UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

 

FORM 10-Q

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ____________

 

Commission file number: 000-52769

 

VINYL PRODUCTS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada (State or Other Jurisdiction of Incorporation or Organization)		26-0295367 (I.R.S. Employer Identification No.)
5000 Birch Street, Suite 4800 Newport Beach, CA (Address of Principal Executive Offices)		92660 (Zip Code)

 

(949) 373-7281
(Registrant’s Telephone Number, Including Area Code)

 

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.

Yes  x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files).

Yes  ¨ 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨ No x

 

As of September 4, 2013, 22,564,000 shares of the registrant’s common stock were outstanding.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

VINYL PRODUCTS, INC.

Table of Contents

 

		Page
PART I.  FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at June 30, 2013 and December 31, 2012	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012	4
	Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2012 and for the Six Months Ended June 30, 2013	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II.  OTHER INFORMATION		23
Item 1.	Legal Proceedings	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23

 

 

Part I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

VINYL PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

 

		June 30				December 31,
		2013				2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	149,337			$	7,963
Prepaid expenses			1,187				489
TOTAL CURRENT ASSETS			150,524				8,452
Property, plant and equipment, net of accumulated depreciation			11,223				13,551
TOTAL ASSETS		$	161,747			$	22,003
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	94,837			$	68,189
Due to related parties			34,633				58,137
Accrued interest, related parties			37,120				28,986
Accrued expenses and other current liabilities			750				1,500
Note payable, related party			62,500				62,500
TOTAL CURRENT LIABILITIES			229,840				219,312
LONG TERM LIABILITIES
Convertible Notes Payable			215,000
TOTAL LONG TERM LIABILITIES			215,000
TOTAL LIABILITIES			444,840				219,312
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.0001 par value; 10,000,000 shares authorized;
no shares issued and outstanding at
June 30, 2013 and December 31, 2012			0				0
Common stock, $0.0001 par value; 100,000,000 shares authorized;
22,564,000 shares issued and outstanding at
June 30, 2013 and December 31, 2012			2,256				2,256
Additional paid-in capital			(3,702	)			(3,702	)
Accumulated deficit			(281,647	)			(195,863	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)			(283,093	)			(197,309	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	161,747			$	22,003

 

See notes to financial statements

 

 

VINYL PRODUCTS, INC.

STATEMENTS OF OPERATIONS

 

		Three Months Ending								Six Months Ending
		June 30								June 30
		2013				2012				2013				2012
Revenue		$	4,997			$	6,603			$	15,202			$	21,534
Cost of revenue			3,702				3,909				8,664				6,756
Gross profit		$	1,295			$	2,694			$	6,538			$	14,778
Operating expenses
Marketing expenses			245				1,050				4,809				7,128
General and administrative expenses			64,591				13,189				79,380				25,198
Total operating expenses		$	64,836			$	14,239			$	84,189			$	32,326
Net operating loss		$	(63,541	)		$	(11,545	)		$	(77,651	)		$	(17,548	)
Interest expense			5,286				4,146				8,133				8,082
Net loss		$	(68,827	)		$	(15,691	)		$	(85,784	)		$	(25,630	)
Basic and dilutive net loss		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average number of common shares outstanding:
Basic			22,564,000				22,564,000				22,564,000				22,564,000
Diluted			22,564,000				22,564,000				22,564,000				22,564,000

 

See notes to financial statements

 

 

VINYL PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

 

										Additional								Total
		Common Stock								Paid-In				Accumulated				Stockholders'
		Shares				Amount				Capital				Deficit				Equity (Deficit)
Balance, December 31, 2010			20,064,000			$	2,006			$	(33,921	)		$	(17,822	)		$	(49,737	)
Issuance of common stock for services			2,500,000				250				30,219				0				30,469
Net loss for the year ended December 31, 2011			0				0				0				(117,849	)			(117,849	)
Balance, December 31, 2011			22,564,000			$	2,256			$	(3,702	)		$	(135,671	)		$	(137,117	)
Net loss for the year ended December 31, 2012			0				0				0				(60,192	)			(60,192	)
Balance, December 31, 2012			22,564,000			$	2,256			$	(3,702	)		$	(195,863	)		$	(197,309	)
Net loss for the six months ended June 30, 2013			0				0				0				(85,784	)			(85,784	)
Balance, June 30, 2013			22,564,000			$	2,256			$	(3,702	)		$	(281,647	)		$	(283,093	)

 

See notes to financial statements

 

 

VINYL PRODUCTS, INC.

