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EXCEL - IDEA: XBRL DOCUMENT - Monarch Investment Properties, Inc. | Financial_Report.xls |
EX-32 - EXHIBIT 32 - Monarch Investment Properties, Inc. | ex_32.htm |
EX-31.2 - EXHIBIT 31.2 - Monarch Investment Properties, Inc. | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - Monarch Investment Properties, Inc. | ex31_1.htm |
SECURITIES AND EXCHANGE COMMISSION
WACHINGTON, DC 20549
FORM 10-Q
S | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | September 30, 2012 |
£ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | to | |||
Commission file number: | 000-52754 | |||
MONARCH INVESTMENT PROPERTIES, INC. |
(Exact name of registrant as specified in its charter) |
Nevada | 84-1251553 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1801 North Military Trail, Suite 204, Boca Raton, FL | 33431 | |
(Address of principal executive offices) | (Zip Code) |
(561) 391-6117 |
(Registrant's telephone number, including area code) |
N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company See the definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the exchange act.
Large accelerated filer | £ | Accelerated filer | £ |
Non-accelerated filer | £ | Small reporting company | S |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No £
The number of shares outstanding of the registrant’s common stock as of November ___, 2012 was 16,168,733.
TABLE OF CONTENTS | ||||
Page | ||||
PART I. | FINANCIAL INFORMATION | |||
Item 1. | Financial Statements. | |||
Balance Sheets as of September 30, 2012 (Unaudited) and June 30, 2012. | 4 | |||
Statements of Operations for the Three Months Ended September 30, 2012 and 2011 (Unaudited). | 5 | |||
Statements of Changes in Stockholders’ Deficiency for the Three Months Ended September 30, 2012 (Unaudited). | 6 | |||
Statements of Cash Flows for the Three Months Ended September 30, 2012 and 2011 (Unaudited). | 7 | |||
Notes to the Unaudited Financial Statements as of September 30, 2012 and 2011. | 8 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 12 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 15 | ||
Item 4. | Controls and Procedures. | 15 | ||
PART II. | OTHER INFORMATION | |||
Item 1. | Legal Proceedings. | 16 | ||
Item 1A. | Risk Factors. | 16 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 17 | ||
Item 3. | Defaults Upon Senior Securities. | 17 | ||
Item 4. | Mine Safety Disclosures | 17 | ||
Item 5. | Other Information. | 17 | ||
Item 6. | Exhibits Index. | 17 | ||
SIGNATURES | 18 | |||
Exhibit 31.1 | Section 302 Certification of Principal Executive Officer. | 19 | ||
Exhibit 31.2 | Section 302 Certification of Principal Financial Officer. | 20 | ||
Exhibit 32 | Section 906 Certification of Officers. | 21 |
2 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include our status as a shell company as well as other risks including, but are not limited to:
• | our lack of an operating business and dependence on a related party to pay our operating expenses, | |
• | our inability to close a reverse merger or other business combination with an operating entity, | |
• | our need for additional capital, | |
• | our auditors have expressed doubt about our ability to continue as a going concern, | |
• | conflicts of interest which may impact our officers and directors, | |
• | potential dilution to our stockholders, | |
• | control by our management, | |
• | risks associated with dependence on a single business unit, and | |
• | the lack of liquidity of an investment in our common stock. |
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, as well as the risks described in Item 1A. - Risk Factors appearing in our Annual Report on Form 10-K for the year ended June 30, 2012. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “Monarch,” “Company,” “we,” “us,” “ours,” and similar terms refers to Monarch Investment Properties, Inc., a Nevada corporation.
3 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONARCH INVESTMENT PROPERTIES, INC.
