Attached files
| file | filename |
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| EX-21.1 - DAM HOLDINGS 10K, SUBSIDIARY LIST - Premier Beverage Group Corp | damhexh21_1.htm |
| EX-32.1 - DAM HOLDINGS 10K, CERTIFICATION 906 - Premier Beverage Group Corp | damhexh32_1.htm |
| EX-31.1 - DAM HOLDINGS 10K, CERTIFICATION 302 - Premier Beverage Group Corp | damhexh31_1.htm |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 000-50370
DAM HOLDINGS, INC.
(Name of Small Business Issuer in its charter)
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State of Nevada
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33-1041835
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. Employer
Identification No.)
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P.O. Box 503, Totowa, NJ
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07511
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(Address of Principal Executive Offices)
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(Zip Code)
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Issuer's telephone number (973) 981-8626
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.00015 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act
Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.406 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 o No o
1
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 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the part 90 days.
Yes x No o
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained hereof, and will not be contained, to will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| o | Large accelerated filer | o | Accelerated filer |
| o | Non-accelerated filer | x | 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 o No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. The market value of the registrant's voting $.00015 par value common stock held by non-affiliates of the registrant was approximately $0.00.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant's only class of common stock, as of December 31, 2010 was 1,291,939 shares of its $.00015 par value common stock. No stock.
No documents are incorporated into the text by reference.
DAM HOLDINGS, INC.
INDEX
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K and the documents incorporated by reference herein contain forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies.
We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "will," "plan," "predict," "project" and similar terms and phrases, including references to assumptions, in this annual report on Form 10-K and our incorporated documents to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking
statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
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general economic and industry conditions;
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our history of losses, deficits and negative operating cash flows;
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our limited operating history;
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industry competition;
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environmental and government regulation;
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protection and defense of our intellectual property rights;
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reliance on, and the ability to attract, key personnel;
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You should keep in mind that any forward-looking statement made by us in this annual report or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this annual report after the date of filing, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this annual report or elsewhere might not occur.
In this annual report on Form 10-K the terms "DAMH,” "Company," "we," "us" and "our" refer to DAM Holdings, Inc. and its subsidiaries.
Item 1. Description of Business
General
DAM Holdings, Inc. (“DAMH”), was incorporated on July 22, 1999 in the State of Nevada and is a non-operating holding company. Our principal operating subsidiary is Delaware American Motors LLC (“DAM”) which we acquired on May 13, 2008 in a stock for stock exchange. DAM is a builder of high performance over the road motorcycles.
Our Motorcycle Business
DAM was founded by our President Mark Klein on August 12, 2002 to be an uncompromising motorcycle design and craft enterprise. DAM has designed and built two Tech Twin American 13C motorcycles as the first models in a series of high performance motorcycle products known as Delaware and Pennsylvania. These motorcycles were completed in 2008 and the Pennsylvania debuted at the 2008 Sturgis AMD World Championship competition where it won the first place award in the Production Manufacture class. We expect our motorcycles to be sold in the United States. Our manufacturing operation is based in Paterson, New Jersey consisting primarily of motorcycle assembly and our repair
and maintenance facility. For more information on Delaware American Motors, please visit www.dammotorcycles.com.
The Delaware American Motors
2008 Sturgis AMD World Championship trophy winner the “Pennsylvania”
The Delaware American Motors
The Colony series “Delaware” model.
Our motorcycles were designed by our in house staff of professionals and are hand assembled in Paterson by us from custom and stock parts manufactured to our specifications.
Governmental Regulations
Vehicles intended for use on public roadways must satisfy regulations implemented by the United States Department of Transportation (“DOT”) and by the corresponding agencies in other countries. Our vehicles and our manufacturing and repair facility are also subject to environmental regulations. Our vehicles are manufactured to meet all applicable government standards.
Competitive Conditions
The high performance custom manufactured motorcycle market is highly competitive. The Company’s major competitors are based both within and outside the U.S. and generally have financial and marketing resources that are substantially greater than those of the Company. They also have large worldwide revenues and are more diversified than the Company. In addition to these larger, established competitors, the Company has custom manufacturing shop competitors headquartered in the United States. These competitors generally offer high performance heavyweight motorcycles with traditional styling that compete directly with many of the Company’s products. These competitors currently have established
production and sales volumes that are higher than the Company’s and have considerably higher U.S. market share than the Company.
Competition in the high performance custom motorcycle market is based upon a number of factors, including price, quality, reliability, styling, product features, customer preference and warranties. In the U.S., suggested retail prices for the Company’s motorcycles range from being comparable to higher than suggested retail prices for comparable motorcycles available in the market. The Company believes that its high performance custom products will be able to command a premium price. The Company emphasizes quality, reliability and styling in its products and generally offers a two-year warranty for its motorcycles. The Company’s established competitors, such as Harley-Davidson, have the financial
ability to offer manufacturer financing, which the Company cannot presently offer to customers which is a substantial competitive advantage over the Company.
Employees
As of December 31, 2010, we had 1 employee. We have an employment agreement with Mr. Klein our President, Secretary and Treasurer that provides for his continued service to the Company until either party provides 2 weeks notice to the other of their intent to terminate. We believe our employee relations are generally good. Our employees are not represented by a collective bargaining unit.
Item 2. Description of Property
The Company is the owner of certain proprietary technologies and copyrights.
Item 3. Legal Proceedings
None.
Item 4. (Removed and Reserved)
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information. Our common stock currently trades on the OTC Bulletin Board under the symbol “DAMH.” The following table states the range of the high and low bid-prices per share of our common stock for each of the calendar quarters since our stock began trading in July 2007, as reported by the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. The last price of our common stock as reported on the OTC Bulletin Board on December 31, 2010 was $0.01 per share.
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High
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Low
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Fiscal Year 2010
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First Quarter
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$ | 20.00 | $ | 2.00 | ||||
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Second Quarter
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$ | 14.00 | $ | 5.00 | ||||
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Third Quarter
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$ | 10.00 | $ | 4.00 | ||||
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Fourth Quarter
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$ | 0.01 | $ | 0.01 | ||||
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Fiscal Year 2009
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First Quarter
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$ | 0.01 | $ | 0.01 | ||||
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Second Quarter
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$ | 0.16 | $ | 0.01 | ||||
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Third Quarter
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$ | 0.01 | $ | 0.01 | ||||
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Fourth Quarter
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$ | 0.01 | $ | 0.01 | ||||
(b) Holders. As of December 31, 2010, there were 175 shareholders of record of our common stock; this number does not include beneficial owners from whom shares are held by nominees in street name.
(c) Dividends. During the last two fiscal years, no cash dividends have been declared on the Company’s common stock and management does not anticipate that dividends will be paid in the foreseeable future.
(d) Securities authorized for issuance under equity compensation plans.
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Plan Category
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Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
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Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
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Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)(c)
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Equity compensation plans approved by security holders (i)
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200,000 | $ | 1.00 | 740,000 |
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Equity compensation plans not approved by security holders
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None
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N/A |
None
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Total
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200,000 | $ | 1.00 | 740,000 |
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(i)
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Includes the aggregate of all options that may be granted pursuant to the terms of the Company’s 2009 Consultant’s Stock Compensation Plan.
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(ii)
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The Company has no plans or agreements for the issuance of shares of common stock under any compensation plan or individual compensation arrangement other than upon the exercise of an option, warrant or right.
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The Company has no compensation plan under which equity securities of the Company are authorized for issuance that was adopted without the approval of security holders.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis
This Management’s Discussion and Analysis and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the
section captioned "Risk Factors" in Item 1A and elsewhere in this report. The following should be read in conjunction with our audited financial statements and the related notes included elsewhere herein.
Critical Accounting Policies Judgments and Estimates
This management's discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to doubtful accounts, stock-based compensation, investments, goodwill and intangible assets and income taxes as well as contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
The Company records revenues only upon the occurrence of all of the following conditions:
The Company has received a binding purchase order or similar commitment from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);
The purchase price has been fixed, based on the terms of the purchase order;
The Company has delivered the product from its distribution center to a common carrier acceptable to the purchaser. The Company's customary shipping terms are FOB shipping point; and
The Company deems the collection of the amount invoiced probable.
The Company provides no price protection. Product sales are net of promotional
discounts, rebates and return allowances.
The Company does not recognize sales taxes collected from customers as revenue.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company records an allowance for doubtful accounts receivable for credit losses at the end of each period based on an analysis of individual aged accounts receivable balances. As a result of this analysis, the Company believes that its allowance for doubtful accounts is adequate at December 31, 2010 and 2009. If the financial condition of the Company's customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Inventory Valuation
We adjust the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions and development of new products by our competitors. Inventories consist primarily of vehicles gas and electric, parts and supplies, and finished goods and are carried at the lower of cost (first-in, first-out method) or market.