STATEMENTS OF CASH FLOWS

 

		Six Months Ending
		June 30
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(85,784	)		$	(25,630	)
Adjustments to reconcile net income (loss) from operating activities to net cash provided by (used in) operating activities:
Depreciation and amortization			2,328				2,328
Changes in:
Prepaid expenses and other current assets			(698	)			(1,574	)
Accounts payable			26,648				31,687
Accrued interest, related party			8,134				8,082
Accrued expenses and other current liabilities			(750	)			(23,486	)
Net cash (used in) operating activities			(50,122	)			(8,593	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment			0				0
Net cash provided by (used in) investing activities			0				0
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related parties			(35,000	)			0
Proceeds from related parties			11,496				9,451
Proceeds from Convertible Notes Payable			215,000				0
Net cash provided by financing activities			191,496				9,451
NET INCREASE (DECREASE) IN CASH			141,374				858
CASH AND CASH EQUIVALENTS, beginning of the period			7,963				12,954
CASH AND CASH EQUIVALENTS, end of period		$	149,337			$	13,812
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$	0			$	0
Income taxes			1,670				0

 

See notes to financial statements

 

 

VINYL PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

 

NOTE 1—BACKGROUND AND ORGANIZATION

 

Organization

 

Vinyl Products, Inc. (“the Company”) was originally incorporated in the State of Delaware on May 24, 2007, under the name Red Oak Concepts, Inc. to serve as a vehicle for a business combination through a merger, capital stock exchange, asset acquisition or other similar business combination.   On December 4, 2007, the Company changed its jurisdiction of domicile by merging with a Nevada corporation titled Red Oak Concepts, Inc.  On November 21, 2008, the Company changed its name to Vinyl Products, Inc. in connection with a reverse acquisition transaction with The Vinyl Fence Company, Inc. (“VFC”), a California corporation.

 

On November 20, 2008, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with VFC.  Pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding capital stock of VFC from the VFC shareholders in exchange for 22,100,000 shares of the Company’s common stock.  Pursuant to the Exchange Agreement, on November 21, 2008, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its corporate name to “Vinyl Products, Inc.” to better reflect its business.

 

Brackin O’Connor Transaction

On December 31, 2010, the Company entered into a definitive agreement to acquire all of the membership interests in Brackin O’Connor, LLC (“Brackin O’Connor”). Brackin O’Connor operates a passenger transportation business. Its initial operations are focused on servicing the tourism industry in Scottsdale, Arizona. The Company agreed to issue 20,000,000 shares of its common stock to the members of Brackin O’Connor in exchange for the membership interests in Brackin O’Connor (the “Equity Exchange”).

 

VFC Disposition

Following completion of the Equity Exchange, the Company entered into a definitive agreement to dispose of all of the capital stock of its subsidiaries, VFC and VFC Franchise Corp. to Gordon Knott, formerly the Company’s President and member of its Board of Directors, and Garabed Khatchoyan, formerly a member of its Board of Directors (the “VFC Disposition”). VFC conducts all of the Company’s vinyl product marketing and installation business.

 

In exchange for the capital stock of VFC and VFC Franchise Corp., Messrs Knott and Khatchoyan agreed to return to the Company 20,000,000 shares of the Company’s common stock and to assume up to $75,000 of liabilities arising from periods prior to December 31, 2010.  In connection with the VFC Disposition, the Company agreed to reimburse certain expenses incurred by VFC through payment of $12,500 in cash and the issuance of a promissory note in the amount of $62,500. The promissory note was paid in full in April 2011. See Note 4 for further discussion.

 

Brackin O’Connor, LLC was formed as an Arizona limited liability company in February, 2005 for the purpose of acquiring and operating a drinking lounge establishment in Scottsdale, Arizona.

 

On September 1, 2009, Brackin O’Connor entered into an agreement for sale of the drinking lounge. In 2010, Brackin O’Connor changed focus and entered the passenger transportation business commonly referred to as a chauffeured vehicle service. In accordance with ASC 915, Brackin O’Connor is considered to have re-entered into the development stage as Brackin O’Connor discontinued operations due to the sale of the drinking lounge.

 

On April 8, 2011, the Company entered into a Promissory note with Doug Brackin for a total of $62,500. The promissory note was not paid by the maturity date of July 31, 2011, and accordingly, the note started to accrue compounding interest at 1.25% per month effective August 1, 2011. Interest expense totaled $2,462 and $4,923 for the three and six months ended June 30, 2013, respectively. The Company made a partial principal payment in the amount of $50,000 in July 2013. See Note 4 for further discussion.

 

 

Business Overview of Brackin O’Connor

 

Since its establishment until September 2009, Brackin O’Connor has been principally engaged in the drinking lounge business. In 2010, Brackin O’Connor changed focus and entered the passenger transportation business commonly referred to as a chauffeured vehicle service. Its initial operations are focused on servicing the tourism industry in Scottsdale, Arizona under the brand name of “Ride The Dougie”. Brackin O’Connor provides chauffeured vehicle service for concert and weddings, airport shuttles, business and association meetings, conventions, road shows, promotional tours, special events, incentive travel and leisure travel and mobile concierge services.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The financial statements include the accounts of its wholly owned subsidiary, Brackin O’Connor. All significant intercompany balances and transactions have been eliminated.