BALANCE SHEETS
September 30, 2012 (Unaudited) | June 30, 2012 (1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 650 | $ | 428 | ||||
Total Current Assets | 650 | 428 | ||||||
TOTAL ASSETS | $ | 650 | $ | 428 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
CURRENT LIABILITIES | ||||||||
Accrued expenses and other current liabilities | $ | 19,090 | $ | 21,572 | ||||
Convertible judgment debt payable, affiliated party | 257,960 | 254,297 | ||||||
Affiliated party debt | 473,740 | 448,903 | ||||||
Total Current Liabilities | 750,790 | 724,772 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ DEFICIENCY | ||||||||
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $.001 par value, 100,000,000 shares authorized, 16,168,733 shares issued and outstanding, respectively | 16,169 | 16,169 | ||||||
Additional paid-in capital | 2,833,241 | 2,833,241 | ||||||
Accumulated deficit | (3,599,550 | ) | (3,573,754 | ) | ||||
Total Stockholders’ Deficiency | (750,140 | ) | (724,344 | ) | ||||
TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIENCY | $ | 650 | $ | 428 |
(1) Derived from audited financial statements
See accompanying notes to the unaudited financial statements
4 |
MONARCH INVESTMENT PROPERTIES, INC. | ||||||||
STATEMENTS OF OPERATIONS | ||||||||
(Unaudited) | ||||||||
Three Months Ended | ||||||||
September 30, | ||||||||
2012 | 2011 | |||||||
Revenue | $ | — | $ | — | ||||
General and administrative expenses | 8,547 | 7,081 | ||||||
Loss from operations | (8,547 | ) | (7,081 | ) | ||||
Other (expenses) income: | ||||||||
Interest expense, affiliated parties | (17,249 | ) | (15,063 | ) | ||||
Net loss | $ | (25,796 | ) | $ | (22,144 | ) | ||
Net loss per common share: | ||||||||
Basic and fully diluted | $ | (0.002 | ) | $ | (0.001 | ) | ||
Weighted average number of common shares outstanding | ||||||||
Basic | 16,168,733 | 16,168,733 | ||||||
Fully diluted | 16,168,733 | 16,168,733 |
See accompanying notes to the unaudited financial statements
5 |
MONARCH INVESTMENT PROPERTIES, INC. | ||||||||||||||||||||||||
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY | ||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Common Stock | Additional | Stockholders’ | ||||||||||||||||||||||
Preferred | Par Value | Paid-In | Accumulated | Deficiency | ||||||||||||||||||||
Shares | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||
Balance at June 30, 2012 | 16,168,733 | $ | 16,169 | $ | 2,833,241 | $ | (3,573,754 | ) | $ | (724,344 | ) | |||||||||||||
Net Loss | (25,796 | ) | (25,796 | ) | ||||||||||||||||||||
Balance at September 30, 2012 | — | 16,168,733 | $ | 16,169 | $ | 2,833,241 | $ | (3,599,550 | ) | $ | (750,140 | ) |
See accompanying notes to the unaudited financial statements
6 |
MONARCH INVESTMENT PROPERTIES, INC. | ||||||||
STATEMENT OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
Three Months Ended | ||||||||
September 30, | ||||||||
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Loss | $ | (25,796 | ) | $ | (22,144 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Changes in operating assets and liabilities: | ||||||||
Increase (decrease) in accrued expenses and other current liabilities | (2,482 | ) | 4,502 | |||||
Increase in affiliated party debt | 15,337 | 401 | ||||||
Increase in convertible judgment debt payable | 3,663 | 3,662 | ||||||
Total adjustments | 16,518 | 8,565 | ||||||
Net cash used in operating activities | (9,278 | ) | (13,579 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | — | — | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Increase in affiliated party debt | 9,500 | 12,500 | ||||||
Net cash provided by financing activities | 9,500 | 12,500 | ||||||
NET (DECREASE) IN CASH | 222 | (1,079 | ) | |||||
CASH - BEGINNING OF PERIOD | 428 | 1,223 | ||||||
CASH - END OF PERIOD | $ | 650 | $ | 144 | ||||
SUPPLEMENTAL CASH FLOW DATA: | ||||||||
Cash paid for interest | $ | — | $ | — | ||||
Cash paid for income taxes | $ | — | $ | — |
See accompanying notes to the unaudited financial statements
7 |
Monarch Investment Properties, Inc.