Deferred Tax Asset Realization
We record a full valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.
Classification of Financial Instruments with Characteristics of Both Liability and Equity
We account for financial instruments that we have issued and that have characteristics of both liability and equity in accordance with SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150 specifies that mandatory redeemable financial instruments are to be recorded as liabilities unless the redemption is required to occur upon the liquidation or termination of the issuer. SFAS No. 150 also specifies that a financial instrument that embodies a conditional obligation that an issuer may settle by issuing a variable number of its equity shares is to be classified as a liability if, at inception, the value of the obligation is based solely or
predominantly on variations inversely related to changes in the fair value of the issuer's equity shares. Should a financial instrument not be classified as a liability under the provisions of SFAS No. 150, we further apply the criteria in Emerging Issues Task Force (EITF) Issue No. 00-19, ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK, which enumerates additional criteria to determine the appropriate classification as liability or equity. We also evaluate the anti-dilution and/or beneficial conversion features that may be included in our financial instruments in accordance with the provisions of SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which may classify the feature as an embedded derivative and require that the financial instrument be bifurcated and the feature accounted for separately.
We evaluate each financial instrument on its own merits at inception or other prescribed measurement or valuation dates and may engage the services of valuation experts and other professionals to assist us in our determination of the appropriate classification.
Accounting for Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), using the modified-prospective transition method. Under the fair value recognition provisions of SFAS 123(R), share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the award.
In addition, the adoption of SFAS 123R requires additional accounting related to the income tax effects and disclosure regarding the cash flow effects resulting from share-based payment arrangements. In January 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107, which provides supplemental implementation guidance for SFAS 123R. We selected the Black-Scholes option-pricing model as the most appropriate fair-value method for our awards. Calculating share-based compensation expense requires the input of highly subjective assumptions, including the expected term of the share-based awards, stock price volatility, and pre-vesting forfeitures. The
assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, our share-based compensation expense could be significantly different from what we have recorded in the current period.
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 "TRANSITION ELECTION RELATED TO ACCOUNTING FOR TAX EFFECTS OF SHARE-BASED PAYMENT AWARDS" (FSP 123(R)-3). We adopted the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123R in the fourth quarter of fiscal 2006. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee
stock-based compensation awards that are outstanding upon adoption of SFAS 123R. The adoption did not have a material impact on our results of operations and financial condition.
Prior to January 1, 2006, we accounted for share-based payments to our employees and non-employee members of our board of directors under the recognition and measurement provisions of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related guidance, as permitted by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), and amended by SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE ("SFAS 148"). We did not recognize any significant share-based employee compensation costs in our statements of operations prior to January 1, 2006, as options granted to employees and non-employee members of the board of directors generally
had an exercise price equal to the fair value of the underlying common stock on the date of grant. As required by SFAS 148, prior to the adoption of SFAS 123(R), we provided pro forma disclosure of net income (loss) applicable to common shareholders as if the fair-value-based method defined in SFAS No. 123 had been applied. In the pro forma information for periods prior to 2006, we accounted for pre-vesting forfeitures as they occurred. Our operating results for prior periods have not been restated.
Further details related to our Stock Plans and our adoption of SFAS 123R are provided in Note 1 – Description of Business and significant accounting policies and Note 9 – Capital Stock and Member Interests to our consolidated financial statements.
Results of Operations
Fiscal 2010 Compared To Fiscal 2009
Revenues and Cost of Sales
Revenue for 2010 was $3,885 which is an decrease from $49,168 in 2009. Cost of sales for 2010 was $1,802 which is an increase from $21,471 in 2009. During 2010 the Company carried out its move to new quarters and performed service and maintenance services for customers.
Selling, General and Administrative Expenses
In 2009, selling, general and administrative costs were $280,812 which decreased to $219,406 in 2010. This change is primarily a reflection of decreases in expenditures for salaries, consulting and operating expenses for our motorcycle manufacturing business.
Our expenses for 2010 and 2009 include $-0- and $75,658 respectively, of non-cash stock based compensation expenses. For 2010 the principal components of our expenses are the accrued salary for our president of $114,161 and $72,000 of accrued legal, accounting and consulting fees for outside service providers all of which was paid through the issuance of promissory notes.
Provision for Income Taxes
For the years ending December 31, 2010 and 2009, the Company has incurred losses for tax purposes. The tax asset generated by the tax losses and any temporary differences has been fully reserved.
Net Income
The company had a loss of $260,535 in 2010 compared to net loss of $317,608 in 2009. The loss was due primarily to expenditures for salaries, consulting and operating expenses for our motorcycle manufacturing business and to meet our public reporting obligations.
Liquidity and Capital Resources
As of December 31, 2010, we had negligible cash of $124 and approximately $677,972 in liabilities. To continue operations we require additional financing and are exploring various methods for obtaining additional capital including short term borrowing and the issuance of our equity or debt securities. There is no assurance that additional capital will be available to us, or if available, will be made available on suitable terms.
Net cash used by operating activities for the twelve months ended December 31, 2010 was $4,117 which was primarily the result of the net loss. This compared to net cash used by operating activities of $61,494 for the twelve months ended December 31, 2009. Net cash from financing activities for the twelve months ended December 31, 2010 was $-0- compared to $29,047 for the twelve months ended December 31, 2009. The reductions in 2010 from 2009 are primarily a reflection of the deteriorating economy and difficulties in securing sources of investment and financing.
Subsequent Events
None.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Future Commitments
We do not have any material future commitments that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Item 8. Financial Statements and Supplementary Data
Please refer to the pages beginning with F-1.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Change in Accountants
None.
Disagreements with Accountants
None.
Item 9A. Controls And Procedures
Disclosure Controls and Procedures
Mark Klein, who is our chief executive officer and chief financial officer during this reporting period, has concluded that the disclosure controls and procedures were not effective as of December 31, 2010. These controls are meant to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The registrant had not filed its SEC filings since the third quarter of 2009. Management has only recently prepared and filed the required SEC reports. Management intends to implement internal controls to ensure that similar situations do not occur in the future and that required SEC filings will be timely.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining internal controls over financial reporting and disclosure controls. Internal Control Over Financial Reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
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2.
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the registrant; and
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3.
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
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Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010, based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concluded that as of December 31, 2010, it had material weaknesses in its internal control procedures.
A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. As of December 31, 2010, we have concluded that our internal control over financial reporting was not effective as of December 31, 2010.
The Company’s assessment identified certain material weaknesses which are set forth below:
Entity Level Controls
We have insufficient corporate governance policies. Our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.
We currently have insufficient resources which may restrict our ability to gather, analyze and report information relative to the financial statements in a timely manner, including insufficient documentation and review of the selection and application of generally accepted accounting principles to significant non-routine transactions. In addition, the limited size of the accounting department makes it impractical to achieve an optimum segregation of duties.
Functional Controls and Segregation of Duties
We have an inadequate segregation of duties consistent with control objectives. Our management is composed of a single individual resulting in a situation where no segregation of duties exist. In order to remedy this situation we would need to hire additional staff to provide segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management intends to reassess this matter during the current fiscal year to determine whether improvement in segregation of duties is feasible.
Management believes that the material weaknesses set forth above were the result of the scale of our operations and are a circumstance due to our small size. Management believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for our business operations.
We are committed to improving our financial organization. As part of this commitment, we will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us.
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, including:
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(1)
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Adding personnel with the depth of knowledge and time commitment to provide a greater level of review for corporate activities;
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(2)
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Continuing to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes; and
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(3)
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Soliciting independent directors to enhance corporate governance and Board composition.
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We intend to consider the results of our remediation efforts and related testing as part of our assessment of the effectiveness of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
(a) Directors and executive officers:
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Name
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Age
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Position
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Mark S. Klein
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51
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President, Treasurer, Secretary and Director since 2006
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The directors of the Company are elected to serve until the next annual shareholders' meeting or until their respective successors are elected and qualified. Officers of the Company hold office until the meeting of the Board of Directors immediately following the next annual shareholders' meeting or until removal by the Board of Directors.
MARK S. KLEIN is a graduate of the American Motorcycle Institute and certified technician. Mr. Klein opened his first independent service facility in 1979, held northeast distribution rights for Yoshimura racing parts and from that, developed Cycle Connection, Inc., a highly successful super-bike racing team. He also developed the first branded store for Ducati Motors in Manhattan, New York and served on the Ducati Dealer Development Group for several years.
(b) Significant Employees.
None.
(c) Family relationships.
None.
(d) Involvement in certain legal proceedings.
None.
(e) Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the best of the Company's knowledge, with the exception of those persons disclosed in this report, no reports have been filed by any other persons who claim ownership of more than 10% of the Company's equity securities.
(f) Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications; (iii) compliance with applicable governmental laws, rules and regulations; (iv)
the prompt internal reporting of violations of our Code of Ethics to an appropriate person or persons identified in the code; and (v) accountability for adherence to our Code of Ethics.
