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EX-14.1 - CODE OF ETHICS - ATOMIC PAINTBALL INCatoc10kex141123112.htm
EX-32.1 - ATOMIC PAINTBALL INCatoc10kex321123112.htm
EX-31.2 - ATOMIC PAINTBALL INCatoc10kex312123112.htm
EX-31.1 - ATOMIC PAINTBALL INCatoc10kex311123112.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

or

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________________
Commission file number: 0-53262

ATOMIC PAINTBALL, INC.
(Exact name of registrant as specified in its charter)

Texas
75-2942917
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

2600 E. Southlake Boulevard, Suite 120-366, Southlake, TX
76092
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code:
(817) -416-6846

Securities registered under Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
None
Not applicable

Securities registered under Section 12(g) of the Act:

Common Stock, no par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yes x No

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
x Yes ¨ No

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant as of June 30, 2012 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $818,305.

As of July 10, 2014, the Registrant has 4,418,549 shares of common stock outstanding.



 
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TABLE OF CONTENTS

   
Page No.
Part I
Item 1.
Business.
4
Item 1A.
Risk Factors.
13
Item 1B.
Unresolved Staff Comments.
18
Item 2.
Properties.
18
Item 3.
Legal Proceedings.
18
Item 4.
Mine Safety Disclosure.
18
Part II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
18
Item 6.
Selected Financial Data.
19
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
20
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
22
Item 8.
Financial Statements and Supplementary Data.
F-1 - F - 15
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
23
Item 9A.
Controls and Procedures.
23
Item 9B.
Other Information.
26
Part III
Item 10.
Directors, Executive Officers and Corporate Governance.
26
Item 11.
Executive Compensation.
31
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
37
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
38
Item 14.
Principal Accounting Fees and Services.
40
Part IV
Item 15.
Exhibits, Financial Statement Schedules.
41

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 include, among others, the following:

 
our ability to raise sufficient working capital necessary to continue to implement our business plan and satisfy our obligations;
 
our ability to continue as a going concern;
 
our ability to develop revenue producing operations;
 
our ability to establish our brand and effectively compete in our target market; and
 
risks associated with the external factors that impact our operations, including economic and leisure trends.
 
 
 
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Forward-looking statements are typically identified by use of terms such as “may”, “could”, “should”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target” or “continue”, the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently.  The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management.  These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors.  Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control.  In addition, management’s assumptions about future events may prove to be inaccurate.  Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur.  Actual results may differ materially from those anticipated or implied in the forward-looking statements.   You should consider the areas of risk described in connection with any forward-looking statements that may be made herein.  You should also consider carefully the statements under “Risk Factors” and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in "Item 1A. - Risk Factors".  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.

Unless specifically set forth to the contrary, when used in this Report the terms “Atomic PB,” "we"", "our", the "Company" and similar terms refer to Atomic Paintball, Inc., a Texas corporation.  In addition, when used herein and unless specifically set forth to the contrary, “2011” refers to the year ended December 31, 2011, and “2012” refers to the year ended December 31, 2012.

PART I

ITEM 1.                      DESCRIPTION OF BUSINESS.

Overview

On March 20, 2012, we filed a Current Report on Form 8-K to disclose that on March 16, 2012, the Board of Directors approved and ratified the Company’s pursuing of a change in the Company’s business to a financial services and social networking company. Further, the Board of Directors approved and ratified the Company’s pursuing of a change in the Company’s name to Social Club Financial.  These actions were never brought to our shareholders for a vote and the Board decided not to pursue such actions.  Accordingly, we are continuing to carry out our initial plans to own and operate paintball facilities and to provide services and products in connection with paintball sport activities at its to be established facilities.

We are a development stage company formed to own and operate paintball facilities and to provide services and products in connection with paintball sport activities at our facilities.  As of the date of this Report, we have not generated any revenue and do not conduct any business.  However, subject to the availability of sufficient capital, in order of priority, over the next 12 months are to:

 
identify a management team of experienced paintball executives committed to implementing our proposed business plan;

 
seek to raise funding in an initial private placement;

 
establish a database of existing paintball parks and related businesses;

 
establish a database of potential locations for new paintball parks;

 
develop list of criteria and a formal assessment process for identifying, evaluating and prioritizing potential acquisition targets;

 
enter into negotiations with the owners of potential acquisition targets; and
 
 
 
sign purchase agreements, subject to funding, to acquire our acquisition targets.
 
 
 
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Consequently, it is our overall objective that at the end of the 12 month period following our receipt of sufficient capital, we will have developed a comprehensive business plan for a carefully selected acquisition, supported by a committed management team, as a basis to seek the funding necessary to complete the proposed acquisition.  Our ability, however, to accomplish these goals is dependent upon our ability to raise capital.  In addition to funds we otherwise need for our ongoing operations, we will need to raise approximately $250,000 in capital to fund the implementation of our business plan together with an additional approximately $250,000 for an initial first acquisition of a small paintball field and/or a mobile field system.  Thereafter, we anticipate that we will need to raise approximately $1 million to $5 million to complete a more substantial program of acquisitions.  We do not have any commitments for capital and there are no assurances we will be able to raise the necessary capital, in which event we would be unable to continue to implement our business plan.

Even if we are successful in raising this initial capital, we do not anticipate generating any revenue until we have completed our first acquisition.  We have not identified any acquisition targets.  In addition, there can be no assurances we will be able to successfully achieve any of these initial objectives during the next 12 months, or if we successfully achieve the initial objectives, that we will be able to raise the additional funding required.

Paintball - The Sport

The evolution of paintball into the sport that it is today took place fairly quickly in comparison to most other sports. Today, the sport has over 9 million participants, male and female, young and old, playing in more than 50 countries (Source: http://www.paint-ball.org/paintball/statistics.htm).

The use of paintball guns, or "markers" as they are referred to, began in the early 1970s, when they were used as a tool for marking trees and livestock.  In 1981, 12 friends played the first recreational paintball game using these industrial paintball guns on a field measuring over 100 acres.  Typically, in these early years, the sport was played as a small group of friends getting together in the woods to play total elimination games.  Sometimes the friends broke into teams to play each other, but most games were "every man for himself." Over the years, recreational paintball has become more sophisticated.  Because more people were playing, and playing in teams rather than as individuals, team play has become the standard.  Different playing variations began to form, the most popular being "capture the flag," but a variety of offensive/defensive scenarios have also become popular.  Also, as the number of people interested in paintball grew, so did the development of the commercial paintball industry. The development of commercial paintball fields allowed large groups of people to meet in one place to play, and the business owners were pushed to develop new and exciting ways to keep these paintballers entertained.  This drove the development of new scenarios and styles of playing.  The biggest style of play change to come about because of commercial fields was the "bunker-style" game.  Smaller fields let players start the action quicker, instead of having to stalk through the woods for 15 minutes before seeing anyone.  Also, players purchased more paintballs when they were in a constant firefight, which made the commercial fields more profitable.  At its very core, paintball is a very sophisticated game of "dodge ball" and "capture the flag."  The game is played with two teams starting on opposite ends of the arena trying to reach two objectives.  One, to "mark out" (i.e. hit with a paintball) as many players from the opposing team as possible and second to "capture the flag" and to reach other goals set by the  parameters of the game. The game can be equated to a "real world" interactive game of chess because with the mental element of the game, but with an additional physical element.  Today, while commercial paintball fields are commonplace, there are still a large number of people that prefer playing paintball out in the woods.  While "outlaw" paintball is generally much cheaper, it is also more problematic than paying to play at a commercial field.

The first professional tournament was held in 1983 with the prizes that were worth $14,000.  Today, major tournaments may issue prizes worth up to thousands of dollars.

The first outdoor commercial paintball field started in 1982. The first indoor paintball field followed in 1984. The fields allowed large groups of people to meet in one place to play, and the business owners were pushed to develop new and exciting ways to keep their customers entertained (Source: http://www.paintball-tips-and-tricks.com/history-of-paintball.html).  This drove the development of new scenarios and styles of play. Today there are more than 1,300 registered paintball fields in the US.  The majority of these fields are small, family run, undercapitalized, "hobby" businesses which offer only the most basic, primitive facilities and operate without adequate marketing support or the operation of best business practices (Source: http://www.ibisworld.com/industry/paintball-fields.html).
 
 
 
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We believe that this market structure provides us with the ideal opportunity to establish a chain of purposely built, aggressively marketed, professionally operated paintball parks.  Our goal is to provide the opportunity for our customers to play the most innovative gaming scenarios at the highest quality facilities, purchase all paintball equipment and supplies they need and have the opportunity to eat, rehydrate and relax at one convenient paintball park.

Key Points to Implementing our Business Plan

Establish a Database of Existing Paintball Parks and Related Businesses

We expect to initially obtain information about existing paintball parks from the limited information available from:

 
the existing online directories of paintball parks currently available on the internet;

 
Yellow Pages and other print directories;

 
advertisements by paintball parks in current and back issues of the various paintball magazines;

 
depending on the level of funding we are able to achieve, we may purchase specially compiled marketing/mailing lists of paintball parks; and

 
depending on the level of funding we are able to achieve, we may run advertisements in the paintball press soliciting information from paintball parks to appear in a new, free, online directory of paintball parks.

We expect to then contact each paintball park we have identified to request information to be compiled into a comprehensive online directory of paintball parks.  Our internal research finds that the existing online directories of paintball parks are extremely primitive - often out of date, with no more than a list of names, addresses and a web link to the web page of each individual paintball park.  We believe that the creation of the online database of existing paintball parks will allow us to rapidly build knowledge of the paintball park industry, gain exposure to paintball park management and owners and build a distinctive website with valuable content for a wide range of users.  Once our paint ball parks are ready, this database will serve as a valuable marketing tool by advertising their physical locations, providing driving directions, allowing potential customers to research our session fees and rentals, join a league or learn more about the sport of paintball and our operations.

We expect to offer a modern, well-designed, highly functional website that provides key details of each participating paintball park on a single website.  In addition to the standard information of name, address and telephone number, we will also provide details of the size (acreage), number and size of playing areas, description of the playing environment, available facilities, opening hours and prices.  We also expect to include advertising/marketing messages from the paintball parks included in the online directory and to encourage players to post comments on the parks they use.  Our goal will be to drive traffic to the online directory from online search engines and links with other general paintball websites.

We do not expect to charge paintball parks for a listing in the online directory.  Similarly, players seeking paintball parks where they can play will not be charged for accessing the site.  We believe the benefit to our company by researching, compiling, and effectively leveraging, a database of existing paintball parks will allow us to identify and analyze:

 
the current product offerings, customer service experiences and business practices from a wide range of paintball parks;

 
paintball parks which are no longer in business and that potentially could be revived with new management and funding;

 
underperforming paintball parks where we believe we could create added value by providing new management expertise and funding; and
 
 
 
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highly successful paintball parks where we will seek to learn and replicate the basis of their success and potentially look to recruit their senior management for our own operations.

The quality of the marketing materials we expect to use to solicit data for the online directory, the ability to use third party marketing consultants and the use of part-time or full-time employees to compile the data will all be dependent on the level of funding that we are able to achieve.

Establish a Database of Potential Locations for New Paintball Parks

We expect to initially obtain information about potential locations from new paintball parks by:

 
contacting real estate agents to assist us in identifying land owners who may be interested in developing property they own as a paintball park; and

 
depending on the level of our available funding, placing advertisements in both paintball and non-paintball magazines soliciting land owners who may be interested in developing property they own as a paintball park.

The quality of the marketing materials and the extent of advertising we use to solicit interested land owners will be dependent on the level of funding that we are able to achieve.
 
Create a Website in Conjunction with an Online Directory of Existing Paintball Parks to Build Our Brand Identity

Our objective is to build a website that builds a brand identity for our business.  We believe that developing our website in conjunction with an online directory will assist us in achieving this goal.  We believe that the online directory will create value for existing paintball park owners and players without cost to them and will assist us in establishing a reputation that we are in touch with events and developments within the overall paintball park industry. The speed with which we develop our website, the sophistication of the website, the use of third party consultants or part-time or full-time employees will all be dependent on the level of funding that we are able to achieve.

Once live, the website will provide a source of revenue through product and merchandise sales, the sales data to be generated by the website will help us to identify and maintain the optimum product mix for our onsite stores and the website will serve as a valuable marketing tool.

Identify a Management Team of Experienced Paintball Executives Committed to Implementing Our Proposed Business Plan

We believe that engaging a management team committed to implementing our business plan as soon as we complete our first acquisition is critical to the continued successful implementation of our business plan.  We will seek to identify a management team using the following methods: 
 
 
when we identify highly successful paintball parks, we will attempt to acquire the park with its existing management in place;

 
we will search for highly talented executives operating in existing, under-funded, paintball operations who have not been able to maximize their potential through lack of opportunity in their current roles;

 
we will advertise in paintball publications for management candidates;

 
we will actively seek a real estate professional with experience of obtaining planning consents and property development to be part of the management team; and

 
if necessary, if we are unable to assemble the management team we are seeking  through our own contacts, depending of the level of funding available to us, we will consider retaining a third party executive search firm to identify appropriate candidates.
 