Notes to Unaudited Financial Statements
September 30, 2012 and 2011
Note 1 -Financial Statements
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flow at September 30, 2012 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the audited financial statement for the years ended June 30, 2012 and 2011 included in the Annual Report filed with the Securities and Exchange Commission on Form 10-K.
The results of operations for the period ended September 30, 2012 are not necessarily indicative of the operating results for the full year.
Note 2 - Significant Accounting Policies
The significant accounting policies are summarized as follows:
Use of Estimates
Management of Monarch has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value estimates and assumptions and methods used to estimate the fair value of the Company’s assets and liabilities are made in accordance with the requirements of the Financial Accounting Standards Board (the “FASB”), Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”).
ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 are observable inputs such as quoted prices in active markets; Level 2 are inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3 are unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
As of September 30, 2012 the Company has no assets or liabilities which it measures and carries on its balance sheet at fair value on a recurring basis. Management has estimated the fair values of cash, accounts payable, and accrued expenses to be approximately their respective carrying values reported on these statements because of their short maturities.
Statements of Cash Flows
For the purposes of the statements of cash flows we consider all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.
Reclassifications
Certain Reclassifications have been made to the prior periods to conform to the current period presentation.
8 |
New Accounting Pronouncements
Management does not anticipate that the adoption of recently issued accounting pronouncements will have a material impact on the company’s results of operations, financial position, or cash flow.
Note 3 - Going Concern
As reflected in the accompanying financial statements, the Company incurred a net loss of $25,796, negative cash flow from operations of $9,278 for the three months ended September 30, 2012, has an accumulated deficit of $3,599,550 and a stockholders’ deficiency of $750,140 at September 30, 2012. The ability of the Company to continue as a going concern is dependent upon its ability to obtain financing and achieve profitable operations. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. These matters raise substantial doubt about the company’s ability to continue as a going concern.
Note 4 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of:
September 30, 2012 | June 30, 2012 | |||||||
Legal fees | $ | 6,100 | $ | 6,102 | ||||
Accounting and Auditing | 3,000 | 5,480 | ||||||
Miscellaneous, other | 9,990 | 9,990 | ||||||
Total Accrued expenses and other current liabilities | $ | 19,090 | $ | 21,572 |
Note 5 - Convertible Judgment Debt Payable, Affiliated Party
Listed below is a summary of the transactions related to the JJFN Judgment obtained by JJFN Holdings, Inc. against us in November 2004. Unpaid portions of the JJFN Judgment bear simple interest at the statutory interest rate of 9% per annum:
Original judgment | $ | 1,100,000 | ||
Interest 1999 through June 2005 | 643,500 | |||
Partial payment made November 2004 | (155,000 | ) | ||
Balance, June 30, 2005 | 1,588,500 | |||
Interest June 2005 through June 2006 | 77,902 | |||
Amount exchanged for Common Stock | (1,500,000 | ) | ||
Balance, June 30, 2006 | 166,402 | |||
Interest July 2006 through June 2007 | 14,657 | |||
Balance, June 30, 2007 | 181,059 | |||
Interest July 2007 through June 2008 | 14,648 | |||
Balance, June 30, 2008 | 195,707 | |||
Interest July 2008 through June 2009 | 14,647 | |||
Balance, June 2009 | 210,354 | |||
Interest July 2009 through June 2010 | 14,648 | |||
Balance, June 2010 | 225,002 | |||
Interest July 2010 through June 2011 | 14,647 | |||
Balance, June 2011 | 239,649 | |||
Interest July 2011 through June 2012 | 14,648 | |||
Balance, June 30, 2012 | 254,297 | |||
Interest July 2012 through September 2012 | 3,663 | |||
Balance, September 30, 2012 | $ | 257,960 |
At September 30, 2012, the judgment payable with accrued interest is $257,960. The remaining $257,960 of convertible debt and interest is convertible at $0.10 per share.
