with interest at 6% per annum. The Company has not netted the $125,000 loan from NGEC against NGEC’s $600,000 promissory note payable to Knox Minerals because the obligations are not mutual obligations that are subject to offset under the law. Furthermore, the Company did not recognize a gain or a note receivable for the $600,000 promissory note due from NGEC, based on the assessment that NGEC had limited ability to repay this note and that collection could not be reasonably assured at that time the agreement was entered into. The Company determined to account for future amounts, if any, that it collects from NGEC as other income only at the time such collection occurs.
On March 6, 2012, the Company received 10,000,000 restricted common shares of NGEC in full settlement of the $600,000 promissory note as described above. The common shares received represents approximately 30% of the outstanding shares of NGEC, and are accounted for using the equity method of accounting.
In accordance with the equity method of accounting, the Company increases (decreases) the carrying value of its investment by a proportionate share of the investee’s earnings (losses). If losses exceed the carrying value of the investment, losses are then applied against any advances to the investee, including any commitment to provide financial support, until those amounts are reduced to zero. The equity method is then suspended until the investee has earnings. Since NGEC has negative book value, significant accumulated deficit and has not been profitable in recent years of operations, no initial value was recognized for the Company's investment in NGEC, and that the Company suspended the recording of the equity method losses as the proportionate share of net losses in NGEC exceeded the Company's original carrying value of the investment, The Company has no commitments to provide financial support or obligations to perform services or other activities for NGEC.
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued liabilities as of June 30, 2012 and December 31, 2011 are comprised of the following:
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
Accounts payable and accrued expenses
|
|
$
|
174,142
|
|
|
$
|
335,934
|
|
|
Accrued interest
|
|
|
618,863
|
|
|
|
477,582
|
|
|
Payroll taxes related liabilities
|
|
|
311,256
|
|
|
|
274,987
|
|
|
Total
|
|
$
|
1,104,261
|
|
|
$
|
1,088,503
|
|
NOTE 8 – FAIR VALUE
The carrying value of cash, accounts payable and accrued expenses approximate estimated fair values because of short maturities.
The carrying value of the derivative liability is determined using the Binomial Lattice model option pricing model. Certain assumptions used in the calculation of the derivative liability represent level-3 unobservable inputs.
Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of debt derivative liabilities.
SEAWRIGHT HOLDINGS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(UNAUDITED)
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Instruments
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
|
Assets at
fair Value
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(24,971
|
)
|
|
$
|
(24,971
|
)
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(24,971
|
)
|
|
$
|
(24,971
|
)
|
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of June 30, 2012:
|
|
|
Convertible
Debt Derivative
|
|
|
Balance, December 31, 2011
|
|
$
|
5,474
|
|
|
Total gains:
|
|
|
|
|
|
Initial fair value of debt derivative at note issuance
|
|
|
|
|
|
Mark-to-market at June 30, 2012:
|
|
|
|
|
|
- Debt Derivative
|
|
|
19,497
|
|
|
Balance, June 30, 2012
|
|
$
|
24,971
|
|
|
|
|
|
|
|
|
Net loss for the three months included in earnings relating to the liabilities held at June 30, 2012
|
|
$
|
(19,497
|
)
|
NOTE 9 – SUBSEQUENT EVENTS
On July 30, 2012, Nova Capital purchased $375 of debt pursuant to the option agreement that was the obligation of the Company from Charter House LLC (see Note 4). On July 30, 2012, the Company issued 375,000 shares of its common stock to Nova Capital in exchange for the $375 of debt.
On August 16, 2012, the Company eliminated its Series A Convertible Preferred Stock. There were no shares of Series A Preferred Stock outstanding at the time.
SEAWRIGHT HOLDINGS, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(UNAUDITED)
On August 17, 2012, the Company designated 100,000 shares, representing 100% of the authorized preferred shares, as Series B Convertible Preferred Stock with a par value of $0.001. Each share of the Series B Convertible Preferred Stock is convertible into 20 shares of the Company's common stock, at any time, at the holder's election, is entitled to cast two hundred and fifty (250) votes for each share of Series B Convertible Preferred Stock on any matter presented to the stockholders of the Company and participate in any declared dividend by the Board of Directors on an “as converted to common stock” basis. Upon liquidation, the holders of Series B Convertible Preferred Stock are entitled to a liquidation preference ahead of the common stock equal to the Original Purchase Price of the Series B Preferred Stock plus any accrued or declared dividends thereon. The “Original Purchase Price” is defined as the sum of cash and the fair market value of any property or services received by the Company, of which the fair market value shall be determined by the Board of Directors, except that if the Series B Preferred Stock is issued in exchange for outstanding securities of the Company then the Original Purchase Price shall instead be the original purchase price of such other security without regard to market value of the exchanged security at the time of the exchange.