 

Because the acquisition of Brackin O’Connor was treated as a reverse acquisition, the financial statements of the Company have been retroactively adjusted to reflect the acquisition from the beginning of the reported periods. The Equity Exchange transaction has been accounted as a reverse merger and recapitalization of the Company whereby Brackin O’Connor is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer).  The basis of the assets, liabilities and retained earnings of Brackin O’Connor has been carried over in the recapitalization, and earnings per share have been retroactively restated to reflect the reverse merger.

 

Going Concern

 

The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America, and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company incurred a net loss from continuing operations of $68,827 during the six months ended June 30, 2013 and an accumulated deficit of $281,647 since inception. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through sales of common stock and or a debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, asset impairments, and contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows.

 

Cash and Cash Equivalents

 

Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. The Company did not have any cash equivalents at June 30, 2013 or December 31, 2012.

 

 

Property, Plant and Equipment

 

Equipment is recorded at cost and depreciated using straight line methods over the estimated useful lives of the related assets. The Company reviews the carrying value of long-term assets to be held and used when events and circumstances warrant such a review. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. The cost of normal maintenance and repairs is charged to operations as incurred. Major overhaul that extends the useful life of existing assets is capitalized. When equipment is retired or disposed, the costs and related accumulated depreciation are eliminated and the resulting profit or loss is recognized in income.

 

Impairment of Long-Lived Assets

 

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. The Company performed an annual review for impairment and none existed as of December 31, 2012.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with accounting principles generally accepted in the United States of America. The Company’s current revenue stream consists of chauffeured vehicle services. Such revenue is recognized when the services are performed.

 

Revenues are recognized when persuasive evidence of an arrangement exists, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, delivery of the service and or product has occurred, and no other significant obligations on the part of the Company remain.

 

Revenue received from transportation customers consists of payments via credit cards, checks and cash and is deposited into the Company’s bank account when received, either directly or through the Company’s merchant account.

 

 

Stock Based Compensation

 

The Company accounts for stock-based employee compensation arrangements using the fair value method in accordance with the accounting provisions relating to share-based payments (“Codification Topic 718”).  The company accounts for the stock options issued to non-employees in accordance with these provisions. Stock options are valued using a Black-Scholes options pricing model which requires estimates such as expected term, discount rate and stock volatility.

 

Issuance of Shares for Non-Cash Consideration

 

The Company accounts for the issuance of equity instruments to acquire goods and/or services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably determinable. The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of standards issued by the FASB. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

Income Taxes

 

The Company accounts for income taxes under standards issued by the FASB. Under those standards, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be realized through future operations.

 

No provision for federal income taxes has been recorded due to the net operating loss carry forwards totaling approximately $237,000 as of June 30, 2013 that will be offset against future taxable income.  The available net operating loss carry forwards of approximately $237,000 will expire in various years through 2033.  No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused.

 

Fair value of financial instruments

 

The Company’s financial instruments consist of cash, accounts payable, accrued liabilities and long-term debt. The estimated fair value of cash, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. The carrying value of long-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with risks. None of these instruments are held for trading purposes. The Company utilizes various types of financing to fund its business needs, including convertible debt. The Company reviews its conversion features of securities issued as to whether they are freestanding or contain an embedded derivative and, if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified into equity with changes in fair value recognized in current earnings.

 

Recent Accounting Pronouncements

 

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

 

-

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

 

-

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

 

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

 

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

 

In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not impact the Company's results of operations or financial condition.

 

 

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 did not impact the Company's results of operations or financial condition.

 

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 did not impact the Company's results of operations or financial condition.

 

In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 did not impact the Company's results of operations or financial condition.

 

In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU 2011-11 did not impact the Company's results of operations or financial condition.

 

NOTE 3—PROPERTY, PLANT AND EQUIPMENT

 

Components of property, plant and equipment were as follows:

 

		June 30				December 31
		2013				2012
Vehicles		$	23,243			$	23,243
Total property, plant and equipment			23,243				23,243
Less: accumulated depreciation			(12,020	)			(9,692	)
Property, plant and equipment, net		$	11,223			$	13,551

 

Depreciation expense totaled $2,328 and $2,328 for the six months ended June 30, 2013 and 2012, respectively. The Company’s parent Company has issued a promissory note and this promissory note is secured by a vehicle owned by Brackin O’Connor.

 

 

NOTE 4—NOTES PAYABLE

 

On December 31, 2010, in connection with the VFC Disposition, the Company agreed to reimburse certain expenses incurred by VFC through the issuance of a promissory note in the amount of $62,500. The promissory note was paid in full in April 2011.

 

On April 8, 2011, the Company entered into a Promissory note with Doug Brackin for a total of $62,500. The promissory note was not paid by the maturity date of July 31, 2011, and accordingly, the note started to accrue compounding interest at 1.25% per month effective August 1, 2011. Interest expense totaled $4,923 for the six months ended June 30, 2013 and 2012, respectively. The Company made a partial principal payment in the amount of $50,000 in July 2013. No interest was paid by the Company to Doug Brackin during the six months ended June 30, 2013 and 2012, respectively.