 
 
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There is no guarantee that we will be successful in being able to attract the quality of experienced management that we are seeking who will be prepared to commit to join our unproven start up operation.

Identify, Evaluate and Prioritize Potential Acquisition Targets

We believe that among the 2,500 existing paintball parks in the US and Canada there may be opportunities to purchase certain existing paintball parks that can be enhanced to provide the full extent of our proposed product offering to our targeted demographic for less than it would cost to build a new facility.  We will also consider acquiring existing paintball parks as a means of rapidly establishing a critical mass of operations.   Finally, we will consider green field sites (raw, undeveloped land) ("Green Site") that is zoned for commercial purposes to build a new facility.  We expect to identify potential acquisition targets by:

 
direct mail to the paintball parks in our database;

 
direct mail to land owners identified by commercial real estate brokers as having a potential interest in developing land they own as a paintball park;

 
contacting business brokers to solicit and refer paintball business to us on a contingent basis; and

 
placing advertisements in paintball and financial magazines seeking acquisitions candidates.

When we receive an expression of interest from a potential acquisition target, we will evaluate the potential target against a list of criteria including:

•           the location of the existing or potential paintball park.  We believe that proximity and convenient access to a critical mass of our targeted demographic is critical to the long term success of any paintball park.  Other relevant factors include proximity to other existing paintball parks and, in respect of new paintball parks, the likely planning considerations of establishing a new park;

•           anticipated requirement for new capital expenditure. At one extreme, if we acquire an existing successful, profitable paintball park, it may require little in the way of additional capital expenditure.  At the other extreme, if we acquire a Green Site, we will have to build an entire new facility, including infrastructure.  In between these two extremes, we hope to acquire existing, yet undercapitalized paintball parks that may need significant upgrades to achieve their full potential, but will not require the capital necessary for a green field site;

•           existing customer base/brand reputation.  We believe that new, green field sites will need extensive sales and marketing expenditure to develop customer awareness and establish a stable growing customer base. For existing paintball parks, we will need to assess the strength of their reputation and customer/brand loyalty. We believe that even in existing profitable, successful paintball businesses, we will be able to increase customer numbers through carefully targeted marketing aimed at key demographic groups;

•           the quality of existing management.  Particularly in our early acquisitions, the existence of talented and successful management who wish to continue their employment with us and rise to the new challenges we have to offer them will be very attractive to us.

On the basis of a formalized process we will establish for evaluating potential acquisitions, we will seek to arrive at, and maintain on an updated basis, a prioritized short list of acquisitions ranked in the order in which we believe can create the most value for our shareholders.  There is no guarantee that we will be able to locate acquisition targets that we believe will meet our minimum specified criteria and that we would wish to acquire.  Our ability to use outside third party consultants to complete feasibility studies will be dependent on the level of funding that we are able to achieve.


 
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Negotiate with the Owners of Potential Acquisition Targets

Once we have established a short list of acquisitions we would like to make, we will seek to enter into negotiations with owners of the assets in question to establish whether it is possible to negotiate terms that are mutually acceptable to both parties.  At our stage of development, transactions that can be completed with a high percentage of consideration comprising shares of our common stock and/or owner carried purchase notes are particularly attractive to us.  At the same time, we recognize that we will be able to purchase businesses more cheaply for cash.  In addition to cash for acquisitions, we will also need to raise additional funding to provide ongoing working capital and additional capital investment for the businesses we acquire.  There is no guarantee that we will be able to negotiate acceptable acquisition terms for businesses or assets we would wish to purchase.

Sign Purchase Agreements to Acquire Our Acquisition Targets

Unless we can complete acquisitions for consideration comprising 100% of our securities, we will have to enter into purchase agreements that are contingent upon our ability to raise sufficient capital to acquire our acquisition targets.  There can be no assurance that any potential acquisition targets will accept securities as payment or agree to a sale on a contingency fee basis.

If we can agree to terms with a target, we shall prepare and commence a private offering of our securities.  Although we do not currently have any potential targets, we anticipate that we will need to raise between $1 and $5 million to complete our first acquisition and carry out the operations of same. There is no guarantee that we will be able to raise the funding that we require to complete our targeted acquisition or provide us with the necessary working capital for the acquired business.

Our Ideal Facilities

Assuming receipt of the required funding, we intend to create facilities that provide the best paintball experience for our customers.  Whether we acquire an existing facility or a Green Site, we intend to re-structure or build new facilities as close as possible to our plans.  Our ideal facilities will cover a 5-acre area and will offer four fully enclosed paintball fields, including one tournament-sized and three smaller fields, a 2,000 square foot building housing an onsite shop for equipment and merchandise sales, an equipment rental facility, a players' lounge, indoor restrooms, an air-conditioned meeting room, a concession stand and 1,000 square feet of covered picnic tables for dining and relaxing between games.  We will also seek to provide an all weather surface parking area for 200 vehicles.

The four netted, outdoor paintball playing areas, each approximately 75 x 150 feet in size, will offer different types of obstacles and various levels of challenge.  The netting will prevent any paintballs from leaving the playing areas while at the same time reducing the impact of weather conditions on the playing fields.  This will allow the players and spectators to safely enjoy the outdoor environment and the paintball activities while being sheltered from the elements.  An observation area will be established with bleacher seating between playing areas so that friends and onlookers can view the games.  This will also provide a vantage point for the field operator to control and monitor the game and enforce safety regulations.

In the 2,000 square feet building, the onsite shop will display paintball related products, clothing and accessories for player purchase with attendants available to answer players' questions about product enhancements, assembly, and repair of paintball equipment.  Our rental facility will be located in the rear of the building with visibility to the playing fields.  The location of the rental facility will decrease the amount of time a player spends refilling tanks and purchasing more paint in order to return to play. The rental location will house 200 to 300 rental guns, paintball masks, paint, and six, 80-pound carbon dioxide tanks for refilling player’s air guns.


 
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Proposed Location for Paintball Facilities

The majority of existing paintball parks are located largely as a matter of random chance.  For instance, someone with an interest in paintball and an otherwise unused plot of land, may turn such land into a paintball park.

We shall select targets or land based on feasibility studies of key demographic data.  We have not yet selected any site nor obtained financing for the development of these proposed facilities.  We intend to engage architects and real estate consultants to conduct feasibility studies that will help us identify the right location for our facilities.

One of our goals is to make the sport of paintball more travel-friendly and logistically convenient for our potential customers.  We believe we can differentiate ourselves from, and gain a competitive advantage over, the traditional "mom and pop" and "hobby" operated paintball facilities which are typically located out in the countryside, by locating our facilities in locations that are in more convenient locations for our major customer demographics.

We also believe that by carefully locating our paintball parks in areas that real estate professionals consider likely to experience significant future appreciation in real estate values, we may be able to create additional value for our shareholders.

Proposed Sources of Revenue

We expect that we will generate future revenues through:

•           Session Fees.  We presently intend to charge $25 for a four hour paintball session.

•           Equipment Rental.  We intend to offer rental equipment for an average fee of $20 per person per session.  We anticipate that the standard rental equipment package will include a paintball gun and a mask.

•           Paintball Sales.  We presently anticipate that a large portion of our future revenues will be generated through the sale of the paintballs to be used during each paintball session.  Based upon our internal research, we believe that an average paintball participant will spend $40 on paintballs during each four hour session.

•           Equipment Sales.  We believe that similar to many sports, many paintball players prefer to own their own equipment, including guns (markers) and masks.  Our research indicates that the current prices for guns range from $40 for a low-end model to $1,600 for a high-end model and the average price for a mask is $60.  We will seek to provide an optimal product mix at our onsite shops to appeal to the widest group of players, making our inventory sections by conducting research on current sales trends in existing paintball shops and websites.
 
•           Merchandise Sales.  We also intend to sell a variety of Atomic Paintball branded merchandise, such as hats, t-shirts, sweatshirts, beer mugs, shot glasses and key chains at our on-site stores.

•           Concession Stands.  We also plan to have concession stands that offer a full range of snack foods typically found in a convenience store environment including soda and water, chips and candy.

•           Website Sales.  We expect that our proposed website will not only sell the equipment and merchandise that will be available at our onsite stores, but our website will also sell a broader product range.

We have identified a number of potential suppliers for these products and do not believe we will have any difficulty in purchasing them in the future at prices which permit us to be competitive in our target market.  In addition, we will seek to enter into agreements with wholesales and other fulfillment companies which will permit us to offer a broader range of merchandise on our website than in our onsite stores under arrangements in which our supplier(s) manage the inventory and fulfillment operations.  We do not have any agreements or understandings with any third parties at this time.


 
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Competition

The paintball industry is continually changing and very competitive.  We expect competition in this business to intensify in the future. According to the Sporting Goods Manufacturers Association, participation in paintball has declined from 5.5 million participants in 2007 to 3.7 million participants in 2010, falling at an average rate of 12.6% per year. Consumers' receding interest in the sport has been a major driver of the industry's decline in revenue. In 2008 and 2009, deteriorating economic conditions caused demand for paintball fields to decline more quickly (IBISWorld, Paintball Fields in the US: Market Research Report. July 2012). No single company in the paintball fields industry controls a significant share of the market; the vast majority of firms are small, local and owner operated. Currently no clear leader of the paintball park industry has emerged in the US.  If we fail to attract and retain a customer base we will not develop significant revenues or market share.  We will compete with a variety of other companies, including existing paintball product suppliers and paintball activity fields.

We will also compete with online retail web sites and stores of some traditional retailers who sell paintball products and services, all of which are better capitalized, have established operating histories and brand recognition.  These other companies may offer their products at competitive prices and we may have difficulty competing with them.

Intellectual property

We regard our trade secrets and similar intellectual property as valuable to our business, and we will rely on trade secret protection and confidentiality agreements we expect to enter into with our employees, partners and others to protect our proprietary rights.  

Employees

As of July 10, 2014, we had no full time employees.  Our executive officers provide certain services dedicated to current corporate and business development activities on an as needed part-time basis.

Our History

We were formed as a Texas corporation in May 2001.

On June 30, 2009, we filed a voluntary petition for relief in the United States Bankruptcy Court, Northern District of Texas, Dallas District under Chapter 7 of Title 7 of the U.S. Bankruptcy Code, case number 09-34008-7.  On October 1, 2009, Mr. David Cutler, our then sole officer and director and a creditor in the proceeding, and the bankruptcy trustee filed a Motion for an Order Approving Bondholder Settlement.  Such motion was objected to by a group of our shareholders consisting of J.H. Brech, LLC and Messrs. Harry McMillan, Charles Webb, Don Mark Dominey, Mark Armstrong, David Myers and John E. Bradley.  On October 30, 2009, these objecting shareholders filed a Motion to Dismiss the Chapter 7 Case.

On January 20, 2010, the Court dismissed the Chapter 7 proceedings as a result of the Settlement Agreement between our company, our then existing management and the objecting shareholders.  Among other things, pursuant to the Settlement Agreement:

 
Mr. Stephen Weathers was appointed to our Board of Directors;

 
Mr. David Cutler resigned his positions upon execution of the Settlement Agreement;

 
Mr. Don Mark Dominey was appointed as our Chief Executive Officer and President, as well as to be appointed as a member of our Board of Directors;

 
Mr. David Cutler surrendered to the Company 3,530,235 shares of our common stock that he held, all of which were cancelled; and
 
 
 
11

 

 
We released and discharged Mr. David Cutler from all claims by us and we were released and discharged from all claims by Mr. Cutler.
 
FOR ADDITIONAL INFORMATION

We are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the SEC.  For further information with respect to the Company, you may read and copy its reports, proxy statements and other information, at the SEC public reference rooms at 100 F.  Street, N.E., Washington, D.C. 20549. You can request copies of these documents by writing to the SEC and paying a fee for the copying cost.  Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference rooms.  The Company’s SEC filings are also available at the SEC’s web site at http://www.sec.gov.

 
 
 
 
 
 
 
 
 
 
 

 
 
12

 
 
ITEM 1A.                      RISK FACTORS.

Although we are not required to provide this information since we are a smaller reporting company, we are voluntarily providing such information in light of the risks associated with our company and our lack of revenue. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.

WE ARE DELINQUENT IN OUR REPORTING REQUIREMENTS UNDER SECTION 13(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT") AND IF WE DO NOT FILE ALL OF THE DELINQUENT REPORTS BY JUNE 30, 2014, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") MAY COMMENCE AN ADMINISTRATIVE PROCEEDING AGAINST US UNDER SECTION 12(J) AND/OR 12(K) OF THE EXCHANGE ACT.