On August 17, 2012, the Company issued 90,554.05 shares of Series B Convertible Preferred Stock to Joel Sens, the Company's Chief Executive Officer, in exchange for 1,811,081 shares of the Company's common stock, including 650,000 shares of common stock that Mr. Sens had turned in for exchange on May 29, 2012.
On August 17, 2012, the Company’s board of directors and a majority of its shareholders approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of capital stock from 20,000,000, of which 19,900,000 are common shares and 100,000 are preferred shares, to 100,000,000 shares of capital stock, of which 99,000,000 shares will be common shares and 1,000,000 shares will be preferred shares. The amendment will not take effect until the Company has complied with Section 14 of the Securities Exchange Act of 1934 by disseminating to shareholders an information statement regarding the amendment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Disclosure Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Forward Looking Statements”). All statements other than statements of historical fact included in this report are Forward Looking Statements. In the normal course of its business, the Company, in an effort to help keep its shareholders and the public informed about the Company’s operations, may from time-to-time issue certain statements, either in writing or orally, that contain or may contain Forward-Looking Statements. Although the Company believes that the expectations reflected in such Forward Looking Statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by the Company, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects of operating results. All phases of the Company operations are subject to a number of uncertainties, risks and other influences, many of which are outside the control of the Company and any one of which, or a combination of which, could materially affect the results of the Company’s proposed operations and whether Forward Looking Statements made by the Company ultimately prove to be accurate. Such important factors (“Important Factors”) and other factors could cause actual results to differ materially from the Company’s expectations are disclosed in this report. All prior and subsequent written and oral Forward Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially from the Company’s expectations as set forth in any Forward Looking Statement made by or on behalf of the Company.
Plan of Operation
In 2003, we purchased property containing a spring located in Mt. Sidney, Virginia in the Shenandoah Valley with the intention of developing a spring water distribution business. The spring has a flow in excess of 1,000,000 gallons of water daily.
We chose to develop and acquire packaging for selling our water under the brand names Seawright Springs and Quibell. We developed two proprietary Polyethylene Terephthalate, or PET, bottles in a 16.9 ounce size and a 33.8 ounce size. In addition, in June 2005 we acquired from Quibell glass bottle designs for various sized bottles (including 237 ml, 385 ml, 750 ml and 1 liter sizes) as well as labels for various sized sparkling water bottles, spring water bottles and tea bottles (including 237 ml, 385 ml, 750 ml, 1 liter, 1.5 liter and 16.9 ounce bottles).
We ultimately determined that we did not have the capital resources to market and distribute our bottled water as a retail brand, and therefore we discontinued that business strategy. Our business strategy is now focused on negotiating bulk sales of our water to other bottlers, or to municipal, commercial or agricultural users. The fair value of the intangible assets acquired from Quibwell was impaired and reduced to $0 as of December 31, 2007.
We do not anticipate that our business will require substantial additional capital to the extent it involves the sale of water in bulk from our existing property, because we expect that such sales will be handled by our existing officer. However, we are also considering complimentary acquisitions of other natural resources properties, and will need to raise new capital to complete any acquisitions.
In 2008, we decided to enter the business of owning oil and gas properties, and procured an option on certain properties in Knox County, Kentucky. However, we were unable to close on the purchase and the option lapsed in 2009. In 2010, we procured a new option on the oil and gas rights underlying the same properties, and shortly thereafter assigned the option to a third party. Subsequent to the assignment of the option in 2010, the President of the Company became a significant shareholder and a director of that entity the option was assigned to. This 2010 option also lapsed later in 2010.
Comparison of Financial Results
Three months ended June 30, 2012 and 2011
Revenues
During the three months ended June 30, 2012 and 2011, we generated no revenues. We have discontinued trying to market our bottled water as a retail brand, and have shifted our focus to negotiating bulk sales of our water to other bottlers, or to municipal, commercial or agricultural users. Because of the change in our business strategy, we do not believe that past revenues are reflective of our future revenues.