9 |
Note 6 - Affiliated Party Debt
An affiliated or related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
To date, our operations have been funded by Strategic Capital Resources, Inc. (“Strategic”), which is an entity controlled by one of our executive officers, who is also our majority shareholder. Listed below is a summary of the debt we owe to Strategic.
Three Months Ended September 30, 2012 | Year Ended June 30, 2012 | |||||||
Due to major shareholder/creditor, beginning of year | $ | 448,903 | $ | 375,305 | ||||
Additional borrowings | 24,837 | 73,598 | ||||||
End of period | $ | 473,740 | $ | 448,903 |
Additional borrowing for the three months ended September 30, 2012 comprised of $9,750 of cash advances, interest on Debt of $13,587, and Management Fees of $1,500 for the use of office space, as well as for administrative and management services provided by Strategic.
The loan amount due is payable on demand and bears interest at 12% per annum. Interest is due and added to the payable amount on the first day of each month. Interest was expensed for the three months ended September 30, 2012 in the amount of $13,587. Management believes that the terms of the loan were made on equal or better terms than were available elsewhere.
Note 7 - Income Taxes
FASB ASC 740 - Income Taxes, provides for the recognition and measurement of deferred income tax benefits based on the likelihood of their realization in future years. A valuation allowance must be established to reduce deferred income tax benefits if it is more likely than not that, a portion of the deferred income tax benefits will not be realized. Therefore, a valuation allowance equal to the potential deferred tax benefit has been established in full, resulting in no deferred tax benefit as of the balance sheet dates.
Note 8 - Stockholders’ Deficiency
Preferred Stock and Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, $ .001 par value, and 25,000,000 shares of preferred stock, $ .01 par value.
Preferred Stock
The preferred stock may be issued in one or more series, with the rights of each series, including voting rights, to be determined by the Board of Directors prior to each issuance to the full extent permitted by Nevada law. No shares of preferred stock have been issued.
Common Stock
The common stock may be issued at any time, without stockholder approval and the Board of Directors is able to determine all of the terms of those shares, including but not limited to the following:
(i) | the voting rights, if any, except that the issuance of preferred stock or series common stock which entitles holders thereof to more than one vote per share requires the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors; | |
(ii) | the dividend rate and preferences, if any, which that preferred stock or common stock will have compared to any other class; and | |
(iii) | the redemption and liquidation rights and preferences, if any, which that preferred stock or common stock will have compared to any other class. |
10 |
The holders of common stock are entitled to one vote per share on matters on which they are entitled to vote. At September 30, 2012 there were 16,168,733 shares of common stock outstanding.
Common Stock Purchase Warrant
There were 1,100,000 common stock warrants available for issuance as of September 30, 2012. A summary of the status of the warrants as of September 30, 2012 and June 30, 2012 and the changes are presented below:
September 30, 2012 | June 30, 2012 | |||||||||||||||
Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price | |||||||||||||
Outstanding at beginning of period | 1,100,000 | $ | 0.001 | 1,100,000 | $ | 0.001 | ||||||||||
Warrants granted | — | — | — | — | ||||||||||||
Outstanding at end of period | 1,100,000 | $ | 0.001 | 1,100,000 | $ | 0.001 |
The following additional information relates to warrants outstanding as of September 30, 2012:
Exercise Price | Number of Warrants Outstanding and Exercisable | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | |||
$ 0.001 | 1,100,000 | $ 0.001 | .5 |
Note 9 - Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed assuming the exercise or conversion of common stock equivalent shares, if dilutive, consisting of unissued shares under options and warrants. Since the 1,100,000 shares under outstanding warrants and the potential conversion of the $257,960 convertible debt into 2,579,600 shares are both anti-dilutive due to the Company’s net loss, no diluted per share amounts are presented.