Due to capital constraints, we were not able to file the periodic reports required under Section 13(a) or 15(d) of the Exchange Act (the "Periodic Reports") since the Quarterly Report on form 10-Q for the quarter ended September 30, 2011.  In February 2014, we received a notice from the SEC advising us that if we cannot file all of the delinquent reports by the proposed date of June 30, 2014, we may be subject to an administrative proceeding to revoke the registration of our common stock pursuant to Section 12(j) of the Exchange Act and to a trading suspension of our common stock pursuant to Section 12(k) of the Exchange Act.  The SEC maintains the right however, to initiate such proceedings prior to the proposed deadline.  If either or both of those proceedings are brought against us, our common stock will be deregistered pursuant to Section 12(j) and our trading symbol will be revoked and therefore, no trading will be permitted in our stock.  We are working diligently to resolve the deficiency and file all delinquent periodic reports by the deadline, but we cannot guarantee that we will be able to do so or that the SEC will not initiate any related proceedings prior to such time.

OUR AUDITORS HAVE RAISED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring losses from operations, which losses have caused an accumulated deficit of approximately $1.3 million as of December 31, 2012. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.  We anticipate that we will continue to incur losses in future periods until we are successful in developing revenue generating operations.  There are no assurances that we will be able to raise our revenues to a level which supports profitable operations and provides sufficient funds to pay our obligations.  If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.

WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS IF AT ALL.  BECAUSE OF THE SIZE OF OUR COMPANY AND THE LIMITED PUBLIC MARKET FOR OUR COMMON STOCK, IT IS LIKELY THAT THE TERMS OF ANY FINANCING WE MAY BE ABLE TO SECURE WILL BE DETRIMENTAL TO OUR CURRENT SHAREHOLDERS.

Our current operations are not sufficient to fund our operating expenses.  We will need to raise additional working capital to continue to implement our business model, satisfy our obligations as they become due, to provide funds for marketing to support our efforts to increase our revenues and for general overhead expenses, including those associated with our reporting obligations under federal securities laws.  Generally, small development stage businesses such as ours for which there is only a limited public market for their securities face significant difficulties in their efforts to raise equity capital.  While we have relied upon the relationships of our executive officers and shareholders in our capital raising efforts to date, there are no assurances that we will be successful utilizing these existing sources.  In such an event, we could be required to engage a broker-dealer to assist us in our capital raising efforts.  Even if we are successful in finding a broker-dealer willing to assist us in raising capital, there are no assurances that the terms of financings offered by a broker-dealer will be as favorable as those we have offered our inventors to date.  While we do not have any commitments to provide additional capital, if we are able to raise capital the structure of that capital raise could impact our company and our shareholders in a variety of ways.  If we raise additional capital through the issuance of debt, this will result in interest expense.  If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution.  In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock.  While we seek ways to continue to operate by securing additional financing resources or alliances or other partnership agreements, we do not at this time have any commitments or agreements that provide for additional capital resources. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all.  If we do not raise funds as needed, we may not be able to continue to implement our business plan and it is likely that you would lose your entire investment in our company.
 
 
 
13

 

WE HAVE NOT GENERATED ANY REVENUES AND OUR ABILITY TO PAY OUR OPERATING EXPENSES IS DEPENDENT UPON ADVANCES FROM RELATED PARTIES.

For the fiscal year ended December 31, 2012, we reported a net loss of $63,526 as compared to a net loss of $185,568 for the fiscal year ended December 31, 2011.  We had a working capital deficit of $271,997 at December 31, 2012.  We have not yet begun generating revenue from our operations and are dependent upon advances from a related party to pay our operating expenses and the continued development of our business plan.  There are no assurances this related party will continue to advance funds to us that will satisfy our working capital needs until such time as we are able to raise additional capital or generate sufficient revenues to fund our operating expenses. While we seek ways to continue to operate by securing additional financing resources or alliances or other partnership agreements, we do not at this time have any commitments or agreements that provide for additional capital resources. Our financial condition and the going concern emphasis paragraph may also make it more difficult for us to maintain existing customer relationships and to initiate and secure new customer relationships.

WE HAVE LIMITED HISTORY AND WE CANNOT ASSURE YOU THAT OUR BUSINESS MODEL WILL BE SUCCESSFUL IN THE FUTURE OR THAT OUR OPERATIONS WILL BE PROFITABLE.

Our company was formed in 2001 and we have yet to commence any revenue producing operations.  Accordingly, investors have no operating history upon which to evaluate our business model.  There can be no assurances whatsoever that we will be able to successfully implement our business model, penetrate our target markets or attain a wide following for our services.  We are subject to all the risks inherent in an early stage enterprise and our prospects must be considered in light of the numerous risks, expenses, delays, problems and difficulties frequently encountered in those businesses.

THE CURRENT DECLINE IN PAINTBALL POPULARITY MAY ADVERSELY AFFECT OUR BUSINESS.

Participation in the sport of paintball has decreased in the last few years.  If this decline is permanent, there is significant risk that the demand for paintball parks and paintball related products will be negatively impacted resulting in a decline of sales revenues, if any are ever developed.  This decline could result from adverse economic conditions that could negatively affect disposable income, changes in leisure habits or changes in statutory regulations effecting paintball parks or products

BECAUSE OF THE NATURE OF OUR PROPOSED ACTIVITIES, WE MAY BE SUBJECT TO LIABILITY CLAIMS RESULTING FROM PERSONAL INJURIES AND MAY BE UNABLE TO OBTAIN OR MAINTAIN ADEQUATE LIABILITY INSURANCE.

We may become involved in various lawsuits incidental to our business, some of which may relate to claims allegedly resulting in injury or death.  Significantly increased product liability claims continue to be asserted successfully against manufacturers and distributors of sports equipment throughout the United States resulting in general uncertainty as to the nature and extent of liability for personal injuries.  In recent years, product liability insurance has become much more expensive, more restrictive and more difficult to obtain.  While we expect to obtain liability insurance, there can be no assurance that we will be able to obtain or maintain liability insurance coverage sufficient to cover any successful liability claims made against us.  Any claims substantially in excess of our insurance coverage, or any substantial claim not covered by insurance, could have a material adverse effect on our future financial condition and results of operations and our ability to continue as a going concern.


 
14

 
 
OUR SOLE OFFICER DOES NOT ALLOCATE HIS FULL TIME TO OUR BUSINESS THEREBY RESULTING IN POTENTIAL CONFLICTS OF INTEREST IN HIS DETERMINATION AS TO HOW MUCH TIME TO DEVOTE TO OUR AFFAIRS, AND THIS CONFLICT OF INTEREST COULD HAVE A NEGATIVE IMPACT ON OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN.

Our sole officer devotes only approximately 5% of his time and attention to our business and he is engaged in other business endeavors which are unrelated to our company.  If his other business affairs require him to devote more substantial amounts of time to such affairs, it could limit his ability to devote time to our affairs and could have a negative impact on our ability to implement our business plan. We cannot assure you that these potential conflicts of interest will be resolved in our favor.

PROVISIONS OF OUR ARTICLES OF INCORPORATION MAY DELAY OR PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.
 
Our Articles of Incorporation authorize the issuance of up to 2,000,000 shares of preferred stock with such rights and preferences as maybe determined from time to time by our board of directors. Our board of directors may, without shareholder approval, issue additional classes of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

WE ARE NOT CURRENT IN OUR SEC FILINGS AND THEREFORE OUT OF COMPLIANCE WITH FINRA RULE 6530; ACCORIDNGLY, OUR SECURITIES WERE DELISTED FROM THE OTC BULLETIN BOARD AND ARE NOW LISTED ON THE OTC PINK.

Companies trading on the OTC Bulletin Board generally must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.  More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Securities and Exchange Commission, subject to a 30 day grace period. This Report was due on April 1, 2013; we also have not yet filed the Annual Reports for the year December 31, 2013, or the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013, June 30, 2013, September 30, 2013, March 31, 2014 and June 30, 2014 (the "Late Reports"), although we plan to do so soon after this Report is filed.  As a result, we are non-compliant with FINRA Rule 6530 and our securities were removed from the OTC Bulletin Board. Our common stock is currently listed on the OTC Pink under the same symbol, "ATOC."  Until we are compliant with FINRA Rule 6530 and can successfully re-list our securities on the OTC Bulletin Board - of which there can be no guarantee, the market liquidity for our securities will be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

WE HAVE A SIGNIFICANT AMOUNT OF DEBT WHICH COULD IMPACT OUR ABILITY TO CONTINUE TO IMPLEMENT OUR BUSINESS PLAN.

We have incurred indebtedness totaling $512,209 as of December 31, 2012, which includes $165,939 in accounts payable, $52,198 in accrued payroll, accrued interest of $42,148 on our various debt obligations and accrued contingencies, $11,846 in notes payable which are past due, $143,733 in convertible notes payable to related parties which was due on March 29, 2012 and $96,345 on a line of credit to a related party.  We do not have adequate funds to satisfy the outstanding obligations. The outstanding notes provide that as a result of a default - failure to pay when due, the note holders could declare the notes immediately due and payable.  Unless we are able to restructure some or all of this debt, and raise sufficient capital to fund our continued development, our current operations do not generate sufficient cash to pay these obligations, when due. Accordingly, there can be no assurance that we will be able to pay these or other obligations which we may incur in the future and it is unlikely we will be able to continue as a going concern.


 
15

 
 
IF THE MATERIAL WEAKNESSES OR OTHER DEFICIENCIES IN OUR INTERNAL ACCOUNTING PROCEDURES ARE NOT REMEDIATED, WE WILL NOT COMPLY WITH THE RULES UNDER THE SARBANES-OXLEY ACT RELATED TO ACCOUNTING CONTROLS AND PROCEDURES OR OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY.

Section 404 of the Sarbanes-Oxley Act required annual management assessments of the effectiveness of our internal controls over financial reporting commencing December 31, 2007. Our management concluded the financial statements included in this Report, fairly present in all material respects our financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the U.S.

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2012 and 2011 based on the control criteria established in a report entitled Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as of December 31, 2012 and 2011. During its evaluation, as of December 31, 2012 our management identified material weaknesses in our internal control over financial reporting and other deficiencies as described in this annual report on Form 10-K. As a result, our investors could lose confidence in us, which could result in a decline in our stock price.

We are taking steps to remediate our material weaknesses. However, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude in the future that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could decline significantly. In addition, we cannot be certain that additional material weaknesses or other significant deficiencies in our internal controls will not be discovered in the future.

IF A SUFFICIENT NUMBER OF CUSTOMERS DO NOT ACCEPT OUR PRODUCTS, OUR BUSINESS MAY NOT SUCCEED.

We cannot predict how the market for our facilities and products will develop, and part of our strategic challenge will be to convince new and existing paintballers of the advantages of playing paintball and purchasing paintball related equipment at our facilities and on our website, compared to current paintball facilities.  Our future revenue and revenue growth rates will depend in large part on our success in providing a facility that is convenient, user friendly and cost effective.  If we fail to do so, our facilities and products will not achieve widespread market acceptance, and we may not generate sufficient revenue to offset our facility costs, product development and selling and marketing costs, which will hurt our business.

IF OUR MARKETING AND LEAD GENERATION EFFORTS ARE NOT SUCCESSFUL, OUR BUSINESS WILL BE HARMED.

We believe that intense marketing efforts will be critical to achieve widespread knowledge and acceptance of our brand. Our marketing campaigns may not be successful given the expense required. If our marketing or lead-generation efforts are not successful, our business and operating results will be harmed.

Risks Relating to Our Securities

LACK OF LIQUIDITY

There is currently only a limited public market for the Company’s Common Stock and there can be no assurance that a more robust trading market will develop further or be maintained in the future.


 
16

 
 
OUR COMMON STOCK IS A “PENNY STOCK” AND MAY BE DIFFICULT TO SELL.

The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.

THE MARKET FOR PENNY STOCKS HAS EXPERIENCED NUMEROUS FRAUDS AND ABUSES WHICH COULD ADVERSELY IMPACT INVESTORS IN OUR STOCK.

Penny stocks are frequent targets of fraud or market manipulation. Patterns of fraud and abuse include:

·
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
·
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
·
“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
·
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
·
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

Our management is aware of the abuses that have occurred historically in the penny stock market.

OUR STOCK PRICE IS VOLATILE, WHICH COULD ADVERSELY AFFECT YOUR INVESTMENT.

Our stock price, like that of other business development companies, is highly volatile. Our stock price may be affected by such factors as:

·
product development announcements by us or our competitors;
·
regulatory matters;
·
announcements in the software community;
·
intellectual property and legal matters; and
·
broader industry and market trends unrelated to our performance.

In addition, if our revenues or operating results in any period fail to meet the investment community’s expectations, there could be an immediate adverse impact on our stock price.

OUR PUBLICLY FILED REPORTS ARE SUBJECT TO REVIEW BY THE SEC, AND ANY SIGNIFICANT CHANGES OR AMENDMENTS REQUIRED AS A RESULT OF ANY SUCH REVIEW MAY RESULT IN MATERIAL LIABILITY TO US AND MAY HAVE A MATERIAL ADVERSE IMPACT ON THE TRADING PRICE OF THE COMPANY’S COMMON STOCK.

The reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company’s reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review. Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of the Company’s common stock.