Item 11. Executive Compensation
The following table sets forth certain information with respect to annual compensation paid in 2008 and 2008 to the Company's executive officers.
|
Name and Principal Position
|
Year
|
Annual
Compensation
|
Awards
|
Payouts
|
All Other
Compensation
|
||||||||
|
Mark S. Klein (i)
|
2010
|
None
|
None
|
None
|
None
|
||||||||
|
President, Secretary, Treasurer and Director
|
2009
|
None
|
$ | 45,925 |
None
|
$ | 50,000 | ||||||
|
______________________
|
|
|
(i)
|
Mr. Klein has a Key Employee Agreement with the Company dated as of May 6, 2008 which provides for annual compensation of $96,000. The 2010 Annual Compensation does not include $114,161 of accrued and unpaid compensation owing as to the year ending December 31, 2010. The 2009 Annual Compensation includes compensation payments of 752,500 shares of common stock and a $50,000 promissory note.
|
(b) Outstanding equity awards at fiscal year-end
None.
(c) Compensation of Directors
The Executive Officer of the Company also serves as the sole director of the Company. The Company did not make any separate director compensation payments of fees, stock awards, option awards, non-equity incentive plan compensation, non-qualified deferred compensation earnings or other compensation to any of its directors. The Company does not pay its directors for their service as a director or for attending meetings of the directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information, as of December 31, 2010, with respect to the beneficial ownership of the Company’s common stock by each person known by the Company to be the beneficial owner of more than five percent of the outstanding common stock and by directors and officers of the Company, both individually and as a group.
(a) Security ownership of certain beneficial owners and management
The following table indicates how many shares of our common stock were beneficially owned as of December 31, 2010, by (1) each person known by us to be the owner of more than 5% of our outstanding shares of common stock, (2) our directors, (3) our executive officers, and (4) our directors and executive officers as a group.
In general, “beneficial ownership” includes those shares a director or executive officer has sole or shared power to vote or transfer (whether or not owned directly) and rights to acquire common stock through the exercise of stock options or warrants those are exercisable currently or become exercisable within 60 days. Except as indicated otherwise, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them. We based our calculation of the percentage owned on 1,291,939 shares outstanding on December 31, 2010. The address of each director, executive officer and certain beneficial owners is listed below:
|
Name and Address
|
Number of Shares Beneficially
Owned
|
Percent of
Class
|
||||||
|
Mark S. Klein
Director, President, Secretary and Treasurer
P.O. Box 503
Totowa, NJ 07511
|
772,863 | 59.84 | % | |||||
|
David S. Lee
P.O. Box 503
Totowa, NJ 07511
|
119,154 | 9.23 | % | |||||
|
Sharp Capital LP
800 Third Ave., 27th Floor
New York, NY 10022
|
89,365 | 6.92 | % | |||||
|
Frank Basile
c/o Sharp Capital LP
800 Third Ave., 27th Floor
New York, NY 10022
|
89,365 | 6.92 | % | |||||
|
All officers and directors as a group (1 person)
|
772,863 | 59.84 | % | |||||
(b) Changes in control
Our articles of incorporation and by-laws do not contain any provisions having an anti-takeover effect, except that our articles of incorporation authorize the issuance of common and preferred stock. Our articles of incorporation were amended on October 25, 2006 to grant the Company’s board of directors the power to issue such shares and to establish their terms. For example, the directors have the power to establish terms for the preferred stock which would cause the preferred stock may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares
of preferred stock may discourage bids for the common stock or may otherwise adversely affect the market price of the common stock. If issued, the preferred stock could also render more difficult, or discourage, a merger, tender offer or proxy contest relative to the Company, and make the removal of incumbent management more difficult. Our board of directors has no present intention to issue preferred stock for such purposes. Our articles of incorporation prohibit cumulative voting with respect to any matters brought to a vote by our stockholders. The Company filed Definitive Schedule 14F describing the amendment to its articles of incorporation with the Securities & Exchange Commission on October 5, 2006.
Item 13. Certain Relationships and Related Transactions, and Director Independence
(a) Transactions with related persons.
Other than as disclosed below, none of the present directors, officers or principal shareholders of the Company, nor any family member of the foregoing, have or have had any interest, direct or indirect, in any transaction, the amount of which exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last three completed fiscal years, within the last fiscal year, or in any proposed transaction. Management believes the following transactions are fair to the Company and similar to terms that could be obtained from unrelated third parties.
None.
(b) Parents
None.
(c) Promoters and control persons
None.
(d) Corporate Governance
(i) Director independence
The directors of the Company are the executive officers of the Company and are shareholders of the Company. Members of the Company's management may become associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates they will devote as much time to the Company's affairs as is reasonably needed.
The officers and directors are, so long as they are officers or directors of the Company, subject to the restriction that all opportunities contemplated by the Company's plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to the Company and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If the Company or the companies in which the officers and directors are affiliated with both desire to take advantage of an opportunity, then said officers and directors would abstain from
negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if the Company should decline to do so. Except as set forth above, the Company has not adopted any other conflict of interest policy with respect to such transactions.
(ii) Board meetings and committees; annual meeting attendance
The Board of Directors does not meet on a regular basis and take action as and when required. The Company does not have any standing audit, nominating, or compensation committees of the Board of Directors.
Item 14. Principal Accountant Fees and Services
|
For the year ended
|
||||||||
|
2010
|
2009
|
|||||||
|
Audit Fees
|
$ | 8,000 | $ | 8,000 | ||||
|
Audit-Related Fees
|
0 | 0 | ||||||
|
Tax Fees
|
0 | 0 | ||||||
|
All Other Fees
|
0 | 0 | ||||||
Audit Fees consist of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by our independent accountants in connection with statutory and regulatory filings or engagements.
Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company's consolidated financial statements and are not reported under "Audit Fees."
Tax Fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, tax audit defense, customs and duties, and mergers and acquisitions.
All Other Fees consist of fees billed for products and services provided by the principal accountant, other than those services described above.
Audit Committee Pre-Approval Procedures
Our Board of Directors serves as our audit committee. Our Board of Directors approves the engagement of our independent auditors, and meets with our independent auditors to approve the annual scope of accounting services to be performed and the related fee estimates. It also meets with our independent auditors, on a quarterly basis, following completion of their quarterly reviews and annual audit and prior to our earnings announcements, if any, to review the results of their work. During the course of the year, our chairman has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. The chairman reports any interim pre-approvals
at the following quarterly meeting. At each of the meetings, management and our independent auditors update the Board of Directors with material changes to any service engagement and related fee estimates as compared to amounts previously approved. During 2008, all audit and non-audit services performed by our independent accountants were pre-approved by the Board of Directors in accordance with the foregoing procedures.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Exhibits