 

On June 14, 2013, the Company entered into Note Purchase Agreements with six accredited investors for the purchase and sale by the Company of $215,000 of its 10% Senior Secured Convertible Promissory Notes due December 31, 2014 (“Convertible Notes”). The Convertible Notes, issued on June 14, 2013, constitute the senior indebtedness of the Company. The Company and investors agreed that no indebtedness senior to the Convertible Notes may be created without the consent of holders of a majority in interest of the Convertible Notes. The Convertible Notes and all accrued interest are convertible by the Convertible Note holders into shares of Common Stock at a price equal to $1.00 per share (“Conversion Price”). Shares acquired upon conversion will be eligible for sale pursuant to Rule 144 six months after the date of issue of the Convertible Notes. The Convertible Notes are secured by a lien on all of the Company’s assets. Interest on the Convertible Notes will accrue and be paid at maturity or converted into common stock when each respective Convertible Note is converted. The Convertible Notes shall be subject to mandatory conversion at the applicable Conversion Price upon the completion of a qualified financing, defined as an equity financing of not less than $1.5 million in aggregate gross proceeds from any equity or equity derivative financing. The Company agreed to include the shares of Common Stock underlying the Convertible Notes (unless eligible for resale under Rule 144) in any registration statement filed by the Company other than in connection with compensation plans and certain other types of transactions.

 

As of June 30, 2013, the Company had $215,000 in Convertible Notes outstanding. Interest expense totaled $1,001 and $ 0 for the six months ended June 30, 2013 and 2012, respectively. No interest was paid by the Company to the Convertible note holders during the six months ended June 30, 2013 and 2012, respectively.

 

During the six months ended June 30, 2013, Doug Brackin, the Company’s Chief Executive Officer, did not advance the Company any additional monies. The total outstanding advance balance from Doug Brackin to the Company at June 30, 2013 was $8,818. The advance bears interest at a rate of 1% per month. Interest expense totaled $532 and $1,142 for the six months ended June 30, 2013 and 2012, respectively. No interest was paid by the Company to Doug Brackin during the six months ended June 30, 2013 and 2012, respectively.

 

During the six months ended June 30, 2013, Cardiff Partners, LLC advanced to the Company $9,893 and the Company repaid Cardiff Partners, LLC $35,000. Keith Moore, the Company’s Treasurer, Secretary, and Director, is a managing member and 50% owner of Cardiff Partners. The total outstanding advance balance from Cardiff Partners to the Company at June 30, 2013 was $25,815. The advance bears interest at a rate of 1% per month. Interest expense totaled $3,045 and $2,017 for the six months ended June 30, 2013 and 2012, respectively. No interest was paid by the Company to Cardiff Partners during the six months ended June 30, 2013 and 2012, respectively.

 

  

NOTE 5—SHAREHOLDERS' EQUITY

 

The Company is authorized to issue 100,000,000 shares of $.0001 par value common stock, and had 22,564,000 and 22,564,000 shares outstanding at June 30, 2013 and December 31, 2012, respectively.

 

The Company is authorized to issue 10,000,000 shares of $.0001 par value preferred stock.  The Company has never issued any shares of preferred stock.

 

During the six months ended June 30, 2013 and 2012, there were $0 of contributions from owners and $0 of owners' withdrawals.

 

On December 14, 2010, the Company cancelled 2,800,200 shares of its outstanding stock due to a settlement and release agreement.

 

On December 31, 2010, the Company agreed to issue 20,000,000 shares of its common stock to the members of Brackin O’Connor in exchange for the membership interests in Brackin O’Connor (Equity Exchange).

 

On December 31, 2010, the Company entered into a definitive agreement to dispose of all of the capital stock of its subsidiaries, VFC and VFC Franchise Corp. to Gordon Knott, formerly the Company’s President and member of its Board of Directors, and Garabed Khatchoyan, formerly a member of its Board of Directors. In exchange for the capital stock of VFC and VFC Franchise Corp., Messrs Knott and Khatchoyan agreed to return to the Company 20,000,000 shares of the Company’s common stock

 

On March 1, 2011, the Company entered into three separate consulting agreements. The Company agreed to issue a total of 2,500,000 shares of restricted common stock as payment for services provided under the respective consulting agreements. The shares were valued based on the estimated fair value of the services provided as this was deemed to be the best indicator of fair value. The Company recorded stock based compensation charges of $0 during the quarter ended June 30, 2013 and 2012, respectively.

 

NOTE 6 — COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

The Company is not currently a party to any pending or threatened legal proceedings. Based on information currently available, management is not aware of any matters that would have a material adverse effect on the Company's financial condition, results of operations or cash flows.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

On December 31, 2010, we entered into a definitive agreement to acquire all of the membership interests in Brackin O’Connor, LLC, an entity owned by Douglas Brackin, our President and Director, and Joy Brackin, his wife. We issued 20,000,000 shares of our common stock to Douglas Brackin and Joy Brackin in exchange for the membership interests in Brackin O’Connor.