 
17

 
 
STOCKHOLDER OWNERSHIP INTEREST IN OUR COMPANY MAY BE DILUTED AS A RESULT OF FUTURE FINANCINGS OR ADDITIONAL ACQUISITIONS.

As previously stated, we need to raise additional capital to carry out our business plans.  We may seek to raise these funds in public or private issuances of equity and such financings may take place in the near future or over the longer term. Sales of our securities offered through future equity offerings may result in substantial dilution to the interests of our current shareholders. The sale of a substantial number of securities to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. In addition, we have issued shares of our common stock for various consulting services or license agreements in the past and may do so in the future, which may also result in substantial dilution to the interests of our current shareholders.

ITEM 1B.                      UNRESOLVED STAFF COMMENTS.

Not applicable to a smaller reporting company.

ITEM 2.                         DESCRIPTION OF PROPERTY.

Our principal executive offices are located at the offices of J.H. Brech, LLC, a related party which provides consulting services to us.  We do not currently pay monthly rent for the use of this office and the use of these facilities are included in our consulting arrangement with J.H. Brech, LLC.  We expect to continue to use these facilities until such time as we begin generating revenues from our operations.

ITEM 3.                         LEGAL PROCEEDINGS.

We are not a party to any pending or threatened litigation.

ITEM 4.                         MINE SAFETY DISCLOSURES.

Not applicable to our operations.

PART II

ITEM 5.                         MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Market Price of and Dividends on Common Equity and Related Stockholder Matters

Our common stock currently trades on the OTC Pink Market under the symbol, Bulletin Board under the symbol ATOC.  (See "Risk Factors").

The reported high and low last sale prices for the common stock are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

 
High
Low
2011
   
First quarter ended March 31, 2011
$0.65
$0.30
Second quarter ended June 30, 2011
$0.64
$0.40
Third quarter ended September 30, 2011
$1.01
$0.50
Fourth quarter ended December 31, 2011
$0.45
$0.05
     
2012
   
First quarter ended March 31, 2012
$0.85
$0.05
Second quarter ended June 30, 2012
$0.65
$0.25
Third quarter ended September 30, 2012
$0.35
$0.19
Fourth quarter ended December 31, 2012
$0.33
$0.12
 
 
 
18

 

The last sale price of our common stock as reported on the Pink Sheets was $0.20 on July 7, 2014.  As of July 10, 2014 there were approximately 51 record owners of our common stock.

Dividend Policy

We have never paid cash dividends on our common stock. Under Texas law, we are prohibited from paying dividends on our common stock if (1) our surplus is less than the amount required by Section 21.313 of the Texas Business Organizations Code to be transferred to stated capital at the time the share dividend is made; or (2) the share dividend will be made to a holder of shares of any other class or series, unless (A) our Articles of Incorporation provide for the dividend; or (B) the share dividend is authorized by the holders of at least a majority of the outstanding shares of the class or series in which the share dividend is to be made. We have no present intention to declare or pay dividends on shares of our common stock.

Recent Sales of Unregistered Securities

We have not sold any securities during the period covered by this Report that were not registered under the Securities Act of 1933, as amended and that were not included in a previously filed Quarterly Report on Form 10-Q or in a Current Report on Form 8-K are set forth below.

ITEM 6.                         SELECTED FINANCIAL DATA.

Not applicable to a smaller reporting company.


 
19

 
 
ITEM 7.                         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operation for 2012 and 2011 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K.  We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

We are a development stage company formed in 2001. Our business model is to own and operate paintball facilities and to provide services and products in connection with paintball sport activities at our facilities and through a website. Our actions taken to date have consisted of organizing our company, designing our business plan, including interviews with industry participants, visits to paintball field and retail facilities, evaluating website development firms, architectural firms, trademark attorneys, and suppliers of paintball markers, paintballs, and equipment, as well as real estate brokers.

As described later in this section, our ability to fully implement our business plan is dependent on raising sufficient capital to fund the further development of our company.  Going forward, we expect that our efforts will be focused on achieving this goal.  While we have raised funds in private offerings, there are no assurances, however, that we will be able to raise all of the necessary capital and without access to funding we will be unable to pursue other aspects of our business development and may have to cease operations completely.

Going Concern

We reported a net loss of $63,526 for 2012 and we have incurred accumulated losses of approximately $1.3 million since inception through December 31, 2012. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2012 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our operating losses and need to raise additional capital. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to increase our revenues and report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.

Plan of Operations

To date, we have funded our activities through debt as well as through working capital advances from a related party. In order to fully organize our company and implement the first phase of our business model, we will need to raise approximately $500,000. Given the development stage nature of our company and the current status of the capital markets, there are no assurances we will be able to raise the necessary capital. Even if we are ultimately able to raise the capital, there are no assurances that our business model will be successful or that we will ever develop any revenue generating operations. However, assuming we are able to raise the capital, we expect to begin the launch of phase one of operating plans within six to nine months of receiving the capital.


 
20

 
 
Results of Operations

For the Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

During the years ended December 31, 2012 and 2011, we did not recognize any revenue from our operations.  We do not expect to recognize revenues from our operations in 2013, as management is focused on raising sufficient capital to fund the further development of our company.

During the year ended December 31, 2012, we recognized operational expenses of $46,396 compared to $172,682 during the year ended December 31, 2011.  The decrease of $126,286 or 73% was the result of reduced professional fees.

We expect that these expenses to increase during 2013 as we begin to further implement our business plan, although we are unable at this time to quantify the actual amount of this anticipated increase as it will be based upon our varying level of operations.

Material Changes in Financial Condition

From December 31, 2011 to December 31, 2012 cash and cash equivalents decreased from $522 to $134.  Total current liabilities increased from $226,993 to $272,131.  The increase in total current liabilities of $45,138 was attributable to increases in accounts payable of $13,722, accrued payroll of $14,285, and accrued interest of $17,131.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash.  At December 31, 2012, we had a working capital deficit of $271,997 as compared to a working capital deficit of $226,471 at December 31, 2011. Historically we have relied upon debt funding and advances and loans from related parties to fund our cash needs.  Our current liabilities increased $45,138 at December 31, 2012 from December 31, 2011 primarily related to an increase in accounts payable of approximately $13,722, an increase in accrued payroll of $14,285, and an increase in accrued interest on our various debt obligations of $17,131.

As of December 31, 2012 we have $251,924 principal amount and $42,148 of accrued interest due under the terms of various promissory notes.  These notes, which are unsecured, are all in default and we do not have sufficient funds to repay these obligations.  As a result of the default, the note holders could enforce their rights under these notes at any time.

Net cash used in operating activities for the year ending December 31, 2012 was $388 as compared to net cash used in operating activities of $50,464 for the year ending December 31, 2011.  During the year ending December 31, 2012, net cash used in operating activities included increases in accounts payable and accrued expenses.  We did not generate or use any cash from investing activities as of December 31, 2012 and 2011.  Net cash provided by financing activities in each of the year ended December 31, 2011, reflects proceeds from shareholder advances and related party line of credit facility. We did not generate or use any cash from financing activities as of December 31, 2012.

We have not generated any revenues and we are dependent upon advances from a related party to fund our ongoing general and administrative expenses and satisfy our obligations.  We need to initially raise $500,000 to fund the initial launch of our business plan, in addition to funds necessary to satisfy our current obligations.  We do not, however, have any agreements or understanding with any third party to provide this financing.  Until we can raise the necessary funds, we will be unable to further implement our business plan.  Given the development stage nature of our company and the thinly traded nature of the public market for our common stock, there are no assurances we will be able to raise the necessary capital.  If we are unable to raise capital as necessary, our ability to continue as a going concern is in jeopardy and investors could lose their entire investment in our company.


 
21

 
 
Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 1 to the financial statements included in this Report.  Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

ITEM 7A.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for a smaller reporting company.

ITEM 8.                         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
 
 
22

 


LBB & Associates Ltd., LLP
10260 Westheimer Road, Suite 310
Houston, TX 77042
Phone: (713) 800-4343 Fax: (713) 583-2263

Report of Independent Registered Public Accounting Firm

To the Board of Directors of
Atomic Paintball, Inc.
(A Development Stage Company)
Southlake, Texas

We have audited the accompanying balance sheets of Atomic Paintball, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related statements of operations, stockholders' deficit, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atomic Paintball, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2013 raise substantial doubt about its ability to continue as a going concern. The 2012 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LBB & Associates Ltd., LLP
/s/ LBB & Associates Ltd., LLP
Houston, Texas
July 7, 2014




 
F - 1

 

ATOMIC PAINTBALL, INC.
 
(A DEVELOPMENT STAGE COMPANY)
 
BALANCE SHEETS
 
             
             
   
DECEMBER 31,
 
   
2012
   
2011
 
Current Assets
           
Cash & cash equivalents
  $ 134     $ 522  
                 
TOTAL ASSETS
  $ 134     $ 522  
                 
                 
                 
Current Liabilities
               
                 
Accounts Payable
  $ 165,939     $ 152,217  
Accrued payroll
    52,198       37,913  
Accrued Interest
    42,148       25,017  
Note payable - related party
    11,846       11,846  
      272,131       226,993  
                 
                 
Convertible note payable - related party
    143,733       143,733  
Line on credit - related party
    96,345       96,345  
Total Liabilities
    512,209       467,071  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' DEFICIT
               
                 
Preferred Stock, no par value: 2,000,000 shares authorized
    -       -  
Series A Convertible Preferred Stock, no par value;
               
400,000 shares authorized
               
no shares issued and outstanding
               
at December 31, 2012 and December 31, 2011
    -       -  
Common Stock, no par value: 10,000,000 shares authorized,
               
4,418,549 and 4,378,549 shares issued and outstanding
               
at December 31, 2012 and December 31, 2011, respectively
    629,790       611,790  
Additional paid in capital
    204,218       204,218  
Deficit accumulated during the development stage.
    (1,346,083 )     (1,282,557 )
      (512,075 )     (466,549 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 134     $ 522  

See accompanying Notes to Financial Statements.


 
F - 2

 
 
ATOMIC PAINTBALL, INC.
 
(A DEVELOPMENT STAGE COMPANY)
 
STATEMENTS OF OPERATIONS
 
                   
               
From Inception
 
               
(May 8, 2001)
 
   
For the Years Ended
   
Through
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
 
               
(Unaudited)
 
OPERATING EXPENSES
                 
                   
General and Administrative
  $ 46,396     $ 172,682     $ 1,271,471  
Depreciation and amortization
    -       -       6,835  
                         
Total Operating Expenses
    46,396       172,682       1,278,306  
                         
OPERATING LOSS
    (46,396 )     (172,682 )     (1,278,306 )
                         
OTHER INCOME (EXPENSE)
                       
Interest Expense
    (17,130 )     (12,886 )     (67,777 )
                         
Loss before Income Taxes
    (63,526 )     (185,568 )     (1,346,083 )
                         
Income tax expense
    -       -       -  
                         
NET LOSS
  $ (63,526 )   $ (185,568 )   $ (1,346,083 )
                         
NET LOSS PER COMMON SHARE
                       
                         
Basic & Diluted
  $ (0.01 )   $ (0.04 )        
                         
WEIGHTED AVERAGE NUMBER OF
                       
COMMON SHARES OUTSTANDING
                       
                         
Basic & Diluted
    4,415,981       4,291,919          

See accompanying Notes to Financial Statements.


 
F - 3

 

ATOMIC PAINTBALL, INC.
 