|
Exhibit
Number
|
EXHIBIT
|
|
|
3(i)
|
Certificate of Incorporation (1)(6)
|
|
|
3(ii)
|
Articles of Incorporation-ByLaws (1)(6)
|
|
|
3(iii)
|
Amendments to Articles of Incorporation (1)(6)
|
|
|
3(iv)
|
Amendments to the Articles of Incorporation October 30, 2003 (2)
|
|
|
4.1
|
Description of Securities (1)(6)
|
|
|
4.1(i)
|
Sample Common Stock Share Certificate (1)(6)
|
|
|
4.1(ii)
|
Description of Securities (2)
|
|
|
4.1(iii)
|
Sample $0.0001 par value Common Stock Share Certificate (2)
|
|
|
4.1(iv)
|
Share Escrow Agreement (2)
|
|
|
4.1(iv)(a)
|
Share Escrow Agreement with signatures (3)
|
|
|
4.1(v)
|
Form of Lock-Up Agreement (2)
|
|
|
4.1(v)(a)
|
Lock-Up Agreement of Hugo Barrientos (3)
|
|
|
4.1(v)(b)
|
Lock-Up Agreement of Omar A. Barrientos (3)
|
|
|
4.1(v)(c)
|
Lock-Up Agreement of Omar G. Barrientos (3)
|
|
|
4.1(v)(d)
|
Lock-Up Agreement of Elizabeth Schroeder & Isabel Barrientos (3)
|
|
|
4.1(v)(e)
|
Lock-up Agreement of Elizabeth Schroeder (3)
|
|
|
4.1(v)(f)
|
Lock-Up Agreement of Gene Fairchild (3)
|
|
|
4.1(v)(g)
|
Lock-Up Agreement of Charles A. Koenig (3)
|
|
|
4.1(v)(h)
|
Lock-Up Agreement of John E. Rayl (3)
|
|
|
4.1(v)(i)
|
Lock-Up Agreement of Elisa Giordano (3)
|
|
|
4.1(v)(j)
|
Lock-Up Agreement of Christopher H. Giordano (3)
|
|
|
4.1(v)(k)
|
Lock-Up Agreement of Michael Giordano (3)
|
|
|
4.1(v)(l)
|
Lock-Up Agreement of Nicholas Giordano (3)
|
|
|
4.1(v)(m)
|
Lock-Up Agreement of Birchwood Capital Advisors, Inc. (3)
|
|
|
4.1(vi)(a)
|
Class A Warrant Agreement dated November 20, 2007 (9)
|
|
|
4.1(vi)(b)
|
Sample Class A Warrant Certificate (9)
|
|
|
4.1(vii)
|
Sample Series A Convertible Stock Certificate (9)
|
|
|
4.2
|
Resolution to Incorporate Spin-Off dated June 16, 1999 (1)(6)
|
|
|
4.3
|
Resolution for the Transfer of Intellectual Assets dated August 14, 2002 (1)(6)
|
|
|
4.4
|
Resolution Stock Dividend dated September 20, 2002 (1)(6)
|
|
|
4.5(i)
|
Payment Agreement Omar Barrientos (1)(6)
|
|
|
4.5(ii)
|
Payment Agreement Chris Giordano (1)(6)
|
|
|
4.5(iii)
|
Payment Agreement John E. Rayl (1)(6)
|
|
|
4.5(iv)
|
Payment Agreement Charles A. Koenig (1)(6)
|
|
|
4.6(i)
|
Resolution to Issue Stock to Omar Barrientos (1)(6)
|
|
|
4.6(ii)
|
Resolution to Issue Stock to Chris Giordano (1)(6)
|
|
|
4.6(iii)
|
Resolution to Issue Stock to John E. Rayl (1)(6)
|
|
|
4.6(iv)
|
Resolution to Issue Stock to Charles A. Koenig (1)(6)
|
|
|
4.7(i)
|
Subscription Agreement Omar Barrientos (1)(6)
|
|
4.7(ii)
|
Subscription Agreement Chris Giordano (1)(6)
|
|
|
4.7(iii)
|
Subscription Agreement John E. Rayl (1)(6)
|
|
|
4.7(iv)
|
Subscription Agreement Charles A. Koenig (1)(6)
|
|
|
4.8
|
Resolution of Board of Directors dated May 31, 1997 re: rights of Preferred Stock of USA Sunrise Beverages, Inc. (6)
|
|
|
*4.9(i)
|
8% Convertible Secured Promissory Note and Security Agreement issued to Arturo Montepara dated November 12, 2008 in the principal amount of $5,000
|
|
|
*4.9(ii)
|
8% Convertible Secured Promissory Note and Assignment issued to David S. Lee dated December 17, 2008 in the principal amount of $100,000
|
|
|
5.0
|
Opinion of Counsel dated August 7, 2003 (1)(6)
|
|
|
6.0
|
2005 Stock Option Plan (7)
|
|
|
10.1
|
Letter of Intent with Paul Miller Sr. Trust Dated March 31, 2003 (1)(6)
|
|
|
10.2
|
Stock Purchase Agreement Among The Purchasers Executing This Agreement and Omar Barrientos and Other Stockholders of USA Sunrise Beverage, Inc. dated September 23, 2002 (3)
|
|
|
10.2.a
|
Stock Purchase Agreement Among The Purchasers Executing This Agreement and Omar Barrientos and Other Stockholders of USA Sunrise Beverage, Inc. dated September 23, 2002 with Schedule I, Appendix A and Exhibit A thereto (4)
|
|
|
10.2b
|
Sunrise USA Beverages, Inc. Shareholder Solicitation Letter (6)
|
|
|
10.6
|
Quit Claim Deed and Release dated August 18, 1998 between Dakota Mining and Construction, Inc. and USA Sunrise Beverages, Inc. (6)
|
|
|
10.8
|
Loan Agreement between Omar Barrientos and USA Sunrise Beverages, Inc. dated January 1, 1994 (6)
|
|
|
10.9
|
Note Agreement between Dr. Neil Kurti and USA Sunrise Beverages, Inc. dated November 11, 1995 (6)
|
|
|
10.9(i)
|
Note Satisfaction and Release between Dr. Neil Kurti and USA Sunrise Beverages, Inc. dated September 6, 2002 (3)
|
|
|
10.9(ii)
|
Agreement For Satisfaction and Release between Paul Miller Sr. Trust and USA Sunrise Beverages, Inc. dated September 4, 2002. (3)
|
|
|
10.9(iii)
|
Satisfaction of Judgment of Dr. Vincent E. Eilers dated January 19, 2004 (3)
|
|
|
10.9(iv)
|
Satisfaction and Release between Tesoro Corporation and USA Sunrise Beverages, Inc. executed June, 2002 (3)
|
|
|
12.1
|
Code of Ethics (8)
|
|
|
* Filed herewith
|
|
(1)
|
Incorporated by reference to the attachments filed with the Registration Statement of Sunrise USA, Incorporated on Form 10-SB filed with the United States Securities and Exchange Commission (the “Commission”) on August 19, 2003 (File #000-50370) (the “Form 10-SB”)
|
|
(2)
|
Incorporated by reference to the Exhibits filed with the Registration Statement of Sunrise USA, Incorporated on Form 10-SB Amendment No. 1 filed with the Commission on June 4, 2004 (File #000-50370) (the “Form 10-SB/A1”)
|
|
(3)
|
Incorporated by reference to the Exhibits filed with the Registration Statement of Sunrise USA, Incorporated on Form 10-SB Amendment No. 2 filed with the Commission on November 15, 2004 (File #000-50370) (the “Form 10-SB/A2”)
|
|
(4)
|
Incorporated by reference to the Exhibits filed with the Registration Statement of Sunrise USA, Incorporated on Form 10-SB Amendment No. 3 filed with the Commission on March 11, 2005 (File #000-50370) (the “Form 10-SB/A3”)
|
|
(5)
|
Incorporated by reference to the Exhibits filed with the Registration Statement of Sunrise USA, Incorporated on Form 10-SB Amendment No. 4 filed with the Commission on May 23, 2005 (File #000-50370) (the “Form 10-SB/A4”)
|
|
(6)
|
Incorporated by reference to the Exhibits filed with the Registration Statement of Sunrise USA, Incorporated on Form 10-SB Amendment No. 5 filed with the Commission on July 20, 2005 (File #000-50370) (the “Form 10-SB/A5”)
|
|
(7)
|
Incorporated by reference to the Exhibits filed with the Form 14C Information Statement of Sunrise USA, Incorporated, filed with the Commission on February 28, 2006 (File #000-50370) (the “Form 14C”)
|
|
(8)
|
Incorporated by reference to the Exhibits filed with the Form 10K of Sunrise USA, Incorporated, filed with the Commission on March 31, 2006 (File #000-50370)
|
|
(9)
|
Incorporated by reference to the Exhibits filed with the Form 10KSB of Hybrid Dynamics Corporation, for the year ending December 31, 2007 (File #000-50370)
|
(b) Reports on Form 10-K: None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Dated September 20, 2011
|
By:
|
/s/ MARK KLEIN
|
|
Mark Klein
|
||
|
President, Chief Executive Officer, Principal Financial Officer and Sole Director
|
|
* Filed herewith
|
DAM Holdings, Inc. and Subsidiaries
I N D E X
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
DAM Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of DAM Holdings, Inc. and Subsidiaries (“the Company) as of December 31, 2010 and 2009, and the related consolidated statement of operations, stockholders’ deficit and cash flows for the years ended December 31, 2010 and 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DAM Holdings, Inc. and Subsidiaries as of December 31, 2010 and 2009 and the results of its operations, and cash flows for the years ended December 31, 2010 and 2009 in conformity with accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has accumulated deficit of $2,866,787 as of December 31, 2010 and has incurred a net loss of $260,535 for the year ended December 31, 2010. These factors as discussed in notes to the financial statements raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3 to the consolidated financial statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Gruber & Company, LLC
|
Gruber & Company, LLC
Lake Saint Louis, Missouri
September 19, 2011
|
DAM HOLDINGS, INC. & SUBSIDIARIES
Comparative Consolidated Balance Sheet
As of December 31, 2010 and 2009
|
December 31
|
December 31
|
|||||||
|
2010
|
2009
|
|||||||
|
(Audited)
|
(Audited)
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 124 | $ | 696 | ||||
|
Accounts Receivable
|
- | - | ||||||
|
Prepaid Expenses
|
295 | 6,295 | ||||||
|
Inventory (net of valuation reserve of $11,623 and $13,580 respectively)
|
94,552 | 92,738 | ||||||