 

On December 31, 2010, we entered into a definitive agreement to dispose of all of the capital stock of our subsidiaries, VFC and VFC Franchise Corp. to Gordon Knott, formerly our President and member of our Board of Directors, and Garabed Khatchoyan, formerly a member of our Board of Directors. In exchange for the capital stock of VFC and VFC Franchise Corp., Messrs Knott and Khatchoyan agreed to return to us 20,000,000 shares of our common stock and to assume up to $75,000 of our liabilities arising from periods prior to December 31, 2010.  In connection with the transaction, we agreed to reimburse certain expenses incurred by VFC through payment of $12,500 in cash and the issuance of a promissory note in the amount of $62,500. The promissory note was paid in full in April 2011. See Note 4 for further discussion.

 

 

On April 8, 2011, the Company entered into a Promissory note with Doug Brackin for a total of $62,500. The promissory note was not paid by the maturity date of July 31, 2011, and accordingly, the note started to accrue compounding interest at 1.25% per month effective August 1, 2011. Interest expense totaled $4,923 for the six months ended June 30, 2013 and 2012, respectively. The Company made a partial principal payment in the amount of $50,000 in July 2013. No interest was paid by the Company to Doug Brackin during the six months ended June 30, 2013 and 2012, respectively.

 

During the six months ended June 30, 2013, Doug Brackin, the Company’s Chief Executive Officer, did not advance the Company any additional monies. The total outstanding advance balance from Doug Brackin to the Company at June 30, 2013 was $8,818. The advance bears interest at a rate of 1% per month. Interest expense totaled $532 and $1,142 for the six months ended June 30, 2013 and 2012, respectively. No interest was paid by the Company to Doug Brackin during the six months ended June 30, 2013 and 2012, respectively.

 

During the six months ended June 30, 2013, Cardiff Partners, LLC advanced to the Company $9,893 and the Company repaid Cardiff Partners, LLC $35,000. Keith Moore, the Company’s Treasurer, Secretary, and Director, is a managing member and 50% owner of Cardiff Partners. The total outstanding advance balance from Cardiff Partners to the Company at June 30, 2013 was $25,815. The advance bears interest at a rate of 1% per month. Interest expense totaled $3,045 and $2,017 for the six months ended June 30, 2013 and 2012, respectively. No interest was paid by the Company to Cardiff Partners during the six months ended June 30, 2013 and 2012, respectively.

 

On June 14, 2013, the Company entered into Convertible Note Purchase Agreements with six accredited investors for the purchase and sale by the Company of $215,000 of its 10% Senior Secured Convertible Promissory Notes due December 31, 2014 (“Convertible Notes”). The Company paid Monarch Bay Securities, LLC, the Managing Placement Agent, a sales commission equal to ten percent (10%) of the aggregate purchase price of the Convertible Notes sold in the Offering. The Company has agreed to indemnify the Managing Placement Agent against certain liabilities, including liabilities under the Securities Act, as amended. Keith Moore, a member of our Board of Directors, is a managing director and owner of the Managing Placement Agent.

 

NOTE 8 - CAPITAL STOCK TRANSACTIONS

 

On December 14, 2010, the Company cancelled 2,800,200 shares of its outstanding stock due to a settlement and release agreement.

 

On December 31, 2010, the Company agreed to issue 20,000,000 shares of its common stock to the members of Brackin O’Connor in exchange for the membership interests in Brackin O’Connor (Equity Exchange).

 

On December 31, 2010, the Company entered into a definitive agreement to dispose of all of the capital stock of its subsidiaries, VFC and VFC Franchise Corp. to Gordon Knott, formerly the Company’s President and member of its Board of Directors, and Garabed Khatchoyan, formerly a member of its Board of Directors. In exchange for the capital stock of VFC and VFC Franchise Corp., Messrs Knott and Khatchoyan agreed to return to the Company 20,000,000 shares of the Company’s common stock

 

On March 1, 2011, the Company entered into three separate consulting agreements. The Company agreed to issue a total of 2,500,000 shares of restricted common stock as payment for services provided under the respective consulting agreements. The shares were valued based on the estimated fair value of the services provided as this was deemed to be the best indicator of fair value. The Company recorded stock based compensation charges of $0 during the quarter ended June 3-, 2013 and 2012, respectively.