(A DEVELOPMENT STAGE COMPANY)
 
STATEMENTS OF STOCKHOLDERS' DEFICIT
 
FROM INCEPTION (MAY 8, 2001) THROUGH DECEMBER 31, 2012
 
                                           
                                 
Accumulated
       
                                 
deficit during
       
   
Preferred Stock
   
Paid in
   
Common Stock
   
Development
       
   
Shares
   
Amount
   
Capital
   
Shares
   
Amount
   
Stage
   
Total
 
     #     $            #     $     $     $  
                                                       
Balance at May 8, 2001 (date of inception)
    -       -       -       -       -       -       -  
Issuance of common stock for cash on May 8, 2000 at $0.005 per share
    -       -       -       200,000       1,000       -       1,000  
Issuance of common stock for services on June 20, 2001 at $0.01 per share
    -       -       -       600,000       6,000       -       6,000  
Net loss for the period from inception (May 8, 2001) through December 31, 2001
    -       -       -       -       -       (6,815 )     (6,815 )
Balance at December 31, 2001 (Unaudited)
    -       -       -       800,000       7,000       (6,815 )     185  
Net loss for the year ended December 31, 2002
    -       -       -       -       -       (4,155 )     (4,155 )
Balance at December 31, 2002 (Unaudited)
    -       -       -       800,000       7,000       (10,970 )     (3,970 )
Issuance of Series A Convertible Preferred Stock for cash during October and November 2003 at $0.25 per share
    116,000       29,000       -       -       -       -       29,000  
Net loss for the year ended December 31, 2003
    -       -       -       -       -       (47,656 )     (47,656 )
Balance at December 31, 2003 (Unaudited)
    116,000       29,000       -       800,000       7,000       (58,626 )     (22,626 )
Issuance of Series A Convertible Preferred Stock for cash during February 2004 at $0.25 per share
    184,000       46,000       -       -       -       -       46,000  
Net loss for the year ended December 31, 2004
    -       -       -       -       -       (62,156 )     (62,156 )
Balance at December 31, 2004 (Unaudited)
    300,000       75,000       -       800,000       7,000       (120,782 )     (38,782 )
Net loss for the year ended December 31, 2005
    -       -       -       -       -       (6,148 )     (6,148 )
Balance at December 31, 2005 (Unaudited)
    300,000       75,000       -       800,000       7,000       (126,930 )     (44,930 )
Issuance of common stock for services on August 31, 2006 at $0.042857 per share
    -       -       -       2,780,376       119,159       -       119,159  
Issuance of common stock in settlement of debt on September 8, 2006 at $0.042857 per share
    -       -       -       323,080       13,846       -       13,846  
Conversion of Series A Convertible Preferred Stock into Common Stock on a 1:2 basis during September 2006
    (112,000 )     (28,000 )     -       224,000       28,000       -       -  
Issuance of common stock for services on December 1, 2006 at $0.042857 per share
    -       -       -       100,000       4,286       -       4,286  
Issuance of common stock for services on December 8, 2006 at $0.042857 per share
    -       -       -       100,000       4,286       -       4,286  
Issuance of common stock for services on December 18, 2006 at $0.042857 per share
    -       -       -       150,000       6,429       -       6,429  
Issuance of common stock in settlement of debt on September 8, 2006 at $0.042857 per share
    -       -       -       697,674       30,000       -       30,000  
Issuance of common stock for services on December 22, 2006 at $0.042857 per share
    -       -       -       100,000       4,286       -       4,286  
Net loss for the year ended December 31, 2006
    -       -       -       -       -       (200,182 )     (200,182 )
Balance at December 31, 2006 (Unaudited)
    188,000       47,000       -       5,275,130       217,290       (327,112 )     (62,822 )
 
 
 
F - 4

 
 
Conversion of Series A Convertible Preferred Stock into Common Stock on a 1:2 basis during September 2006
    (144,000 )     (36,000 )     -       288,000       36,000       -       -  
Conversion of Series A Convertible Preferred Stock into Common Stock on a 1:2 basis on February 5, 2007
    (36,000 )     (9,000 )     -       72,000       9,000       -       -  
Issuance of common stock in settlement of debt on September 8, 2006 at $0.042857 per share
    -       -       -       697,674       30,000       -       30,000  
Issuance of common stock for cash in April 2007 at $0.125 per share
    -       -       -       400,000       50,000       -       50,000  
Issuance of common stock for cash on May 2007 at $0.125 per share
    -       -       -       400,000       50,000       -       50,000  
Issuance of common stock for cash in November 2007 at $0.125 per share
    -       -       -       40,000       5,000       -       5,000  
Issuance of common stock for services in November 2007 at $0.125 per share
    -       -       -       300,000       37,500       -       37,500  
Conversion of Series A Convertible Preferred Stock into Common Stock on a 1:2 basis on February 5, 2007
    (8,000 )     (2,000 )     -       16,000       2,000       -       -  
Net loss for the year ended December 31, 2007
    -       -       -       -       -       (166,969 )     (166,969 )
Balance at December 31, 2007 (Unaudited)
    -       -       -       7,488,804       436,790       (494,082 )     (57,292 )
Net loss for the year ended December 31, 2008
    -       -       -       -       -       (112,773 )     (112,773 )
Balance at December 31, 2008 (Unaudited)
    -       -       -       7,488,804       436,790       (606,855 )     (170,065 )
Net loss for the year ended December 31, 2009
    -       -       -       -       -       (181,557 )     (181,557 )
Balance at December 31, 2009
    -       -       -       7,488,804       436,790       (788,412 )     (351,622 )
Cancellation on common stock
    -       -       -       (3,530,255 )     -       -       -  
Common stock issued for services at $.50 per share
    -       -       -       20,000       10,000       -       10,000  
Common stock issued to Directors  at $.40 per share
    -       -       -       200,000       80,000       -       80,000  
Common stock to be issued for Officers fees at $.40 per share
    -       -       33,000       -       -       -       33,000  
Capital contribution of services
    -       -       4,000       -       -       -       4,000  
Forgiveness of amounts owed to related party
    -       -       199,218       -       -       -       199,218  
Net Income for the year ended December 31, 2010
    -       -       -       -       -       (308,577 )     (308,577 )
Balance at December 31, 2010
    -       -       236,218       4,178,549       526,790       (1,096,989 )     (333,981 )
Common stock issued for Officers fees at $.40 per share
    -       -       (33,000 )     100,000       40,000       -       7,000  
Common stock issued for Officers fees at $.45 per share
    -       -       -       100,000       45,000       -       45,000  
Capital contribution of services
    -       -       1,000       -       -       -       1,000  
Net Income for the year ended December 31, 2011
    -       -       -       -       -       (185,568 )     (185,568 )
Balance at December 31, 2011
    -       -       204,218       4,378,549       611,790       (1,282,557 )     (466,549 )
Common stock issued for Officers fees at $.45 per share
    -       -       -       40,000       18,000       -       18,000  
Net loss for the year ended December 31, 2012
    -       -       -       -       -       (63,526 )     (63,526 )
Balance at December 31, 2012
    -       -     $ 204,218       4,418,549     $ 629,790     $ (1,346,083 )   $ (512,075 )
 
See accompanying Notes to Financial Statements.
 
 
 
F - 5

 
 
ATOMIC PAINTBALL, INC.
 
(A DEVELOPMEMENT STAGE COMPANY)
 
STATEMENTS OF CASH FLOWS
 
                   
               
FROM INCEPTION
 
               
(May 8, 2001)
 
   
For the Years Ended
   
THROUGH
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
 
CASH FLOW  FROM OPERATING ACTIVITIES
             
(Unaudited)
 
                   
NET LOSS
  $ (63,526 )   $ (185,568 )   $ (1,346,083 )
                         
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
                       
USED IN OPERATING ACTIVITIES
                       
Depreciation
    -       -       6,835  
  Loss on Disposal of Fixed Assets
    -       -       3,464  
     Issuance of Common Stock For Services
    18,000       52,000       374,944  
  Capital contribution of services
    -       1,000       5,000  
  Gain on Settlement of Liabilities
    -       -       (13,600 )
CHANGES IN OPERATING ASSETS & LIABILITIES
                       
  Decrease in prepaid expenses
    -       6,699       -  
  Increase in accounts payable
    13,722       18,061       338,272  
  Increase in accrued expenses
    31,416       57,344       110,503  
     Total Cash Flow Used In Operating Activities
    (388 )     (50,464 )     (520,665 )
                         
CASH FLOW FROM INVESTING ACTIVITIES
                       
  Purchase of Fixed Assets
    -       -       (10,299 )
     Total Cash Flow Used In Investing Activities
    -       -       (10,299 )
                         
CASH FLOW FROM FINANCING ACTIVITIES
                       
     Advances Under Loans From Shareholders
    -       -       299,197  
     Advances Under Line of Credit - Related Party
    -       50,901       50,901  
     Net Proceeds from Issuance of Common Stock
    -       -       106,000  
     Net Proceeds from Issuance of Preferred Stock
    -       -       75,000  
     Total Cash Flow Provided By Financing Activities
    -       50,901       531,098  
                         
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS
    (388 )     437       134  
                         
Cash and Cash Equivalents at the beginning of the period
    522       85       -  
Cash and Cash Equivalents at the end of the period
  $ 134     $ 522     $ 134  
                         
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
                       
Cash paid for interest
  $ -     $ -     $ 207  
Cash paid for income tax
  $ -     $ -     $ -  
Conversion of accounts payable to long term debt
  $ -     $ -     $ 143,733  
Forgivesness of amounts owed to related party
  $ -     $ -     $ 199,218  
Conversion of preferred stock to common stock
  $ -     $ -     $ 75,000  
Reclass of due to related party balance to line of credit - related party
  $ -     $ -     $ 46,845  
 
 
See accompanying Notes to Financial Statements.

 
 
F - 6

 
 
ATOMIC PAINTBALL, INC.
(A Development Stage Company)
Notes to the Financial Statements
For the Years Ended December 31, 2012 and 2011

NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Atomic Paintball, Inc. (the “Company”) is a development stage corporation incorporated on May 8, 2001 in the State of Texas. The Company plans to own and operate paintball facilities and to provide services and products in connection with paintball sport activities at its to be established facilities and through a website.  

Reclassifications

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.  The reclassification has no impact on net loss.   

BASIS OF PRESENTATION

Development Stage Company

The Company has not earned any revenues from planned operations since inception.  Accordingly, the Company's activities have been accounted for as those of a "Development Stage Company."  Among the disclosures required by Accounting Standards Codification (“ASC”) 915 Development Stage Entities are that the Company's financial statements of operations, stockholders' equity and cash flows disclose activity since the date of the Company's inception.  The Company’s inception to date activities through December 31, 2012 is presented as unaudited, in accordance with written permission obtained by the Company from the Securities and Exchange Commission (“SEC”).

Accounting Basis

These financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

Cash and Cash Equivalents

For the purpose of the financial statements cash equivalents include all highly liquid investments with an original maturity of three months or less at the date of purchase.


 
F - 7

 
 
Fair Value of Financial Instruments

The accounting guidance establishes a fair value hierarchy based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflect the Company's own assumptions of market participant valuation (unobservable inputs). A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2—Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or
Level 3—Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.
 
The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company's or the counterparty's non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

 
Fair Value Measurements at Reporting Date Using
 
Description
 
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
               
Convertible note payable – related party – December 31, 2011
 
$
-
   
$
-
   
$
143,733
 
                         
Convertible note payable – related party – December 31, 2012
 
$
-
   
$
-
   
$
143,733
 
 
Stock Compensation

The Company follows FASB Accounting Standards Codification 718 – Compensation – Stock Compensation for share based payments to employees.  The Company follows FASB Accounting Standards Codification 505 for share based payments to Non-Employees.
 
 
 
F - 8

 

Earnings (Loss) per Share

The basic earnings (loss) per share are calculated by dividing the Company's net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the year. The diluted earnings (loss) per share are calculated by dividing the Company's net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There are no diluted shares outstanding as of December 31, 2012 and 2011. 
  
Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during the periods shown.

Income Taxes

The Company provides for income taxes in accordance with ASC 740 – Income Taxes.  ASC 740 requires the use of an asset and liability approach in accounting for income taxes.

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. No provision for income taxes is included in the statement due to its immaterial amount, net of the allowance account, based on the likelihood of the Company to utilize the loss carry-forward.

Advertising

The Company expenses advertising as incurred. The advertising since inception has been $0.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue and Cost Recognition

The Company has no current source of revenues; therefore the Company has not yet adopted any policy regarding the recognition of revenue or cost.

Recently issued accounting pronouncements
 
Management does not feel that the adoption of any recently issued, but not yet effective pronouncements, will have a material impact on the Company’s financial statements or financial condition.


 
F - 9

 
 
NOTE 2 - INCOME TAXES

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”).  Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to 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.  Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The income tax benefit for the periods ending December 31, 2012 and 2011 was approximately $15,000 and $45,000, respectively, offset by change in valuation allowances of the same amount.  The difference between the effective rate and the statutory rate is the result of the change in the valuation allowance.

At December 31, 2012 the Company had an unused net operating loss carry over of approximately $1.3 million that is available to offset future taxable income.  It expires beginning 2026.  The Company’s historical losses may not be available to the Company due to recent change in control.  Any deferred tax assets available to the Company at December 31, 2012 would be offset by a valuation allowance of the same amount, resulting in a deferred tax amount of $0.

The Company has filed no income tax returns since inception.

NOTE 3 - GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues to cover its operating costs and allow it to continue as a going concern. For the year ended December 31, 2012, the Company had incurred a net loss of $63,526.  Accumulated deficit from May 8, 2001 (date of inception) through December 31, 2012 totaled $1,346,083. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising capital to fund its business plan and ultimately to 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.


 
F - 10

 
 
NOTE 4 - NOTES PAYABLE

Our former President and then sole director, Barbara J. Smith, loaned us a total of $11,846 to pay for further research and development and for general corporate overhead.  This loan bears interest at an annual rate of 6.5%, was due on July 15, 2004 and was convertible at Ms. Smith's option into shares of our common stock at $0.25 per share.  This loan has not been repaid and Ms. Smith has declined to convert the outstanding balance into shares.  Accordingly, the entire balance of the loan continues to be outstanding and we continue to accrue interest on the balance outstanding.  As of December 31, 2012 and 2011 accrued interest amounted to $7,129 and $6,356, respectively.