|
Total Current Assets
|
94,971 | 99,729 | ||||||
|
Equipment
|
8,339 | 36,608 | ||||||
|
Less: Accumulated Depreciation
|
(7,853 | ) | (22,008 | ) | ||||
|
Total Equipment
|
486 | 14,600 | ||||||
|
Total Assets
|
$ | 95,457 | $ | 114,329 | ||||
|
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts Payable
|
$ | 198,218 | $ | 118,903 | ||||
|
Accrued Payroll Taxes Payable
|
29,980 | 56,550 | ||||||
|
Promissory Notes Payable Officers
|
186,083 | 61,979 | ||||||
|
Promissory Notes Payable
|
200,677 | 111,825 | ||||||
|
Current Portion of Long Term Notes Payable
|
63,014 | 87,052 | ||||||
|
Total Current Liabilities
|
677,972 | 436,309 | ||||||
|
Total Liabilities
|
677,972 | 436,309 | ||||||
|
Stockholders' Deficit
|
||||||||
|
Preferred Stock - $0.0001 par value, 900,000 shares
|
||||||||
|
authorized no shares issued and outstanding
|
- | - | ||||||
|
Series A Preferred Stock - $5 stated value, 660,000 shares
|
||||||||
|
authorized 60,000 shares issued and outstanding
|
300,000 | 300,000 | ||||||
|
Series B Preferred Stock - $500 stated value, 2,000 shares
|
||||||||
|
authorized 30 shares issued and outstanding
|
15,000 | 15,000 | ||||||
|
Common Stock - $.00015 par value, 99,000,000 shares
|
||||||||
|
authorized, 1,291,939 shares issued and outstanding
|
194 | 194 | ||||||
|
Additional Paid-In Capital
|
1,969,078 | 1,969,078 | ||||||
|
Accumulated Deficit
|
(2,866,787 | ) | (2,606,252 | ) | ||||
|
Total Stockholders' Deficit
|
(582,515 | ) | (321,980 | ) | ||||
|
Total Liabilities and Stockholders' Deficit
|
$ | 95,457 | $ | 114,329 | ||||
The accompanying notes are an integral part of these financial statements
DAM HOLDINGS, INC. & SUBSIDIARIES
Consolidated Statement of Operations
For the Years Ended December 31, 2010 and 2009
|
For The Year Ending December 31
|
||||||||
|
2010
|
2009
|
|||||||
|
(Audited)
|
(Audited)
|
|||||||
|
Revenues
|
$ | 3,885 | $ | 49,188 | ||||
|
Cost of Goods Sold
|
1,802 | 21,471 | ||||||
|
Gross Profit
|
2,083 | 27,717 | ||||||
|
Operating Expenses
|
||||||||
|
General and Administrative
|
219,406 | 238,823 | ||||||
|
Stock based compensation
|
- | 75,658 | ||||||
|
Depreciation and amortization
|
5,696 | 12,999 | ||||||
|
Total Operating Expenses
|
225,102 | 327,480 | ||||||
|
Other Expenses
|
||||||||
|
Interest expense
|
(43,047 | ) | 17,845 | |||||
|
Other income
|
5,531 | - | ||||||
|
Net Income (Loss)
|
$ | (260,535 | ) | $ | (317,608 | ) | ||
|
Basic net loss per share before extraordinary item
|
$ | (0.20 | ) | $ | (3.59 | ) | ||
|
Basic net income from extraordinary item
|
$ | - | $ | - | ||||
|
Basic net loss per share
|
$ | (0.20 | ) | $ | (3.59 | ) | ||
|
Weighted average shares outstanding
|
1,291,939 | 88,467 | ||||||
The accompanying notes are an integral part of these financial statements
DAM HOLDINGS, INC. & SUBSIDIARIES
Consolidated Statement of Cash Flow
For the Years Ended December 31, 2010 and 2009
|
For The Year Ending December 31
|
||||||||
|
2010
|
2009
|
|||||||
|
(Audited)
|
(Audited)
|
|||||||
|
Cash Flows from Operating Activities
|
||||||||
|
Net (Loss)
|
$ | (260,535 | ) | $ | (317,608 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Depreciation & amortization
|
5,696 | 12,999 | ||||||
|
Stock based compensation expenses
|
- | 75,658 | ||||||
|
Officers compensation contributed to capital
|
172,410 | |||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable
|
- | 244 | ||||||
|
Prepaid expenses
|
(6,000 | ) | (4,045 | ) | ||||
|
Inventory
|
(1,814 | ) | (6,989 | ) | ||||
|
Accounts payable
|
79,315 | 62,386 | ||||||
|
Accrued payroll and payroll taxes
|
118,145 | (56,549 | ) | |||||
|
Notes Payable
|
61,076 | - | ||||||
|
Net Cash Used in Operating Activities
|
(4,117 | ) | (61,494 | ) | ||||
|
Cash Flows Used in Investing Activities:
|
||||||||
|
Sale of equipment
|
3,545 | (32,807 | ) | |||||
|
Cash Flows Used in Investing Activities
|
3,545 | (32,807 | ) | |||||
|
Cash Flows From Financing Activities:
|
||||||||
|
Sale of securities for cash, net
|
- | 15,100 | ||||||
|
Proceeds from notes payable
|
- | 16,700 | ||||||
|
Payment on notes payable
|
- | (2,753 | ) | |||||
|
Net Cash From Financing Activities
|
- | 29,047 | ||||||
|
Net (Decrease) Increase in Cash
|
$ | (572 | ) | $ | (65,254 | ) | ||
|
Cash at Beginning of Period
|
696 | 65,950 | ||||||
|
Cash at End of Period
|
$ | 124 | $ | 696 | ||||
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods ending December 31:
|
2010
|
2009
|
|||||||
|
Interest
|
$ | -0- | $ | 1,172 | ||||
|
Income taxes
|
$ | -0- | $ | -0- | ||||
|
Supplemental Schedule of Non-cash Investing and Financing Activities;
|
|
For the year ended December 31, 2010:
|
|
The Company issued promissory notes in payment of accrued officers compensation and accounts payable due shareholders in the amount of $193,671.
|
|
For the year ended December 31, 2009:
|
|
The Company issued common stock for services in the amount of $54,594.
|
|
The Company issued promissory notes in payment of accrued officers compensation and accounts payable due shareholders in the amount of $150,000.
|
|
The Company issued common stock to convert a note payable in the amount of $108,876.
|
|
The Company issued common stock in termination of a royalty agreement in the amount of $7,549.
|
|
The Company issued common stock pursuant to antidilution agreements in the amount of $8,360.
|
|
An officer and two shareholders contributed services and indebtedness to the capital of the Company in the amounts of $172,410 and $140,670, respectively.
|
The accompanying notes are an integral part of these financial statements
DAM HOLDINGS, INC. & SUBSIDIARIES
Statements of Stockholder’s Deficit
For the Years Ending December 31, 2010 and 2009
|
Preferred Stock
|
Class A Preferred
|
Class B Preferred
|
Common Stock
|
Additional
|
Accumulated
|
Total
|
||||||||||||||||||||||||||||||||||||||
|
Number of
|
Number of
|
Number of
|
Number of
|
Paid-in
|
Retained
|
Stockholders'
|
||||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
(Deficit)
|
(Deficit)
|
||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2008
|
- | $ | - | 60,000 | $ | 300,000 | - | $ | - | 56,628 | $ | 8 | $ | 1,474,310 | $ | (2,288,644 | ) | $ | (514,326 | ) | ||||||||||||||||||||||||
| . | ||||||||||||||||||||||||||||||||||||||||||||
|
Shares issued for cash:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Shares of Series B preferred stock
|
30 | 15,000 | 15,000 | |||||||||||||||||||||||||||||||||||||||||
|
Shares of common stock
|
400 | - | 100 | 100 | ||||||||||||||||||||||||||||||||||||||||
|
Shares issued in conversion of debt
|
118,653 | 18 | 108,858 | 108,876 | ||||||||||||||||||||||||||||||||||||||||
|
Shares issued in termination of royalty agreement
|
28,371 | 4 | 7,545 | 7,549 | ||||||||||||||||||||||||||||||||||||||||
|
Share issued for services
|
863,350 | 130 | 54,464 | 54,594 | ||||||||||||||||||||||||||||||||||||||||
|
Shares issued in payment of accounts payable
|
50,000 | 8 | 2,388 | 2,395 | ||||||||||||||||||||||||||||||||||||||||
|
Shares issued under antidilution agreements
|
174,537 | 26 | 8,334 | 8,360 | ||||||||||||||||||||||||||||||||||||||||
|
Indebtedness contributed by shareholders
|
140,670 | 140,670 | ||||||||||||||||||||||||||||||||||||||||||
|
Compensation contributed by shareholders
|
172,410 | 172,410 | ||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(317,608 | ) | (317,608 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2009
|
- | $ | - | 60,000 | $ | 300,000 | 30 | $ | 15,000 | 1,291,939 | $ | 194 | $ | 1,969,078 | $ | (2,606,252 | ) | $ | (321,980 | ) | ||||||||||||||||||||||||
|
Net loss
|
(260,535 | ) | (260,535 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2010
|
- | $ | - | 60,000 | $ | 300,000 | 30 | $ | 15,000 | 1,291,939 | $ | 194 | $ | 1,969,078 | $ | (2,866,787 | ) | $ | (582,515 | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
DAM HOLDINGS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
DAM Holdings, Inc. (“DAMH”) is a Nevada corporation incorporated on July 22, 1999. DAMH is a non-operating holding company owning 100% of the capital stock of Delaware American Motors, Inc. a Nevada corporation (“DAM”) and DAM’s wholly owned subsidiary Delaware American Motors LLC a Delaware limited liability company (DAMLLC) which was acquired in a purchase acquisition transaction completed on May 13, 2008 (the “DAM Acquisition Date”). DAMLLC was organized in 2002 as a custom motorcycle manufacturer and is the Company’s principal operating subsidiary. DAMH, DAM and DAMLLC are collectively referred to hereafter as the
“Company”.