 

On September 12, 2012, the Company entered into a binding letter of intent (the “LOI”) to merge with Buffalo Boss Holdings, Inc. (“Buffalo Boss”). Additionally, the parties have agreed that within sixty (60) days following the purchase of 3,000,000 shares of common stock of Buffalo Boss by the Company for $324,000, Buffalo Boss shall grant the Company a master franchise agreement for no initial master franchise fee, which shall cover the United Kingdom and Canada (“Master Franchise Agreement”).  Buffalo Boss operates an organic fast food chicken wing restaurant located in Brooklyn, New York and has entered into an agreement to open a second location in the Barclays Center located in Brooklyn, New York. Upon closing of the merger with Buffalo Boss, the Company has agreed to issue no less than 50,000,000 and up to 75,000,000 shares of our common stock with Vinyl Products, Inc. being the surviving company (the “Merger”). Immediately following the Merger, the Company shall change its name to Buffalo Boss Holdings, Inc. or Buffalo Boss International, Inc. as determined solely by Buffalo Boss. Upon completion of the Merger, the Company will have 75,000,000 shares of its common stock issued and outstanding.

 

 

The Merger is subject to the following conditions:

 

•

The purchase of 3,000,000 shares of common stock of Buffalo Boss by the Company for $324,000, prior to the Merger;

•

The completion of audited financial statements for Buffalo Boss for the years ended December 31, 2010 and 2011 and unaudited financial statements for Buffalo Boss for the nine month period ended September 30, 2012; and

•

The settlement of all outstanding Company liabilities.

 

If the Company fails or refuses to close the Merger by December 31, 2012, Buffalo Boss may terminate the LOI. Additionally, the LOI may be terminated by the mutual consent of the parties, or if there is a material breach of any representation or warranty by the Company or Buffalo Boss. On March 4, 2013, the LOI was terminated by mutual consent of the parties.

 

NOTE 9 – SUBSEQUENT EVENTS

 

In July 2013 the Company made a partial principal payment in the amount of $50,000 on the April 8, 2011 Promissory note with Doug Brackin the Company’s CEO.

 

 

Item 2.

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

 

In this Quarterly Report on Form 10-Q, unless the context requires otherwise, “we,” “us” and “our” refer to Vinyl Products, Inc., a Nevada corporation. The following Management’s Discussion and Analysis of Financial Condition and Results of Operation provide information that we believe is relevant to an assessment and understanding of our financial condition and results of operations. The following discussion should be read in conjunction with our financial statements and notes thereto included with this Quarterly Report on Form 10-Q, and all our other filings, including Current Reports on Form 8-K, filed with the Securities and Exchange Commission (“SEC”) through the date of this report.

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q includes both historical and forward-looking statements, which include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulations. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Such statements are intended to operate as “forward-looking statements” of the kind permitted by the Private Securities Litigation Reform Act of 1995, incorporated in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). That legislation protects such predictive statements by creating a “safe harbor” from liability in the event that a particular prediction does not turn out as anticipated. Forward-looking statements should not be read as a guarantee of future performance or results and will probably not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. You should review carefully the section entitled “Risk Factors” beginning on page 4 of our Annual Report on Form 10-K for a discussion of certain of the risks that could cause our actual results to differ from those expressed or suggested by the forward-looking statements.

 

The inclusion of the forward-looking statements should not be regarded as a representation by us, or any other person, that such forward-looking statements will be achieved. You should be aware that any forward-looking statement made by us in this Quarterly Report on Form 10-Q, or elsewhere, speaks only as of the date on which we make it. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Quarterly Report on Form 10-Q.

 

Overview

 

Brackin O’Connor operates a passenger transportation business commonly referred to as a chauffeured vehicle service. Its initial operations are focused on servicing the tourism industry in Scottsdale, Arizona under the brand name of “Ride The Dougie”. The Company provides chauffeured vehicle service for concert and weddings, airport shuttles, business and association meetings, conventions, road shows, promotional tours, special events, incentive travel and leisure travel and mobile concierge services.

 

Recent Developments Affecting the Company

 

Funding Initiatives

 

On June 14, 2013, the Company entered into Convertible Note Purchase Agreements with six accredited investors for the purchase and sale by the Company of $215,000 of its 10% Senior Secured Convertible Promissory Notes due December 31, 2014 (“Convertible Notes”). The Convertible Notes, issued on June 14, 2013, constitute the senior indebtedness of the Company. The Company and investors agreed that no indebtedness senior to the Convertible Notes may be created without the consent of holders of a majority in interest of the Convertible Notes. The Convertible Notes and all accrued interest are convertible by the Convertible Note holders into shares of Common Stock at a price equal to $1.00 per share (“Conversion Price”). Shares acquired upon conversion will be eligible for sale pursuant to Rule 144 six months after the date of issue of the Convertible Notes. The Convertible Notes are secured by a lien on all of the Company’s assets. Interest on the Convertible Notes will accrue and be paid at maturity or converted into common stock when each respective Convertible Note is converted. The Convertible Notes shall be subject to mandatory conversion at the applicable Conversion Price upon the completion of a qualified financing, defined as an equity financing of not less than $1.5 million in aggregate gross proceeds from any equity or equity derivative financing. The Company agreed to include the shares of Common Stock underlying the Convertible Notes (unless eligible for resale under Rule 144) in any registration statement filed by the Company other than in connection with compensation plans and certain other types of transactions.