NOTE 5 - RELATED PARTY TRANSACTIONS

On March 29, 2010, the Company entered into a $143,733 Convertible Promissory Note with J.H. Brech LLC, a related party. The Note accrues interest at 6% per annum and was due March 29, 2012.  Under the terms of the Note, J.H. Brech LLC has the right to convert all or part of the principal balance and accrued interest due under the Note into shares of the Company’s common stock at a conversion price of $0.50 per share. At December 31, 2012 and 2011, accrued interest amounted to $23,816 and $15,170, respectively.

In February 2011, the Company issued a total of 100,000 shares of common stock to Don Mark Dominey pursuant to a consulting agreement.  The shares were valued at $40,000.  The fair value was determined based on the quoted market price on the date of grant, February 2010.  $33,000 of the associated expense was recognized in 2010, and the remaining $7,000 has been recognized in the year ended December 31, 2011.  Because the Company’s common stock does not have a par value, the Company also reclassified the $33,000 recognized in 2010 from additional paid-in-capital upon actual issuance of the stock in 2011, so that the result of the issuance is an increase in common stock of $40,000.

On July 28, 2011, the Company entered into an Executive Employment Agreement with Don Mark Dominey, Chief Executive Officer, effective August 8, 2011, for a period of three (3) years and may be extended for additional one (1) year periods by written notice given by us to Mr. Dominey at least 60 days before the expiration of the term or the renewal term, as the case may be, unless the agreement shall have been earlier terminated pursuant to its terms. Mr. Dominey shall be (i) paid a base salary at an annual rate of one hundred thousand dollars ($100,000), (ii) entitled to an annual bonus equal to two percent (2%) of our annual revenues, payable monthly, not to exceed eighty thousand dollars ($80,000), and (iii) granted 240,000 shares of Atomic Paintball’s restricted common stock each year, accruing in increments of 20,000 shares each month of his term.  Each monthly allotment shall be fully vested and stock certificates will be made available to him, at his request, and will be provided by the company through the transfer agent in a reasonable amount of time to fulfill the transaction.  A significant portion of compensation expense for the year ended December 31, 2012 comprised of $14,285 for salary and $18,000 ($.45 per share) for the 40,000 shares of common stock owed to Mr. Dominey.
 
On February 21, 2012, Don Mark Dominey resigned from our Board of Directors and as our Chief Executive Officer; our Board appointed Mr. Darren C. Dunckel as Chief Executive Officer and Chairman of the Board.
 
 
 
F - 11

 

NOTE 7 - REVOLVING LINE OF CREDIT – RELATED PARTY

On July 13, 2011, the Company entered into an 8% revolving line of credit with J.H. Brech LLC, a related party, to provide access to funding for its operations up to $500,000. The principal hereof outstanding and any unpaid accrued interest thereon shall be due and payable on the date which is the earlier of (i) three years from the date of this Note, or (ii) the date on which the Company receives at least $1.5 million in gross proceeds through one or a series of transactions (the "Maturity Date"). This Note shall bear interest on the unpaid principal balance from time to time outstanding, until paid, at the rate of eight percent (8%) per annum. Interest shall be payable semi-annually on June 30 and December 31 of each year commencing June 30, 2011. 

As of December 31, 2012 and 2011, we owed $96,345 principal and accrued interest of $11,203 and $3,491, respectively.  Funding under this line of credit is presently in abeyance.  Management expects funding will restart in the next several months.  In the meantime, management is evaluating other, short-term, related party financing.  
 
Interest is payable at 8% per annum on the outstanding principal amount due under the revolving line of credit and is payable semi-annually on June 30 and December 31 of each year commencing June 30, 2011.  The principal and accrued interest is due on July 13, 2014.  At our sole discretion, we can pay the interest in shares of our common stock valued as follows:

if our common stock is not listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the Pink Sheets, interest shares are valued at the greater of $0.50 per share or the fair market value as determined in good faith by us based upon the most recent arms-length transaction, or

if our common stock is listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group (formerly, the Pink Sheets), interest shares will be valued at the greater of (A) the closing price of our common stock on the trading day immediately preceding the date the interest payment is due and payable, or (B) the average closing price of the common stock for the five trading days immediately preceding the date the interest payment is due and payable.

We may prepay the note at any time without penalty.  Upon an event of default, J.H. Brech LLC has the right to accelerate the note.  Events of default include:
 
our failure to pay the interest and principal when due, 
   
a default by us under the terms of the note, 
   
appointment of a receiver, filing of a bankruptcy provision, a judgment or levy against our company exceeding $50,000 or a default under any other indebtedness exceeding $50,000, 
   
a liquidation of our company or a sale of all or substantially all of our assets, or 
   
a change of control of our company as defined in the note. 
 
 
 
F - 12

 
 
NOTE 8 - STOCKHOLDERS' DEFICIT

Preferred Stock

We are authorized to issue up to 2,000,000 shares of preferred stock, no par value at the sole discretion of our Board of Directors in such series, and with such designations, rights, preference and restrictions, as shall be stated and expressed in the resolution(s) providing for the creation and issuance of such preferred stock.  In October 2003, our Board of Directors created a series of 400,000 shares of Series A Convertible Preferred Stock.  During the years ended December 31, 2003 and 2004, the Company sold 300,000 shares of Series A Convertible Preferred Stock for a total of $75,000 at a purchase price of $0.25 per share.  During the years ended December 31, 2006 and 2007 the Company converted the each share of Series A Convertible Preferred Stock into two shares of common stock.  At December 31, 2012 and 2011, there are no shares of Series A Convertible Preferred Stock issued and outstanding and no other series of preferred stock has been designated.

Common Stock

We are authorized to issue 10,000,000 shares of common stock, no par value per share.  The holders of common stock are entitled to one vote per share for the election of directors and with respect to all other matters submitted to a vote of stockholders.  Shares of common stock do not have a cumulative voting right, which means that the holders of more than 50% of such shares voting for the election of directors can elect 100% of the directors if they choose to do so.

Our common stock does not have preemptive rights, meaning that our common shareholders' ownership interest would be diluted if additional shares of common stock are subsequently issued and the existing shareholders are not granted the right, in the discretion of the Board of Directors, to maintain their ownership interest in us.

During the year ended December 31, 2012, the Company issued 40,000 shares of common stock valued at $18,000 to Mr. Dominey pursuant to our consulting agreement with him.

During the year ended December 31, 2011, the Company issued 100,000 shares of common stock valued at $45,000 to Mr. Dominey pursuant to our consulting agreement with him.

Two of our Directors each waived the director fees due them for the year ended December 31, 2011 and the Company recorded that amount as a capital contribution of $1,000 in services. 

In February 2011, the Company issued a total of 100,000 shares of common stock valued at $40,000.  The fair value was determined based on the quoted market price on the date of grant, February 2010.  $33,000 of the associated expense was recognized in 2010, and the remaining $7,000 has been recognized in the year ended December 31, 2011.  Because the Company’s common stock does not have a par value, the Company also reclassified the $33,000 recognized in 2010 from additional paid-in-capital upon actual issuance of the stock in 2011, so that the result of the issuance is an increase in common stock of $40,000.
 
 
 
F - 13

 

As of January 20, 2010, David J. Cutler has surrendered 3,530,255 shares of the common stock of the Company and they were cancelled.

In January 2010, the Company issued a total of 20,000 shares of common stock valued at $10,000 ($0.50 per share) for services.

In February 2010, the Company issued a total of 200,000 shares of common stock valued at $80,000 ($0.40 per share) to Directors for services.

2010 Stock Option and Award Incentive Plan

The 2010 Plan was approved by our stockholders at our 2010 annual meeting in June 2010.  The 2010 Plan provides for the grant of stock options to our directors, officers, employees, consultants, and advisors and is administered by a committee consisting of members of the Board of Directors, or in its absence, the Board of Directors.  The 2010 Plan provides for a total of 2,000,000 shares of common stock to be reserved for issuance subject to options.  Proportionate adjustments will be made to the number of shares of common stock subject to the 2010 Plan in the event of any change in our capitalization affecting our common stock, such as a stock split, reverse stock split, stock dividend, combination, recapitalization, or reclassification.  The Board or the committee, subject to Board approval, may also provide additional anti-dilution protection to a participant under the terms of such participant's option agreement or otherwise.  Shares of common stock subject to option grants that are canceled, terminated, or forfeited will again be available for issuance under the 2010 Plan. As of December 31, 2012 there were no options or other grants outstanding under the 2010 Plan.

2003 Stock Incentive Plan

Our Board of Directors and stockholders adopted the 2003 Stock Incentive Plan (the “2003 Plan”) in October 2003.  The 2003 Plan authorizes the Board or a committee, which administers the plan, to grant stock options, stock appreciation rights, restricted stock and deferred stock awards to our officers, other key employees and consultants.  A total of 2,000,000 shares of our common stock are available and reserved for issuance under the terms of the 2003 Plan. In the event of any sale of assets, merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting the stock, the Board or committee may make an equitable substitution or adjustment in the aggregate number of shares reserved for issuance under the 2003 Plan.  As of December 31, 2012 there are no options or other grants outstanding under the 2003 Plan.

NOTE 9.            COMMITMENTS AND CONTINGENCIES

At management’s option, the Company has the right to convert $94,362 of legal invoices included in accounts payable to common stock at the price of $.50 per share. As of the date of this Report, management has not exercised the right.

Management is not aware of any pending or threatened litigation involving the Company.


 
F - 14

 
 
NOTE 10.           SUBSEQUENT EVENTS

In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date of issuance of the audited financial statements. During this period, the Company did not have any material recognizable subsequent events.
 
 
 
 
  



 
F - 15

 


ITEM 9.               CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Larry O'Donnell, CPA, PC, formerly the independent registered public accountant for our company, resigned as our independent registered public accountant on October 26, 2010, purportedly due to his resigning from public audit work. We subsequently learned that the Public Company Accounting Oversight Board (PCAOB) revoked the registration of Larry O’Donnell, CPA, PC effective December 14, 2010 because of noncooperation with an investigation by the PCAOB. In connection with this action, Mr. O’Donnell was permanently barred from being an associated person of a registered public accounting firm and a civil money penalty of $75,000 was imposed. As a result of the revocation of registration of Larry O’Donnell, CPA, PC by the PCAOB, we may not include its audit reports in our filings with the Securities and Exchange Commission. Accordingly, we requested that the successor audit firm re-audit our 2009 financial statements and its report on our 2010 financial statements was included in our Annual  Report on Form 10-K for the fiscal year ended December 31, 2011.

On October 26, 2010, our Board of Directors approved the engagement of new auditors, LBB & Associates Ltd., LLP, of Houston, Texas to be our independent registered public accounting firm. The action to engage new auditors was approved by our Board of Directors.

In connection with audit of fiscal years ended December 31, 2009 and 2008 and the cumulative period of January 1, 2010 through June 30, 2010 and through the date of resignation of Larry O’Donnell, CPA, PC, no disagreements existed with the former independent registered public accountant on any matter of accounting principles or practices, financial statement disclosure, internal control assessment, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of the former accountant would have caused them to make reference in connection with their report to the subject of the disagreement(s).

The Independent Auditor Report by Larry O'Donnell, CPA, PC for the fiscal years ended December 31, 2009 and 2008, contained an opinion which included a paragraph discussing uncertainties related to continuation of our company as a going concern.

During our two most recent fiscal years and the subsequent interim periods prior to retaining LBB & Associates Ltd., LLP neither we nor anyone on our behalf consulted LBB & Associates Ltd., LLP regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K and LBB & Associates Ltd., LLP did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.

ITEM 9A.            CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on the existence of the material weaknesses discussed below in “Management's Report on Internal Control Over Financial Reporting,” our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this Report.
 
 
 
23

 

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on 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.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
 
o
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 
o
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.  generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and

 
o
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2012 due to the existence of the material weaknesses as of December 31, 2012, discussed below. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected in the following areas:
 
 
 
24

 

·
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.  On November 10, 2010, the Board of Directors determined that our unaudited balance sheets at March 31, 2010 and June 30, 2011 and our unaudited statements of operations and cash flows for the quarterly and year to date periods then ended could no longer be relied upon as a result of errors in those financial statements. We failed to properly record $199,218 forgiven by a related party as a capital contribution.  Our unaudited balance sheets at March 31, 2010 and June 30, 2010 and our unaudited statements of operations and cash flows for the quarterly and year to date periods then ended were restated in our Quarterly Report on Form 10-Q for the period ended June 30, 2011. The impact at March 31, 2010 and for the quarterly period then ended was an increase in our accumulated deficit to $926,410 and a change in net income of $61,211 for the period as previously reported to a net loss of $138,007 for the period. The impact at June 30, 2010 and for the year to date period then ended was an increase in our accumulated deficit to $1,025,788 and an increase in our net loss to $237,376. Because we previously corrected this error in our Quarterly Report on Form 10-Q for the period ended September 30, 2010, there is no need to restate any other prior financial statement periods.