2009 Reverse Split of Common Stock
On September 14, 2009 (the “Effective Date”) the Company filed an amendment to its articles of incorporation which reduced the number of shares of issued and outstanding common stock $0.00015 par value from 13,758,706 shares to 68,794 shares; a 200:1 reverse split (the “Reverse Split”). All references to common stock in the accompanying financial statements and these notes have been adjusted to the number of shares of common stock equivalent to DAMH’s $0.00015 par value common stock on a post-reverse split basis.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of all subsidiaries after elimination of all intercompany accounts, transactions, and profits.
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, disclosures of contingent assets and liabilities, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized at the time products are shipped and title transfers. Allowances for returned products, charge backs and other credits are estimated and recorded as revenue is recognized.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash is held primarily in one bank. At December 31, 2010 and 2009 the Company had cash on hand of $124 and $696 respectively.
Accounts Receivable Allowances
Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. The Company has recorded an allowance for slow moving and obsolete inventory of $11,623 at December 31, 2010 and $13,580 at December 31, 2009.
|
2010
|
2009
|
|||||||
|
Motorcycles for sale
|
$ | 83,246 | $ | 83,246 | ||||
|
Parts and supplies
|
22,929 | 23,072 | ||||||
|
Less valuation allowance
|
11,623 | 13,580 | ||||||
| $ | 94,552 | $ | 92,738 | |||||
Property, Plant and Equipment
Property, plant and equipment are carried at original cost. Expenditures for betterments and additions are capitalized, while maintenance and repairs are charged to operations as incurred. Upon sale, retirement or other disposition of property, plant and equipment, the cost and accumulated depreciation are eliminated from the accounts and gain or loss is included in the statement of income.
Depreciation is computed generally using the straight line method over the following estimated useful lives of the various classes of assets:
|
Years
|
||||
|
Buildings and improvements
|
40 | |||
|
Machinery and equipment
|
10 | |||
|
Office furniture and equipment
|
3 – 7 | |||
Trademarks, Patents and Copyrights
The direct costs associated with the filing of the Company’s copyrights, trademarks and patents have been capitalized and are amortized over the effective period of the related trademarks or patents once granted (20 and 21 years). The Company follows ASC Topic 360, formerly SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets, which requires a review of the Company’s trademarks and patents be made whenever events or changes in circumstances indicate that the carrying amount of the patents may not be recoverable. As of the date of these consolidated financial statements, no such events have occurred.
Long Lived Assets
Long-lived assets consist primarily of property and equipment. The recoverability of long-lived assets is evaluated by an analysis of operating results and consideration of other significant events or changes in the business environment. The Company evaluates whether impairment exists for property and equipment on the basis of undiscounted expected future cash flows from operations before interest. If impairment exists, the carrying amount of the long-lived assets is reduced to its estimated fair value, less any costs associated with the final settlement. For the years ended December 31, 2010 and 2009 there was no impairment of the Company’s long-lived assets.
Income Taxes
The Company follows ASC 740 Income Taxes, formerly SFAS No. 109, Accounting for Income Taxes, which requires the use of the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Future tax benefits, including net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not to occur.
Fair Value of Financial Instruments
The Company’s financial instruments consist of long-term debt, interest rate swaps, accounts receivable, and accounts payable. The carrying amount of these financial instruments approximated their fair value.
ASC Topic 825 formerly SFAS 159 “The Fair Value Option for Financial Assets and Financial Liabilities” issued to define fair value, establish a framework for measuring fair value and to expand disclosures about fair value measurements. This standard does not change the requirements to apply fair value in existing accounting standards. Under this standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or
liability.
To increase consistency and comparability in fair value measurements, this standard establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:
|
|
●
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical asset or liabilities that the company has the ability to access as of the reporting date.
|
|
|
●
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data.
|
|
|
|
|
●
|
Level 3 inputs are unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability.
|
There were no recurring or non-recurring fair value measurements for either the year ended December 31, 2010 or 2009.
In March 2008, the FASB issued a standard to amend and expand the disclosure requirements of derivative instruments with the intent to provide users of the financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how these derivatives are accounted for and how the respective reporting entity’s financial statements are affected. The Company adopted this standard on January 1, 2009.
The Company has no derivative instruments at December 31, 2010 or 2009.
Earnings Per Common Share
Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed similarly but include the effect of the assumed exercise of dilutive stock options and vesting of restricted stock under the treasury stock method.
|
2010
|
2009
|
|||||||
|
Net loss
|
$ | (260,535 | ) | $ | (317,608 | ) | ||
|
Weighted average common shares outstanding
|
1,291,939 | 88,467 | ||||||
|
Plus: dilutive options assumed exercised
|
- | - | ||||||
|
Plus: weighted average non-vested restricted stock
|
- | - | ||||||
|
Less: shares assumed repurchased with proceeds from exercise
|
- | - | ||||||
|
Weighted average common and potentially issuable common shares outstanding
|
1,291,939 | 88,467 | ||||||
|
Basic earnings (loss) per common share
|
$ | (0.20 | ) | $ | (3.59 | ) | ||
|
Diluted earnings per common share
|
$ | n/a | $ | n/a | ||||
Common share equivalents of 215,600 shares at December 31, 2010 and 2009 were not included in diluted earnings per share as they were anti-dilutive.
Research and Development
All costs incurred to establish the technological feasibility of new products or technology to be sold, leased, or otherwise marketed are charged to expense. Technological feasibility is established when a product design and a working model of the product have been completed and confirmed by testing. Costs to produce or purchase technology incurred subsequent to establishing technological feasibility are capitalized. Capitalization of costs ceases when the product is available for general release to customers. Costs to perform consulting or development services are charged to cost of revenues in the period in which the corresponding revenues are recognized. Costs of maintenance and customer support are charged to
expense when related revenue is recognized or when these costs are incurred, whichever occurs first.
All costs associated with the development, production and sale of the DAM and Pukka technologies have been expensed in the periods to which they relate.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements,” an amendment to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” The standard requires disclosure for transfers in and out of Level 1 and Level 2, as well as the disclosure of Level 3 activity on a gross, rather than net, basis. The guidance also requires enhancements to certain existing disclosures. The amendments are effective as of the beginning of our fiscal year 2011, or July 1, 2010, except for the new requirements regarding Level 3
activity, which is deferred until the beginning of fiscal year 2012. The guidance is not expected to have an impact on the Company’s consolidated financial statements.
In December 2010, the FASB issued guidance to clarify disclosure requirements for pro-forma information on revenues and earnings for business combinations. This guidance clarifies that where comparative financial statements are presented, revenue and earnings of the combined entity should be disclosed as though the business combination(s) that occurred during the current reporting period had occurred as of the beginning of the comparable prior annual reporting period. This guidance also expands disclosure requirements to include a description of the nature and amount of material, non-recurring pro-forma adjustments directly attributable to the business combination included in the reported pro-forma revenue and
earnings. The Company adopted the provisions of this guidance effective January 1, 2011 and there was no impact on the consolidated condensed financial statements resulting from the adoption of this guidance.
In December 2010, the FASB issued amended goodwill impairment testing guidance for reporting units with an overall nil or negative carrying amount, but a positive goodwill balance. This amended guidance requires that for these reporting units, the second stage of goodwill impairment testing should be performed when it is considered more likely than not that goodwill impairment exists. This assessment should be made by considering whether there are any adverse qualitative factors indicating impairment of the goodwill. The standard is effective for our fiscal year beginning July 1, 2011 and is not expected to have an impact on the Company’s consolidated financial statements.