Note 10 - Litigation, Claims, and Assessments
From time to time in the normal course of business the Company will be involved in litigation. The Company’s management has determined any asserted or unasserted claims to be immaterial to the financial statements.
Note 11 - Subsequent Events
The Company has evaluated Subsequent Events for disclosure purposes. No material events have occurred.
*** This Space Intentionally Left Blank ***
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents a review of the operating results of the Company for the three months ended September 30, 2012 and 2011, respectively, and the financial condition of the Company at September 30, 2012. The discussion and analysis should be read in conjunction with the financial statements and accompanying notes included herein, as well as the Company’s audited financial statements for the years ended June 30, 2012 and 2011 contained in our Annual Report on Form 10-K for the year ended June 30, 2012 as previously filed with the Securities Exchange Commission.
Overview
We have virtually no operating history and due to the uncertain nature of the markets we address or intend to address, it is difficult to predict our future results of operations.
Our Business Strategy
Our current business plan is to serve as a vehicle for the acquisition of or merger or consolidation with a target business. We intend to effect a business combination with a target business which we believe has significant growth potential. The business combination may be with a financially stable, mature company or a company that is in its early stages of development or growth.
Going Concern
We are a shell company. We do not have any revenue generating operations and have an accumulated deficit of approximately $3.6 million at September 30, 2012. At September 30, 2012 we had minimal cash, no other assets and our total liabilities were approximately $750,000. The report of our independent registered public accounting firm on our financial statements for the year ended June 30, 2012 contains an explanatory paragraph regarding our ability to continue as a going concern based upon the Company has incurred operating losses and will have to obtain additional capital to sustain operations. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to consummate a business combination with an operating company. There are no assurances that we will continue as a going concern.
Financial Condition and Changes
Cash
We have minimal cash and are dependent in the short term on affiliated parties to continue to infuse capital to meet our obligations. There is no assurance that this funding will continue.
Accrued Expenses and Other Current Liabilities
Accrued expenses at September 30, 2012 and June 30, 2012 consisted primarily of professional fees. Listed below is a summary of the transactions related to accrued expenses and other current liabilities:
September 30, 2012 | June 30, 2012 | (Decrease) | ||||||||||
Legal fees | $ | 6,100 | $ | 6,102 | $ | (2 | ) | |||||
Accounting fees | 3,000 | 5,480 | (2,480 | ) | ||||||||
Miscellaneous, other | 9,990 | 9,990 | — | |||||||||
Total Accrued Expenses and Other Current Liabilities | $ | 19,090 | $ | 21,572 | $ | (2,482 | ) |
Accrued legal fees are primarily the result of costs incurred in early 2008 related to our filing of the registration statement on Form 14C with the Securities and Exchange Commission and our failed merger. These legal fees are being disputed.
*** This Space Intentionally Left Blank ***
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Convertible Judgment Debt Payable, Affiliated Party
Listed below is a summary of the transactions related to the JJFN Judgment obtained by JJFN Holdings against us in November 2004. Unpaid portions of the JJFN Judgment bear simple interest at the rate of 9% per annum:
Original judgment | $ | 1,100,000 | ||
Interest 1999 through June 2005 | 643,500 | |||
Partial payment made November 2004 | (155,000 | ) | ||
Balance, June 30, 2005 | 1,588,500 | |||
Interest June 2005 through June 2006 | 77,902 | |||
Amount exchanged for Common Stock | (1,500,000 | ) | ||
Balance, June 30, 2006 | 166,402 | |||
Interest July 2006 through June 2007 | 14,657 | |||
Balance, June 30, 2007 | 181,059 | |||
Interest July 2007 through June 2008 | 14,648 | |||
Balance, June 30, 2008 | 195,707 | |||
Interest July 2008 through June 2009 | 14,647 | |||
Balance, June 2009 | 210,354 | |||
Interest July 2009 through June 2010 | 14,648 | |||
Balance, June 2010 | 225,002 | |||
Interest July 2010 through June 2011 | 14,647 | |||
Balance, June 2011 | 239,649 | |||
Interest July 2011 through June 2012 | 14,648 | |||
Balance, June 2012 | 254,297 | |||
Interest July 2012 through September 2012 | 3,663 | |||
Balance, September 30, 2012 | $ | 257,960 |
Affiliated Party Debt
To date, our operations have been funded by Strategic which is controlled by one of our executive officers and our majority shareholder. Listed below is a summary of the transactions related to the debt we owe to Strategic:
Balance, June 30, 2012 | $ | 448,903 | ||
Interest | 13,587 | |||
Management Fee | 1,500 | |||
Advances | 9,750 | |||
Balance, September 30, 2012 | $ | 473,740 |
The loan amount is payable on demand and bears interest at 12% per annum. Interest is due and added to the payable amount on the first day of each month. Management believes the terms on the loan were made on equal or better than terms available elsewhere..