·
Inadequate segregation of duties within an account or process. Management has determined that it does not have appropriate segregation of duties within our internal controls that would ensure the consistent application of procedures in our financial reporting process by existing personnel. This control deficiency could result in a misstatement of substantially all of our financial statement accounts and disclosures that would result in a material misstatement to the annual or interim financial statements.

·
Inadequate Policies & Procedures.  Management has determined that its existing policies and procedures are limited and/or inadequate in scope to provide staff with guidance or framework for accounting and disclosing financial transactions.  This deficiency could result in unintended, misleading entries being made in the financial system and precluding sufficient disclosure of complex transactions.

·
Lack of sufficient subject matter expertise.  Management has determined that it lacks certain subject matter expertise relating to accounting for complex transactions and the disclosure of complex transactions related to accounting for income taxes. Our financial staff currently lacks sufficient training or experience in accounting for complex transactions and the required disclosure therein.

·
Failure to timely file all Current Reports on Form 8-K.  As reported in our Quarterly Report on Form 10-Q for the quarter ending June 30, 2011, we failed to timely file a Current Report on Form 8-K.

·
Failure to timely file reports due under the Securities Exchange Act of 1934, as amended.  Failure to timely file all period reports on Form 10-K and Form 10-Q. As of the date of this filing, we failed to timely file our Annual Reports on Form 10-K for years ended December 31, 2011, December 31, 2012 and December 31, 2013, and Quarterly Reports on Form 10-Q for quarters ended March 31, 2012, June 30, 2012, September 30, 2012, March 31, 2013, June 30, 2013, September 30, 2013, and March 31, 2014.
 
 

 
 
25

 
 
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to SEC rules that do not require smaller reporting companies such as the Company to provide such an auditor attestation report.

Remediation Plan for Material Weaknesses

The material weaknesses described above in "Management's Report on Internal Control Over Financial Reporting" comprise control deficiencies that we discovered during the financial close process for the December 31, 2012 fiscal period.

Management formulated a remediation plan in the first quarter of 2014 that will be implemented in our fiscal year 2014, which includes: (i) developing a set of policies and procedures to address inadequacies described above; and (ii) augmenting and allowing for additional training and education for select members of our financial staff.  In addition, efforts will be made to segregate the data initiation and preparation processes from the data entry process in order to ensure that different employees prepare data as compared to those who enter data into the financial system.

We believe that these measures, if effectively implemented and maintained, will remediate the material weaknesses discussed above.

Changes in Internal Control Over Financial Reporting

We are currently undertaking a number of measures to remediate the material weaknesses discussed under “Management’s Report on Internal Control Over Financial Reporting” above.  Those measures, described under “Remediation Plan for Material Weaknesses,” will be implemented during our fiscal year 2014, and will materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.  Other than as described above, there have been no changes in our internal control over financial reporting during the fiscal year 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.  Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.  Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

ITEM 9B.            Other Information.

Not applicable.
PART III

ITEM 10.             DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table and text set forth the names and ages of all directors and executive officers as of July 10, 2014.  On February 21, 2012, Don Mark Dominey resigned from our Board of Directors and as our Chief Executive Officer; our Board appointed Mr. Darren C. Dunckel as Chief Executive Officer and Chairman of the Board. There were no disagreements between Mr. Dominey and our company that led to his resignation. On March 16, 2012, Steven W. Weathers resigned as a director of the Company.  There were no disagreements between Mr. Weathers and our Company that led to his resignation.  On March 16, 2012, Messrs. John Stone and Doug Schmidt were elected by the board to serve as directors of the Company.  On June 25, 2014, Messrs.  Stone and Schmidt submitted their resignations as directors of the Company. There were no disagreements between Mr. Stone and our Company, or between Mr. Schmidt and our Company, that led to their resignations. As of the date of this filing, Mr. Dunckel is the sole director of the Company.
 
 
 
26

 

There are no family relationships among our directors and executive officers. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified. Also provided herein are brief descriptions of the business experience of each director, executive officer and advisor during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws. None of our officers or directors is a party adverse to us or has a material interest adverse to us.
 
Name
Age
Position
Darren C. Dunckel
 45
CEO, President and Director

Darren C. Dunckel, CEO, President and Chairman.  Mr. Dunckel served as Chief Executive Officer and Director at Forex International Trading Corp. from 2010 to 2011. Under his direction Forex International Trading went from a development stage shell corporation to a fully reporting operating company. From 2005 to 2010, Mr. Dunckel served as the President of several privately owned companies. As President, he oversaw management of real estate acquisitions, development and sales in the United States and overseas. In addition, from September 2007 to April 2009 Mr. Dunckel served on the Board of Directors of Emvelco Corp., a publically traded company. From 2004 to 2010, Mr. Dunckel served as the President of My Daily Corporation, a development stage financial services company. From 2002 through 2004, Mr. Dunckel was Vice President, Regional Director for the Newport Group managing a territory for financial and consulting services. From 2000 to 2002, Mr. Dunckel was Vice President, Regional Director for New York Life Investment Management consulting with financial advisors and corporations with respect to investments and financial services.

Involvement in Certain Legal Proceedings
 
To the best of the Company's knowledge, other than as set forth herein, none of the following events occurred during the past ten years that are material to an evaluation of the ability or integrity of any of our executive officers or directors:
 
(1) A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
 
(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
 
(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
 
 
 
27

 
 
(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
 
(ii) Engaging in any type of business practice; or
 
(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
 
(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;
 
(5) Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
 
(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
 
(7) Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
 
(i) Any Federal or State securities or commodities law or regulation; or
 
(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
 
(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
 
(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
Corporate Governance

Our Board of Directors has three directors and has not established Audit, Compensation, and Nominating or Governance Committees as standing committees. The Board does not have an executive committee or any committees performing a similar function. We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the board of directors be independent; none of our current directors are independent.
 
 
 
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Due to our lack of operations and size, we do not have an Audit Committee. Furthermore, since we are not currently listed on a national securities exchange, we are not subject to any listing requirements mandating the establishment of any particular committees.  For these same reasons, we did not have any other separate committees during fiscal 2012; all functions of a nominating committee, audit committee and compensation committee were performed by our whole board of directors.  Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges as necessary. Therefore, we intend that a majority of our directors will eventually be independent directors and at least one director will qualify as an “audit committee financial expert.”

We do not have a policy regarding the consideration of any director candidates which may be recommended by our shareholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. Further, when identifying nominees to serve as director, while we do not have a policy regarding the consideration of diversity in selecting directors, as such time as we begin to expand our Board, we expect that our Board will seek to create a Board of Directors that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance.  We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our shareholders, including the procedures to be followed.  Our Board has not considered or adopted any of these policies as we have never received a recommendation from any shareholder for any candidate to serve on our Board of Directors.  Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our shareholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.  In considering a director nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our Board.

Board Leadership Structure and the Board’s Role in Risk Oversight.   

The Board of Directors maintains a structure with the Chief Executive Officer of the Company holding the position as Chairman of the Board of Directors.
 
The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board.  The Board believes that there is no one best leadership structure model that is most effective in all circumstances and retains the authority to separate the position of Chairman and Chief Executive Officer in the future if such change is determined to be in our best interests and the best interests of our shareholders.
 
The Board of Directors utilizes a leadership structure that has the Chief Executive Officer (who is the Corporation’s principal executive officer and a director) who also acts in the capacity as Board Chairman, without a designated independent lead director. This structure creates efficiency in the preparation of the meeting agendas and related Board materials as the Company’s Chief Executive Officer works more directly with those preparing the necessary board materials and is more connected to the overall daily operations of the Company. Agendas are also prepared with the permitted input of the full Board of Directors allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company has benefited from this structure and, Mr. Dunckel's continuation in the combined role of the Chairman and Chief Executive Officer is in the best interests of the shareholders.
 
 
 
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The Company believes that this structure is appropriate and allows for efficient and effective oversight, given the Company’s relatively small size (both in terms of number of employees and in scope of operational activities directly conducted by the Company), its corporate strategy and its focus on research and development. The Board of Directors does not have a specific role in risk oversight of the Company. The Chairman, President and Chief Executive Officer and, as needed, other executive officers and employees of the Company provide the Board of Directors with information regarding the Company’s risks.
 
Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act, as amended, requires that our directors, executive officers and persons who own more than 10% of a class of our equity securities that are registered under the Exchange Act to file with the SEC initial reports of ownership and reports of changes of ownership of such registered securities.
 
During our review process, we realized the persons noted below failed to comply with such requirements during our fiscal year ended December 31, 2012. It seems such persons failed to file their Initial Statement of Beneficial Ownership on Form 3, then in light of their failure to report changes in such beneficial ownership on a Form 4, failed to file an Annual Statement of Changes in Beneficial Ownership on a Form 5 regarding such holdings and transactions that should have been so reported in the previous year. We have reminded these persons about their obligations and it is our understanding that if they have not already, they will file all beneficial ownership forms required to date in the coming weeks.

The table below accounts for the Form 3, Form 4 and Form 5s of each person subject to Section 16(a).

Name
 
# of Late
Reports
 
Transactions Not
Timely Reported
 
Known Failures
to File a
Required Form
Darren Dunckel
 
0
 
0
 
0
John Stone
 
1
 
1
 
1
Douglas Schmidt
 
1 (1)
 
1
 
1
(1) As of the date of this Report, we believe this person has filed all forms required pursuant to Section 16(a).

Code of Business Conduct, Code of Ethics and Code of Ethics for Financial Professionals

We have adopted a Code of Business Conduct and Ethics to provide guiding principles to all of our employees, Chief Executive Officer and senior financial officers. Our Code of Business Conduct and Ethics does not cover every issue that may arise, but it sets out basic principles to guide our employees and provides that all of our employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. Any employee which violates our Code of Business Conduct and Ethics will be subject to disciplinary action, up to and including termination of his or her employment.   Generally, our Code of Business Conduct and Ethics provides guidelines regarding: 
 
 
 
30

 

 
· compliance with laws, rules and regulations;
 
· conflicts of interest;
 
· insider trading;
 
· corporate opportunities;
 
· competition and fair dealing;
 
· discrimination and harassment;
 
· health and safety;
 
· record keeping;
 
· confidentiality;
 
· protection and proper use of company assets;
 
· payments to government personnel;
 
· waivers of the Code of Business Conduct and Ethics;
 
· reporting any illegal or unethical behavior; and
 
· compliance procedures.

The Code of Ethics also subjects our Chief Executive Officer and senior financial officers to specific policies regarding:

 
· disclosures made in our filings with the Securities and Exchange Commission;
 
· deficiencies in internal controls or fraud involving management or other employees who have a significant role in our financial reporting, disclosure or internal controls;
 
· conflicts of interests; and
 
· knowledge of material violations of securities or other laws, rules or regulations to which we are subject.

Our codes of ethics are attached as exhibits to this Form.  Additionally, we will provide a copy, without charge, to any person desiring a copy of the Code of Business Conduct, the Code of Ethics and/or the Code of Ethics for Financial Professionals, by written request to, 2600 E. Southlake Boulevard, Suite 120-366, Southlake, Texas  76092.

ITEM 11.             EXECUTIVE COMPENSATION.

The following discussion summarizes all compensation awarded to, earned by, or paid to our principal executive officer, each other executive officer serving as such whose annual compensation exceeded $100,000, and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer of our company as of December 31, 2012, for all services rendered in all capacities to us for the latest two fiscal years ended December 31, 2012 and 2011.

We did not issue any compensation exceeding $100,000 in the last two fiscal years.  Our sole officer during fiscal 2011, Mr. Dominey, received stock awards valued at $33,000 during fiscal 2011, but otherwise has not received any compensation for the services he provided to us as Chief Executive Officer; he has only received shares of our common stock as compensation for services he rendered as a member of our Board of Directors.  As of the date of this Report, we have not determined the amount of compensation to be paid to Mr. Dunckel for his services as our Chief Executive Officer.  We continue to negotiate his compensation package and expect to finalize the terms in the near future.
 
 
 
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In February 2010, we entered into a Consulting Agreement with Mr. Dominey under which he agreed to serve as our Chief Executive Officer.  The term of the agreement is from month to month and may be terminated by either party upon 10 days' notice.  As compensation for his services to us under this agreement, Mr. Dominey was entitled to earn equity equivalent to 100,000 shares of our common stock valued at $40,000 with reasonable restrictions.  Pursuant to the agreement, in February 2011, we issued his designees 100,000 shares valued at $40,000.  The agreement also entitled Mr. Dominey to reimbursement for all reasonable travel, entertainment and other business expenses incurred by him in providing the services to us.  The agreement contained customary cross indemnification, confidentiality and non-compete provisions.  This agreement may be amended or revised at any time upon the determination of our Board of Directors.