We have determined that all other recently issued accounting standards will not have a material impact on our Consolidated Financial Statements, or do not apply to our operations.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern. The Company incurred a net loss of $260,535 and $317,608 for the years ended December 31, 2010 and 2009 respectively and as of December 31, 2010 the Company has an accumulated deficit of $2,866,787 and a working capital deficit of $583,001. Consequently, the aforementioned items raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to raise capital through equity and debt financing or other means on desirable terms. If the Company is unable to obtain additional funds when they are required or if the funds cannot be obtained on favorable terms, management may be required to, liquidate available assets, restructure the company or cease operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 4 – PLAN OF 0PERATIONS
The current economic environment in the U.S. and abroad though slightly improved overall during 2010 has continued to deteriorate throughout 2010 in respect to the motorsport industry. The effect of this deterioration on the Company is expected to be significant. The Company is a young company with a new brand and a high dollar value luxury product. Over the next twelve months we intend to build our brand name “Delaware American Motors” based upon the introduction of the Tech Twin American 13C Series and Tech Twin American Signature Series of high-performance heavy weight motorcycles. Competition in the heavyweight motorcycle market is based upon a number of factors, including
price, quality, reliability, styling, product features, customer preference and warranties. In the U.S., suggested retail prices for the Company’s motorcycles range from being comparable to, to higher than the suggested retail prices for comparable motorcycles available in the market.
Our plan of operation for the coming year is to focus on obtaining the financing necessary to undertake our goals of: (i) the development of our Tech Twin American 13C Series and Tech Twin American Signature Series of motorcycles, (ii) undertake selling efforts of these products and (iii) undertake the development of our brand.
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31:
|
2010
|
2009
|
|||||||
|
Machinery, plant and equipment
|
$ | 8,339 | $ | 36,608 | ||||
|
Accumulated depreciation
|
7,853 | 22,008 | ||||||
| $ | 486 | $ | 14,600 | |||||
Depreciation expense was $5,696 and $12,999 for the years ended December 31, 2010 and 2009 respectively.
NOTE 6 – DEBT AND COMMITTMENTS
The Company’s debt consists of the following notes payable at December 31:
|
2010
|
2009
|
|||||||
|
Commercial credit and cards payable
|
$ | 85,679 | $ | 73,706 | ||||
|
Secured convertible promissory note
|
6,065 | 5,403 | ||||||
|
Unsecured convertible promissory notes
|
56,949 | 87,052 | ||||||
|
Unsecured demand promissory notes
|
386,759 | 167,402 | ||||||
|
Total
|
535,452 | 333,563 | ||||||
|
Less current portion
|
535,452 | 333,563 | ||||||
|
Long-term debt
|
$ | - | $ | - | ||||
Commercial Credit Cards Payable
Accounts payable includes accounts payable due vendors, and certain commercial obligations due banks under a commercial line of credit loan with a balance due of $14,450 and amounts due on various bank credit cards. Interest rates vary on the line of credit loan and the bank credit card obligations at rates ranging from 5.5% to 24% per annum, all are in default and are currently due and each account includes the personal repayment guarantee of the Company's President.
Secured Convertible Promissory Notes
The Company has a $5,000 10% Convertible Secured Promissory Note (the “10% Secured Note”). The 10% Secured Note was due on May 12, 2009 and bears an annual rate of interest of ten percent (10%). The 10% Secured Note is secured by assignment of a motorcycle engine. The 10% Secured Note may be converted by the holder into shares of the Company’s common stock at a price equal to seventy-five percent (75%) of the market price of the Company’s shares on the date of conversion limited to not more than 300,000 shares. The Company also paid 25 shares of common stock as bonus interest at a fair value of $250. At the date of issuance, the Company determined
that the fair value of the beneficial conversion feature in respect of this 10% Secured Note on the date the note was issued to be equal to $4,054 using the Black-Scholes model which amount has been recorded as a debt discount and is being amortized over the term of the note. The accompanying financial statements include $500 and $3,203 of interest expense and additional interest in respect of the beneficial conversion feature for the years ending December 31, 2010 and 2009, respectively.
On May 30, 2009 the Company issued an aggregate of 118,653 shares of common stock to a note holder in full conversion of a secured convertible promissory in the principal amount of $100,000 originally issued on December 17, 2008. The accompanying financial statements include $8,340 of interest expense for the year ending December 31, 2009.
Unsecured Convertible Promissory Notes
The Company has four (4) unsecured 6% Convertible Promissory Notes payable in the aggregate amount of $50,000 (the “Convertible Notes”). The Convertible Notes bear interest at the rate of 6% per annum and are due on dates ranging from August 8, 2010 through September 8, 2010. The Convertible Notes may be converted into shares of the Company’s common stock at the election of the holder at any time prior to the maturity date at the rate of thirty dollars ($40.00) per share. Interest may, at the election of the Company, be paid in shares of the Company’s common stock at the rate of one hundred ($100.00) per share. The accompanying financial
statements include $3,000 and $3,182 of interest expense for the year ending December 31, 2010 and 2009, respectively. The unsecured convertible promissory notes are in default with a total aggregate amount due of $56,949 as of December 31, 2010.
Unsecured Demand Promissory Notes
The Company has unsecured demand promissory notes in the aggregate principal amount of $361,444 issued for wages and services rendered. The notes include a note in the principal amount of $177,861 issued to the president of the Company. The notes were issued in 2010 and 2009. Each note bears interest at the rate of 12% per annum. The accompanying financial statements include $24,715 and $702 of interest expense for the years ending December 31, 2010 and 2009, respectively and there is a total aggregate balance due on December 31, 2010 and 2009 of $386,759 and $167,402, respectively.
Conversion Feature of Convertible Promissory Notes
In accordance with Emerging Issues Task Force (“EITF”) No.00-27, “Application of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Rates’, to Certain Convertible Instruments.” We determined there to be no value attributable to the beneficial conversion features of the Convertible Notes in that the effective conversion price of those shares was greater than the FMV price of our common stock.
Facilities Lease
The Company rented 8,300 sq. ft. of office, garage and storage space in a single facility located in Paterson, New Jersey. The lease was for an initial term of 60 months from April, 2006 at $2,500 per month and includes 2 five year renewal terms at an increase in monthly payments to $3,100 per month and $3,600 per month, respectively. The accompanying financial statements
include rent expense of $30,000 for the year ended December 31, 2009, respectively. Upon sale of the building the Company opted to terminate the lease effective December 31, 2009. Office and storage space is presently provided by an officer of the Company.
Key Employee Agreements
On May 8, 2008 the Company entered into a Key Employee Agreement with its President. The terms of the agreement provides that the executive is employed on an “at will” basis at an annual rate of compensation of $96,000, having an initial term of two years. Each agreement also provides that any intellectual property originated by the executive during his term of the agreement shall be the property of the Company.
The accompanying consolidated financial statements include an aggregate of $114,161 and $119,957 of executive officer compensation expense for the years ending December 31, 2010 and 2009 respectively.
NOTE 7 – CAPITAL STOCK
Preferred Stock
The Company has an aggregate total of 1,000,000 shares of authorized preferred stock with 338,000 shares of $.0001 par value undesignated preferred stock, 660,000 shares designated as Series A Preferred Stock and 2,000 shares designated as Series B Preferred Stock. The 338,000 shares of undesignated preferred stock, if issued, will carry liquidation preferences and other rights, as determined by the Board of Directors.
Series A 8% Convertible Preferred Stock
The Company has 660,000 shares of preferred stock designated as “Series A 8% Convertible Preferred Stock” authorized with 60,000 shares issued and outstanding as of the date of this report having an aggregate stated value of $300,000. Each share of Series A Preferred Stock (a) has a stated value of $5.00 per share (“Stated Value”), (b) is non-voting, (c) includes a dividend of 8% per annum paid annually, (d) may be redeemed at any time for an amount equal to the Stated Value plus all accumulated and unpaid dividends, (e) may be converted into 10 shares of $0.00015 par value common stock, and has a (f) liquidation preference of $5.00 per share plus all accumulated and unpaid
dividends.
The terms of these shares have been adjusted pursuant to an Anti-Dilution Agreement with the purchasers such that the purchasers may now convert their shares of Series A Preferred Stock into 13,300 shares of the Company’s common stock at an exercise conversion ratio of one (1) share of Preferred Stock to 0.22 shares of Common Stock. This adjustment does not affect the terms of the remaining authorized but un-issued shares of Series A Preferred Stock.
Series B 8% Convertible Preferred Stock
The Company has 2,000 shares of preferred stock designated as “Series B 8% Convertible Preferred Stock” (the “Series B Preferred Stock”) authorized with 30 shares issued and outstanding as of the date of this report having an aggregate stated value of $15,000. Each share of Series B Preferred Stock has an initial issue price or face value of $500.00 (the “Original Issue Price”) and may be converted into shares of the Company’s $0.00015 par value common stock (the “Common Stock”) at any time at the election of the holder. The Series B Preferred Stock may also be redeemed by the Company upon the cash payment per share of $500.00 plus
any unpaid dividends thereon. The Series B Preferred Stock is non-voting.