 

 

The Company paid Monarch Bay Securities, LLC, the Managing Placement Agent, a sales commission equal to ten percent (10%) of the aggregate purchase price of the Convertible Notes sold in the Offering. The Company has agreed to indemnify the Managing Placement Agent against certain liabilities, including liabilities under the Securities Act, as amended. Keith Moore, a member of our Board of Directors, is a managing director and owner of the Managing Placement Agent.

 

Results of Operations

 

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

 

Revenue

 

Revenues totaled $4,997 for the three months ended June 30, 2013 versus $6,603 in the comparable period in the prior year. The decrease in revenues was related to decreased business development and marketing efforts.

 

Cost of Revenue

 

Cost of revenue consists of depreciation expense for the Company’s transportation vehicles as well as other direct costs of providing services. Cost of revenue totaled $3,702 for the three months ended June 30, 2013 versus $3,909 in the comparable period of the prior year.

 

Marketing Expenses

 

Marketing expenses totaled $245 for the three months ended June 30, 2013 compared to $1,050 in the comparable period of the prior year. The Company decreased marketing expenses during the quarter to coordinate marketing budgets with projected transportation requirements.

 

General and Administrative Expenses

 

General and administrative expenses totaled $64,591 for the three months ended June 30, 2013 compared to $13,189 for the three months ended June 30, 2012. The increase in general and administrative expenses was a result of additional professional fees related to the sale of the Company’s Convertible Secured Promissory Notes. The current period expenses are primarily comprised of $36,520 of professional fees and $21,500 of placement agent fees as well as other general and administrative expenses.

 

Other Expenses

 

Other expense totaled $5.286 for the three months ended June 30, 2013 compared to $4,146 for the three months ended June 30, 2012. The current period expenses are comprised of $5,286 of interest expense.

 

 

Net Loss

 

Net loss totaled $68,827 for the three months ended June 30, 2013 due primarily to general and administrative expenses discussed above which exceeded gross profits generated. Net loss totaled $15,691 for the three months ended June 30, 2012.

 

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

 

Revenue

 

Net loss totaled $68,827 for the three months ended June 30, 2013 due primarily to general and administrative expenses discussed above which exceeded gross profits generated. Net loss totaled $15,691 for the three months ended June 30, 2012.

 

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

 

Revenue

 

Revenues totaled $15,202 for the six months ended June 30, 2013 versus $21,534 in the comparable period in the prior year. The decrease in revenues was related to decreased business development and marketing efforts.

 

Cost of Revenue

 

Cost of revenue consists of depreciation expense for the Company’s transportation vehicles as well as other direct costs of providing services. Cost of revenue totaled $8,664 for the six months ended June 30, 2013 versus $6,756 in the comparable period of the prior year. The increase in cost of revenue was related to additional required maintenance of the Company’s transportation van.

 

Marketing Expenses

 

Marketing expenses totaled $4,810 for the six months ended June 30, 2013 compared to $7,128 in the comparable period of the prior year. The Company decreased marketing expenses during the six months ended June 30, 2013 to coordinate marketing budgets with projected transportation requirements.

 

General and Administrative Expenses

 

General and administrative expenses totaled $79,380 for the six months ended June 30, 2013 compared to $25,198 for the six months ended June 30, 2012. The current period expenses are primarily comprised $47,458 in professional fees, as well as other general and administrative expenses. Expenses for the six months ended June 30, 2012 were primarily comprised of $18,625 of professional fees, as well as other general and administrative expenses.

 

Other Expenses

 

Other expense totaled $8,133 for the six months ended June 30, 2013 compared to $8,082 for the six months ended June 30, 2012. The current period expenses are comprised of $8,133 of interest expense.

 

Net Loss

 

Net loss totaled $85,784 for the six months ended June 30, 2013 due primarily to the general and administrative expenses discussed above which exceeded gross profits generated. Net loss totaled $25,630 for the six months ended June 30, 2012.

 

Liquidity and Capital Resources

 

The accompanying financial statements have been prepared assuming that we will continue as a going concern. As shown in the accompanying financial statements, we incurred losses of $85,784 for the six months ended June 30, 2013 and have an accumulated deficit of $281,647 at June 30, 2013. At June 30, 2013, we had cash of $149,337.

 

We started to generate revenue in January 2011, however, in order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, we will need, among other things, additional capital resources. Accordingly, management’s plans to continue as a going concern include raising additional capital through sales of common stock and other securities.