$500 per month is charged by Strategic to our company for the ongoing maintenance of its files and records, preparation of work papers for the quarterly reviews, as well as the preparation of work papers for the year end audit for the outside auditors. This monthly payment also includes the preparation of quarterly reports of Form 10-Q, as well as the Annual Report on Form 10-K.
*** This Space Intentionally Left Blank ***
13 |
Results of Operations
We have generated no revenues since our fiscal year ended 1998 and will not generate revenues until, at the earliest, the completion of a business combination. There can be no assurance that we will be able to consummate a business combination on terms acceptable to us and our stockholders or at all.
Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011
General and Administrative Expenses were $8,547 for the three months ended September 30, 2012, as compared to $7,081 for the three months ended September 30, 2011, an increase of $1,466.
2012 | 2011 | |||||||
Accounting Fees | $ | 5,020 | $ | 4,500 | ||||
Consulting | 650 | — | ||||||
Management Fees | 1,500 | 1,500 | ||||||
Edgarization | 800 | — | ||||||
Stock Transfer Fees | 350 | 315 | ||||||
Miscellaneous Fees | 227 | 766 | ||||||
TOTAL | $ | 8,547 | $ | 7,081 |
In 2012 we accrued $2,000 for accounting fees related to quarterly filing of Form 10-Q and $2,500 for the annual audit as well as year-end tax returns. The Company records a management fee of $500 per month for the use of office space and for administrative and management services provided by Strategic, a related party. The Miscellaneous Fees are primarily the result of edgarization costs associated with the public filings.
Interest Expense was $17,249 for the three months ended September 30, 2012, compared to $15,063 for the three months ended September 30, 2011, an increase of $2,186. The increase was the result of higher affiliated party debt at September 30, 2012 compared to 2011, resulting in higher interest expense for the three months ended September 30, 2012.
As a result of the foregoing, we incurred a net loss of $25,796 and $22,144 for the three months ended 2012 and 2011, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of funds to meet its obligations. At September 30, 2012, our cash balance was $650 and we had a working capital deficit of $750,140.
Accrued expenses, which consist primarily of professional and accounting fees, decreased $2,482 for the 3 months ended September 30, 2012.
Convertible judgment debt payable, affiliated party represents amounts due under the JJFN Judgment which is convertible at the option of the holder into shares of our common stock based upon a conversion price of $0.10 per share. The increase from June 30, 2012 to September 30, 2012 represents post-judgment interest.
Affiliated party debt increased $24,837 at September 30, 2012 as compared to June 30, 2012. This increase represents the accrual of the $500 monthly management fee for fiscal 2011, cash advances of $9,750, and interest of $13,587 on the amounts due Strategic. We used these additional advances for general working capital.
For the three months ended September 30, 2012, we had negative cash flows from operating activities of $9,278 compared to negative cash flows of $13,579 for the three months ended September 30, 2011. We have been dependent upon proceeds of loans from Strategic to fund continuing activities. For the three months ended September 30, 2012, our loans from Strategic increased by $24,837.