Shares of Series B Convertible Preferred Stock may be converted into fully paid and nonassessable shares of Common Stock of the Company at a price (the "Conversion Price") equal to 50% of the Market Price per share of Common Stock on the date of conversion (but the Conversion Price shall not be less than $5.00 per share (the "Minimum Price") or greater than $25.00 per share (the "Maximum Price") with respect to the Stated Value of each share of Series B Convertible Preferred Stock and on the basis of the post-reverse split shares of Common Stock. Such option may be exercised by any holder on an all or none basis on or after July 1, 2010. The Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 10 consecutive trading days commencing 12 trading days before the day in question.
Common Stock
The Company has authorized 99,000,000 shares of common stock $.00015 par value per share (the “Common Stock”). As of December 31, 2010, the Company has 1,291,939 shares of Common Stock issued and outstanding. The Company’s shares of Common Stock are traded on the Over the Counter Pink Sheets (“PK”) electronic quotation system, the trading symbol is DAMH.
On May 8, 2009 the Company entered into an agreement with the members of Garden Rise Investments LTD LLC for the termination of a Royalty Agreement dated August 31, 2006 in exchange for an aggregate of 28,371 shares of our common stock. The accompanying financial statements include $7,549 of stock based compensation expense for the year ended December 31, 2009 related to the termination of the royalty agreement.
On May 31, 2009 a noteholder agreed to convert his promissory note to shares of common stock. The Company issued an aggregate of 118,653 shares of common stock in conversion of this note and in satisfaction of an anti-dilution agreement with the noteholder. The accompanying financial statements include $8,340 of interest expense for the year ending December 31, 2009.
On December 20, 2009 the Company issued 174,537 shares of common stock pursuant to anti-dilution agreements plus 400 shares of common stock issued for $100 in cash. The accompanying financial statements include $8,360 of stock based compensation expense in respect of these shares for the year ending December 31, 2009.
On December 20, 2009 the Company issued 863,350 shares of common stock for services. Of this 110,850 shares of common stock were issued pursuant to the terms of the 2008 and 2009 Consultant Stock Compensation Plans in payment of $2,395 of prior year services and $3,880 of current period compensation expense and 752,500 shares were issued to the Company’s President for payment of $45,925 of accrued wages. The accompanying financial statements include $49,804 of stock based compensation expense for the year ending December 31, 2009.
Class A Warrants
At December 31, 2009 the Company had Class A Warrants issued pursuant to its Series A Preferred Stock Private Placement Unit Offering. The terms of these Class A Warrants have been adjusted pursuant to the Anti-Dilution Agreement with the Unit purchasers such that the purchasers may purchase 13,333 shares of the Company’s common stock at an exercise price of $45.00 per share at any time prior to December 31, 2012 the date of expiration of the Class A Warrants and may be called for redemption at a redemption price of $2.00 per warrant at any time after the Company’s shares of common stock have traded above $1.50 for 10 consecutive trading days.
Class B Warrants
The Company has outstanding Class B Warrants for the purchase of 600 shares of common stock at an exercise price of $25.00 per share. The Class B Warrants (a) may be exercised at any time before expiration or redemption, (b) may be called for redemption for a redemption price of $0.01 per warrant and (c) expire on June 30, 2014. The Company may call the Warrants at any time.
Selling Agent Warrants
The Company granted a selling agent rights to purchase 2,497 shares of the Company’s common stock at an exercise price of fifty-four dollars ($54.00) per share at any time prior to the date of expiration of January 31, 2013.
2009 Consultant Stock Compensation Plan
The 2009 Consultant Stock Compensation Plan provides for the issuance of up to 1,000,000 shares of Company’s $0.00015 shares of Common Stock at a price to be no less than the fair value of the Company’s shares of common stock on the date of grant. On December 22, 2009 the Company filed SEC Form S-8 in registration of shares to be issued pursuant to this plan. As of the date of this report he Company has issued pursuant to the Plan 60,000 shares of common stock and granted options for the purchase of 200,000 shares of common stock at an exercise price of $1.00 per share.
Shares Available For Future Issuance
The Company has 296,727 shares of common stock reserved for future issuance upon conversion of convertible debt, conversion of shares of convertible preferred stock, exercise of warrants and options and for future issuance under the Company’s 2009 Consultants Stock Compensation Plan summarized as of December 31, 2010 is presented below:
|
Conversion Rate
|
Number of
|
|||||||||||
|
Amount
|
Per Share
|
Shares
|
||||||||||
|
Shares of common stock authorized
|
99,000,000 | |||||||||||
|
Shares of common stock outstanding
|
1,291,939 | |||||||||||
|
Shares of common stock reserved for:
|
||||||||||||
|
Secured convertible promissory note
|
$ | 6,065 | $ | 0.12 | 50,541 | |||||||
|
Unsecured convertible promissory notes
|
56,949 | 40.00 | 1,423 | |||||||||
|
Series A convertible preferred stock
|
300,000 | 22.50 | 13,333 | |||||||||
|
Series B convertible preferred stock
|
15,000 | 1.00 | 15,000 | |||||||||
|
Class A warrants
|
45.00 | 13,333 | ||||||||||
|
Class B warrants
|
25.00 | 600 | ||||||||||
|
2009 Consultants Stock Compensation Plan
|
||||||||||||
|
Vested options outstanding
|
1.00 | 200,000 | ||||||||||
|
Reserved for future grant
|
740,000 | |||||||||||
|
Selling agent warrants
|
54.00 | 2,497 | ||||||||||
|
Shares of common stock available for future issuance
|
96,671,334 | |||||||||||
Summary of Common Stock Warrants and Options Outstanding
A summary of the status of warrants and options granted at December 31, and changes during the periods then ended is presented below:
|
2010
|
2009
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Number
|
Average
|
Number
|
Average
|
|||||||||||||
|
of
|
Exercise
|
of
|
Exercise
|
|||||||||||||
|
Options
|
Price
|
Options
|
Price
|
|||||||||||||
|
Outstanding - beginning of year
|
216,430 | $ | 4.39 | 15,830 | $ | 46.40 | ||||||||||
|
Granted
|
- | - | 200,600 | 1.07 | ||||||||||||
|
Vested
|
- | - | - | - | ||||||||||||
|
Forfeited
|
- | - | - | - | ||||||||||||
|
Expired
|
- | - | - | - | ||||||||||||
|
Outstanding - end of year
|
216,430 | $ | 4.39 | 216,430 | $ | 4.39 | ||||||||||
|
Exercisable at December 31, 2010
|
216,430 | $ | 4.39 | 216,430 | $ | 4.39 | ||||||||||
A summary of the status of the warrants and options outstanding at December 31, 2010 is presented below:
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||||
|
Weighted
|
|||||||||||||||||||||||
|
Average
|
Weighted
|
Weighted
|
|||||||||||||||||||||
|
Remaining
|
Average
|
Average
|
|||||||||||||||||||||
|
Exercise
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
||||||||||||||||||
|
Prices
|
Outstanding
|
Life
|
Price
|
Exercisable
|
Price
|
||||||||||||||||||
| $ | 45.00 | 13,333 | 2.00 | $ | 45.00 | 13,333 | $ | 45.00 | |||||||||||||||
| $ | 25.00 | 600 | 3.08 | $ | 25.00 | 600 | $ | 25.00 | |||||||||||||||
| $ | 54.00 | 2,497 | 2.08 | $ | 54.00 | 2,497 | $ | 54.00 | |||||||||||||||
| $ | 1.00 | 200,000 | 9.00 | $ | 1.00 | 200,000 | $ | 1.00 | |||||||||||||||
NOTE 8 – INCOME TAXES
The Company has available at December 31, 2010 an unused operating loss carryforward of approximately $2,866,000 which may be applied against future taxable income and which expires in the years 2027 and 2029. The amount of and ultimate realization of the benefits from the operating loss carryforward for income tax purposes is dependent, in part, upon the tax laws then in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the net deferred tax asset associated with the Company’s net operating loss carryforward and allowances for uncollectible accounts, the Company has established a
valuation allowance equal to their tax effect and, therefore, no deferred tax asset has been recognized.
|
2010
|
2009
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss and credit carryforwards
|
$ | 1,089,080 | $ | 930,451 | ||||
|
Less valuation allowance
|
1,089,080 | 930,451 | ||||||
|
Total deferred tax assets
|
$ | - | $ | - | ||||
NOTE 9 - ABANDONMENT OF SUBSIDIARY
During the fiscal quarter of the current fiscal year the Company ceased support for and abandoned Pukka USA, Inc. and its subsidiary companies (the Pukka Group). The Pukka Group has been inactive since 2008. The abandonment and other adjustments resulted in no net gain or loss.
NOTE 10 – MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
The Company has evaluated subsequent events through the time September 19, 2011 which is the date the consolidated financial statements were issued. No events have occurred through September 19, 2011, that requires disclosure or recognition in these financial statements.
F - 20