 

 

On June 14, 2013, the Company entered into Convertible Note Purchase Agreements with six accredited investors for the purchase and sale by the Company of $215,000 of its 10% Senior Secured Convertible Promissory Notes due December 31, 2014 (“Convertible Notes”). The Convertible Notes, issued on June 14, 2013, constitute the senior indebtedness of the Company. The Company and investors agreed that no indebtedness senior to the Convertible Notes may be created without the consent of holders of a majority in interest of the Convertible Notes. The Convertible Notes and all accrued interest are convertible by the Convertible Note holders into shares of Common Stock at a price equal to $1.00 per share (“Conversion Price”). Shares acquired upon conversion will be eligible for sale pursuant to Rule 144 six months after the date of issue of the Convertible Notes. The Convertible Notes are secured by a lien on all of the Company’s assets. Interest on the Convertible Notes will accrue and be paid at maturity or converted into common stock when each respective Convertible Note is converted. The Convertible Notes shall be subject to mandatory conversion at the applicable Conversion Price upon the completion of a qualified financing, defined as an equity financing of not less than $1.5 million in aggregate gross proceeds from any equity or equity derivative financing. The Company agreed to include the shares of Common Stock underlying the Convertible Notes (unless eligible for resale under Rule 144) in any registration statement filed by the Company other than in connection with compensation plans and certain other types of transactions.

 

As of June 30, 2013, the Company had $215,000 in Convertible Notes outstanding.

 

Our current funding is sufficient to continue our operations for the remainder of the fiscal year ending December 31, 2013, however, we will require additional debt and/or equity financing to continue our operation beyond December 31, 2013. We cannot provide any assurances that additional financing will be available to us or, if available, may not be available on acceptable terms.

 

If we are unable to obtain adequate capital, we could be forced to cease or delay development of our operations, sell assets or our business may fail. In each such case, the holders of our common stock would lose all or most of their investment. Please see “Risk Factors” for information regarding the risks related to our financial condition.

 

Inflation Risk

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. However, if our costs such as gasoline were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

 

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, results of operations, liquidity or capital expenditures.

 

Capital Resources and Requirements

 

Our future liquidity and capital requirements will be influenced by numerous factors, including:

 

•

the extent and duration of future operating income;

•

the level and timing of future sales and expenditures;

•

working capital required to support our growth;

•

investment capital for transportation vehicles and equipment;

•

our sales and marketing programs;

•

investment capital for potential acquisitions;

 

 

•

competition; and

•

market developments.

 

Critical Accounting Policies and Estimates

 

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

 

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

 

Impairment of Long-Lived Assets

 

The Company adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. The Company performed an annual review for impairment and none existed as of December 31, 2012.

 

Issuance of Shares for Non-Cash Consideration

 

The Company accounts for the issuance of equity instruments to acquire goods and/or services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably determinable. The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of standards issued by the FASB. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

Recently Issued Accounting Pronouncements

 

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

 

-

Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and

 

-

Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.

 

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

 

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

 

In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not impact the Company's results of operations or financial condition.

 

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 did not impact the Company's results of operations or financial condition.

 

 

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 did not impact the Company's results of operations or financial condition.

 

In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 did not impact the Company's results of operations or financial condition.

 

In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU No. 2011-11 did not impact the Company's results of operations or financial condition..

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company and therefore, we are not required to provide information required by this item of Form 10-Q.

 

Item 4.

Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2013, and this assessment identified certain material weakness in our internal control over financial reporting, including material weaknesses due to our management’s lack of segregation of duties in financial transactions or reporting as a result of the fact that we only have two officers. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

 

Based on that evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2013.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report 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.

 

We are not a party to any material legal proceedings.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

On March 1, 2011, we entered into three separate consulting agreements. We agreed to issue a total of 2,500,000 shares of restricted common stock as payment for services provided under the respective consulting agreements. All of the above shares were issued pursuant to Section 4(2) of the Securities Act of 1933. In connection with this issuance, all purchasers were provided with access to all material aspects of the company, including the business, management, offering details, risk factors and financial statements. They also represented to us that they were acquiring the shares as a principal for their own account with investment intent. They each also represented that they were sophisticated, having prior investment experience and having adequate and reasonable opportunity and access to any corporate information necessary to make an informed decision. This issuance of securities was not accompanied by general advertisement or general solicitation.

 

On June 14, 2013, the Company issued and sold $215,000 of its 10% Senior Secured Convertible Promissory Notes due December 31, 2014. These securities were offered to accredited investors in reliance on an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”) under Regulation D. The securities in the offering have not been registered under the Securities Act or any state “blue sky” securities laws, and may not be offered or sold absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws.

 

Item 3.

Defaults Upon Senior Securities.

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not Applicable.

 

Item 5.

Other Information.

 

None.

 

Item 6.

Exhibits.

 

Exhibit No.		Description
10.1*		Convertible Secured Promissory Note and Amendment #1
10.2*		Note Purchase Agreement
10.3*		Security Agreement
10.4*		Placement Agent and Advisory Services Agreement with Monarch Bay Securities, LLC
21.1*		Subsidiaries of Registrant
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* – Filed herewith

 

 

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 on the 5th day of September, 2013.

 

	VINYL PRODUCTS, INC.
	By:	/s/ Doug Brackin
		Doug Brackin
		Chief Executive Officer
		(Principal Executive Officer)