Costs and Expenses
From our inception through June 30, 2012, we have incurred net losses of $10,255,466. These losses were associated principally with maintenance and engineering costs associated with the spring site, including testing of water quality, stock issuances to our founders, legal, consulting and accounting fees and costs in connection with the development of our business plan, market research, interest and financing expenses, and the preparation of our registration statements.
We incurred operating expenses of $102,784 during the three months ended June 30, 2012 as compared to expenses of $88,393 during the three months ended June 30, 2011. Expenses for the three months ended June 30, 2012 and 2011 are composed principally of salary, legal, accounting, and consulting fees. The increase in the current period as compared to the same period last year was primarily due to increases in professional fees incurred.
We incurred total other expenses of $79,293 for the three months ended June 30, 2012, as compared to total other expenses of $93,078 for the three months ended June 30, 2011. Other expense in both periods was mainly attributable to interest and financing expense on borrowed funds. The decrease in interest and financing expenses in the three months ended June 30, 2012 as compared to the same period ended June 30, 2011 was mainly due to approximately $12,747 debt discount on certain notes.
During the three months ended June 30, 2012 and 2011, we incurred net loss of $185,343 and $184,782, respectively.
Six months ended June 30, 2012 and 2011
Revenues
During the six months ended June 30, 2012 and 2011, we generated no revenues. We have discontinued trying to market our bottled water as a retail brand, and have shifted our focus to negotiating bulk sales of our water to other bottlers, or to municipal, commercial or agricultural users. Because of the change in our business strategy, we do not believe that past revenues are reflective of our future revenues.
Costs and Expenses
From our inception through June 30, 2012, we have incurred net losses of $10,255,466. These losses were associated principally with maintenance and engineering costs associated with the spring site, including testing of water quality, stock issuances to our founders, legal, consulting and accounting fees and costs in connection with the development of our business plan, market research, interest and financing expenses, and the preparation of our registration statements.
We incurred operating expenses of $209,133 during the six months ended June 30, 2012 as compared to expenses of $188,322 during the six months ended June 30, 2011. Expenses for the six months ended June 30, 2012 and 2011 are composed principally of salary, legal, accounting, and consulting fees. The increase in the current period as compared to the same period last year was primarily due to increases in professional fees incurred.
We incurred total other expenses of $193,138 for the six months ended June 30, 2012, as compared to total other expenses of $281,543 for the six months ended June 30, 2011. Other expense in both periods was mainly attributable to interest and financing expense on borrowed funds. However, in the six months ended June 30, 2012, we incurred a net gain of $23,096 from settlement of debt and accounts payable. The decrease in interest and financing expenses in the six months ended June 30, 2012 as compared to the same period ended June 30, 2011 was mainly due to approximately $75,000 late charges incurred on January 1, 2011 upon the expiration of forbearance agreements on certain notes.
During the six months ended June 30, 2012 and 2011, we incurred net loss of $408,803 and $476,487, respectively.
Liquidity and Capital Resources
The following table sets forth the major sources and uses of cash for the six months ended June 30, 2012 and 2011:
|
|
|
Six months ended
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Net cash used in operating activities
|
|
$
|
-
|
|
|
$
|
(101,736
|
)
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
101,736
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2012, we had working capital deficit (total current liabilities in excess of total current assets) of $3,433,160, no available cash balance, an accounts payable and accrued liabilities balance of $1,104,261, notes payable and convertible notes payable of $2,217,482, other current liabilities of $50,000, and due to officer of $61,417. The Company had no bank account at June 30, 2012 and 2011, and all operating costs and expenses were paid directly by officers or lenders.
While we have raised the capital necessary to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development. Funds will be needed to meet certain of our obligations that are secured by our property in Mt. Sydney, Virginia, and to fund general and administrative expenses. We have been working on business development in recent years to fund our cash needs from the bulk sale of our spring water, but if we are not able to negotiate a bulk sales agreement in a timely fashion, we will need to raise new capital to fund our cash needs.
If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.
Going Concern
Our financial statements have been presented on the basis that we continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, we have significant recurring losses, and have minimal revenues at this time. These factors create an uncertainty about our ability to continue as a going concern. Management is devoting substantially all of its efforts to developing its products and services and there can be no assurance that the Company's efforts will be successful. However, the planned principal operations have not commenced and no assurance can be given that management's actions will result in profitable operations or the resolution of its liquidity problems. The Company is also pursuing additional debt or equity financing through discussions with private investors. There can be no assurance that the Company will be successful in its effort to secure additional financing. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