To date, the Company’s operations have been funded by Strategic which is controlled by the Company’s President. This funding included paying professional fees, interest on the affiliated debt as well as accruing $500 per month for management fees.
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We currently do not have sufficient cash to meet any of our current or anticipated obligations for the next 12 months. We do not have any internal or external sources of capital and are dependent upon advances from Strategic for funds necessary to pay our operating expenses. Our ability to continue as a going concern depends on our Strategic’s continued funding of our operating expenses and our ability to seek out potential merger and acquisition partners. If we are not able to access capital as necessary it is possible we will be unable to close an acquisition which will provide operating revenues to our company. In that event, the likelihood that we can continue as a going concern is doubtful and investors could lose their entire investment in our company.
Critical Accounting Policies
The significant accounting policies are summarized as follows:
Use of Estimates
Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts payable and accrued expenses, convertible judgment debt payable and stockholder payable approximate their fair market value based on the short-term maturity of these instruments. FASB ASC 820 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments are based on pertinent information available to management as of September 30, 2013. Accordingly, the estimates presented in these statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.
Management has estimated the fair values of cash, accounts payable and accrued expenses to be approximately their respective carrying values reported on these statements because of their short maturities.
Our accounting policies and recent accounting pronouncements are described in Note 4 to our audited financial statements for the fiscal years ended June 30, 2012 and 2011 on Form 10-K filed with the SEC.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have exposure to many market risks, such as potential loss arising from adverse change in market rates and prices, such as foreign currency exchange and interest rates. We do not hold any derivatives or other financial instruments for trading or speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Chief Executive Officer and our principal financial and accounting officer are responsible for establishing and maintaining disclosure controls and procedures for us. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our principal financial and accounting officer, to allow timely decisions regarding required disclosure.
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Our management does not expect that our disclosure controls or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of September 30, 2011, the end of the period covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. As of the evaluation date, our Chief Executive Officer and principal financial and accounting officer concluded that we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework . Our management has concluded that, as of September 30, 2012 our internal control over financial reporting is effective based on this criteria.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with our evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS
You should carefully consider all the risks described as previously discussed on our June 30, 2012 Form 10-K, which constitute the material risks facing us. If any of those risks actually occur, our business could be harmed. In connection with our preparation of this quarterly report, management has reviewed and considered these risk factors and has determined that the following risk factors should be read in connection with the existing risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012. Please also refer to the other information about us contained in this Form 10-Q, including our financial statements and related notes.
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Deterioration of economic conditions could negatively impact our Company.
Our Company may be adversely affected by changes in domestic and/or international economic conditions, including changes in inflation, or deflation, interest or exchange rates, availability of capital markets and the effects of governmental initiatives to manage economic conditions.
Deterioration of national and global economic conditions could, among other things:
• | Impair our ability to access additional funds, | |
• | Make it more difficult or costly for us to obtain financing in order to execute our business plan, | |
• | Impair our efforts to identify potential investors and business combination opportunities, | |
• | Significantly affect our ability to issue shares or debt securities to complete a business combination. |
We are unsure of the duration and severity of this economic crisis. If the crisis persists or worsens and economic conditions remain weak over a long period, the likelihood of the crisis will have a significant impact on our Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. MINE SAFETY DISCLOSURES.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS.
31.1 | - | Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
31.2 | - | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
32 | - | Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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SIGNATURES | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | |||
MONARCH INVESTMENT PROPERTIES, INC. | |||
(Registrant) | |||
Date: | November 15, 2012 | ||
By: | /s/ | Philip Bloom | |
Philip Bloom | |||
Treasure and Chief Financial Officer | |||
(Principal Financial and Accounting Officer) | |||
Date: | November 15, 2012 | ||
By: | /s/ | David Miller | |
David Miller | |||
President and Director | |||
(Principal Executive Officer) |
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