On July 28, 2011, we entered into an Executive Employment Agreement with Mr. Dominey, effective August 8, 2011, for a period of three (3) years, although it could be extended for additional one (1) year periods by written notice given by us to Mr. Dominey at least 60 days before the expiration of the term or the renewal term, as the case may be, unless the agreement shall have been earlier terminated pursuant to its terms. The Employment Agreement replaced his Consulting Agreement referenced above.  Pursuant to the Employment Agreement, Mr. Dominey shall be (i) paid a base salary at an annual rate of one hundred thousand dollars ($100,000), (ii) entitled to an annual bonus equal to two percent (2%) of our annual revenues, payable monthly, not to exceed eighty thousand dollars ($80,000), and (iii) granted 240,000 shares of our common stock each year, accruing in increments of 20,000 shares each month of his term. Each monthly allotment shall be fully vested and stock certificates will be made available to him, at his request. As of February 21, 2012, the date Mr. Dominey resigned as CEO, we had accrued $52,198 of salary for Mr. Dominey, all of which has not been paid.

Outstanding Equity Awards at Fiscal Year-End

Neither Mr. Dunckel nor Mr. Dominey, the only persons required to be included in the outstanding equity awards table for fiscal 2012, had any outstanding equity awards that are required to be reported in such table for the fiscal year covered by this Report.

Stock Option Plans

Below is a summary of the principal provisions of the two plans and does not purport to be complete.  Reference is made to the full text of each of the plans, which are attached as Exhibit 4.4 and 4.5 to this Report.

2003 Stock Incentive Plan

Our Board of Directors and stockholders adopted the 2003 Stock Incentive Plan (the “2003 Plan”) in October 2003.  The 2003 Plan authorizes the Board or a committee, which administers the plan, to grant stock options, stock appreciation rights, restricted stock and deferred stock awards to our officers, other key employees and consultants.  A total of 2,000,000 shares of our common stock are available and reserved for issuance under the terms of the 2003 Plan. In the event of any sale of assets, merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting the stock, the Board or committee may make an equitable substitution or adjustment in the aggregate number of shares reserved for issuance under the 2003 Plan.  As of December 31, 2012 there are no options or other grants outstanding under the 2003 Plan.

The 2003 Plan permitted the granting of incentive stock options (ISO’s) and nonqualified stock options. ISOs may only be granted to our employees.  The term of any stock option is set by the Board or committee, but cannot exceed 10 years in the case of ISOs.   Stock options become exercisable, in full or in installments, for shares of common stock at the time determined by the Board or committee, but generally a stock option will not be exercisable prior to six months from the date of the grant of a stock option.  The exercise price per share of stock options is determined by the Board or committee at the time of grant, but must be equal to 100% of the fair market value of our common stock on the date of grant.
 
 
 
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Stock appreciation rights may be granted in conjunction with nonqualified stock options granted under the 2003 Plan to our officers, employees and consultants.  Stock appreciation rights may only be exercised at such time and to the extent the underlying options are exercisable.  These stock appreciation rights entitle the holder, upon exercise of the stock appreciation right, to receive an amount in any combination of cash or our unrestricted common stock equal in value to the excess of the fair market value on the date of exercise of the stock appreciation rights of one share of our common stock over the exercise price per share of the connected stock option multiplied by the number of shares for which the stock appreciation right is exercised.  Each stock appreciation right will terminate upon the termination of the related option.

The Board or committee may also award non-transferable restricted shares of our common stock to our officers and key employees.  Such restricted shares will be subject to such conditions and restrictions as the Board or committee may determine.  The Board or committee will determine to whom restricted shares will be granted, the number of shares to be awarded, the price, if any, to be paid by the  recipient, the times within which such awards may be subject to forfeiture and all other conditions of the award.  During the restriction period set by the Board or committee, the recipient may not sell, transfer, pledge or assign restricted shares awarded to the recipient under the 2003 Plan. If a recipient of restricted stock terminates employment for any reason other than death, disability or retirement prior to the end of the restriction period determined by the Board or committee, the participant will forfeit all shares still subject to restriction in exchange for the amount,  if any,  that the participant paid for them.
 
Deferred stock awards may be made under the 2003 Plan by the Board or committee to any of our officers, key employees and consultants it determines.  These awards entitle the recipient to receive unrestricted shares without any payment in cash or property in one or more installments at a future date or dates, as determined by the Board or committee.  Each deferred stock award will be confirmed by and subject to the terms of a deferred stock award agreement executed by us and the recipient and may generally not be sold, assigned, transferred, pledged or otherwise encumbered during the period specified by the Board or committee.  Receipt of deferred stock may be conditioned on such matters as the Board or committee may determine, including continued employment or attainment of performance goals.  All rights under a deferred stock award will generally terminate upon the participant's termination of employment prior to the receipt of unrestricted shares.

Under the 2003 Plan, each year the Chairman of the Board of Directors or the Board or committee will designate those executives eligible to convert salary and bonus to stock options for the next year.  These eligible executives may then, prior to the beginning of the next calendar year, elect to convert up to 25% of their next year's salary and 25% of their next year's bonus (in either 5% or $10,000 increments) into stock options under the plan. On the last day of each calendar year, the total amount of salary, bonus and compensation an eligible executive elected to convert into stock options for that calendar year will be converted into stock options. The number of shares of common stock subject to stock options that are converted from salary, bonus or compensation will be the total dollar amount an eligible executive has elected to convert into stock options divided by the per share value of a stock option on the last day of that year, as determined by the Board or committee using any recognized option valuation model it selects.  Options converted from salary, bonus or compensation are generally exercisable, cumulatively, as to 10% commencing on each of the first through the 10th anniversaries of the day the option is converted.
 
 
 
33

 

The exercise price per share of common stock under stock options obtained by conversion of salary, bonus or compensation will, at the election of the holder of the option prior to the year for which the option is converted from salary, bonus or cash, be either 100% of the fair market value on the last day of the year when the option is obtained or a lesser percentage determined by the Board or committee from time to time, but not less than 75% of the fair market value on the last day of the year when the option is obtained.

The Plan provides that in the event of a change of control of our company unless otherwise determined by the Board or committee prior to the change of control, and, to the extent expressly provided by the Board or committee, in the event of a potential change of control, the following will occur:

·
any stock appreciation rights and any stock options that are not previously exercisable and vested will become fully exercisable and vested;
·
the restrictions and deferral limitations on restricted stock and deferred stock awards will lapse and these shares and awards will become fully vested; and
·
the value of all outstanding stock options, stock appreciation rights, restricted stock and deferred stock awards will, to the extent determined by the Board or committee, be settled on the basis of the change of control price as of the date the change of control occurs.

The 2003 Plan is unlimited in duration and, in the event of termination of the Plan,  will remain in effect as long as any  benefits  granted  under the 2003 Plan remain outstanding;  provided,  however, that no Incentive Stock Option may be granted more than ten years after the date of the approval of the Plan by the shareholders of the Company.  As of the date of this Report, no benefits have been granted under the 2003 Plan.

2010 Stock Option and Award Incentive Plan

The 2010 Plan was approved by our stockholders at our 2010 annual meeting in June 2010.  The 2010 Plan provides for the grant of stock options to our directors, officers, employees, consultants, and advisors and is administered by a committee consisting of members of the Board of Directors, or in its absence, the Board of Directors.  The 2010 Plan provides for a total of 2,000,000 shares of common stock to be reserved for issuance subject to options.  Proportionate adjustments will be made to the number of shares of common stock subject to the 2010 Plan in the event of any change in our capitalization affecting our common stock, such as a stock split, reverse stock split, stock dividend, combination, recapitalization, or reclassification.  The Board or the committee, subject to Board approval, may also provide additional anti-dilution protection to a participant under the terms of such participant's option agreement or otherwise.  Shares of common stock subject to option grants that are canceled, terminated, or forfeited will again be available for issuance under the 2010 Plan. As of December 31, 2012 there were no options or other grants outstanding under the 2010 Plan.
 
The Board may grant nonqualified stock options or ISOs to purchase shares of common stock.  Any person who is not an employee on the effective date of the grant of an option to such person may be granted only a nonqualified stock option.  To the extent that options designated as ISOs become exercisable by a participant for the first time during any calendar year for stock having a fair market value greater than $100,000, the portions of such options that exceed such amount will be treated as nonqualified stock options.  The Board will determine the number and exercise price of options, and the time or times that the options become exercisable.  The term of an option will also be determined by the Board, provided that the term of a stock option may not exceed 10 years from the date of grant.

Each stock option agreement will specify the date when all or any installment of the option becomes exercisable.  In the case of an optionee who is not an officer of our company, a director or a consultant,  an option may become exercisable at a rate of no more than 25% per year over a four-year  period commencing on January 1 following the date of grant and 25% each year thereafter on January 1.
 
 
 
34

 

The 2010 Plan provides that in the event of a sale by us of all or substantially all of our assets, a merger with another company, the sale or issuance of more than 50% of our total issued and outstanding voting stock to another party or parties in a single transaction or in a series of related transactions, resulting in a change of control of our company, or a similar business combination or extraordinary transaction involving our company, all outstanding options granted to any officer, director, or employee of or key consultant to us which have not vested will accelerate to a date at least 10 business days prior to the closing date of such sale or similar business combination or extraordinary transaction.  The exercise of options the vesting of which has accelerated will not be effective until the closing date of the extraordinary transaction or business combination.  These vested options will terminate on the date of the closing of the event causing the vesting of the options to accelerate.  The vesting of the options is conditioned upon the closing of the transaction that causes the vesting of the options to accelerate.  If the transaction does not close within 30 days from the acceleration date, then the vesting of the accelerated options will not be effective, and the options will revert to their original vesting schedule, subject to acceleration again in accordance with the 2010 Plan if another extraordinary transaction or business combination is proposed and closed.

No option may be exercised after the expiration of 10 years after the date the option is granted.  Unless otherwise provided in the stock option agreement, no option may be exercised (i) three months after the date the optionee's service with us terminates if such termination is for any reason other than death, disability or cause, (ii) one year after the date the optionee's service with us terminates if such termination is a result of death or disability, and (iii) if the optionee's service with us terminates for cause, all outstanding options granted to the optionee will expire as of the commencement of business on the date of such  termination.  The administrator may, in its sole discretion, waive the accelerated expiration provided for in (i) or (ii).  Outstanding options that are not exercisable at the time of termination of employment for any reason will expire at the close of business on the date of such termination.

Following a termination of the participant's service the repurchase right shall be exercisable at a price equal to (i) the fair market value of vested stock or, in the case of exercisable options, the fair market value of the stock underlying such unexercised options less the exercise price, or (ii) the purchase price or exercise price, as the case may be, of unvested stock; provided, however, the right to repurchase unvested stock as described in the 2010 Plan will lapse at a rate of at least 33.33% per year over three years from the date the right is granted.

A repurchase right may be exercised only within 90 days after the termination of the participant's service, or in the case of stock issued upon exercise of an option or after the date of termination or the purchase of stock under a stock purchase agreement after the date of termination, within 90 days after the date of the exercise or stock purchase, whichever is applicable, for cash or for cancellation of indebtedness incurred in purchasing the shares.

Each stock option agreement and stock purchase agreement shall provide that, in connection with any underwritten public offering by us of our equity securities pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, including should we undertake an initial public offering, the participant will agree not to sell, make any short sale of, loan, hypothecate, pledge, grant any option for the repurchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of these types of transactions with respect to any stock without our prior written consent or the prior written consent of our underwriters, for a period of time as we may request.
 
 
 
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Unless earlier terminated by our Board, the 2010 Plan will expire in June 2020.

Director Compensation

On December 3, 2009 we entered into a director agreement with Mr. Dominey, which was for an initial one year term and continues automatically for as long as the individual remains a member of our Board.  Under the terms of the agreement, Mr. Dominey is entitled to receive a fee of $500 per quarter and to be reimbursed for reasonable business expenses incurred in the performance of his duties as a member of our Board of Directors.  We agreed to indemnify Mr. Dominey to the extent permitted under our Articles of Incorporation and Bylaws, and the applicable laws of the State of Texas.  We granted Mr. Dominey 100,000 shares of our common stock valued at $80,000 as additional compensation when we entered into the agreement.
 
We do not have any formal written agreements with any of our other directors.

The following table sets forth certain information concerning compensation paid to our directors for services as directors during the fiscal year ended December 31, 2012:

 
 
 
 
Name
Fees
earned
or paid
in cash
($)
Stock awards
($)
Option awards
($)
Non-equity
incentive
plan
compensation
($)
Non-
qualified
deferred
compensation
earnings
($)
All other
compensation
($)
Total
($)
Darren Dunckel
-
-
-
-
-
-
-
John Stone
2,000
-
-
-
-
-
2,000
Douglas Schmidt
2,000
-
-
-
-
-
2,000

Compensation Policies and Practices as they Relate to Risk Management

We believe that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us.  The design of our compensation policies and practices encourages our employees to remain focused on both our short- and long-term goals.


 
36

 
 
ITEM 12.             SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information regarding beneficial ownership of our Common Stock as of July 10, 2014 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent (5%) of the outstanding shares of our Common Stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. As of July 10, 2014, we had 4,418,549 shares of Common Stock issued and outstanding and 0 shares of Preferred Stock outstanding.
  
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of July 10, 2014.  For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of July 10, 2014 is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. 

Unless otherwise indicated, the business address of each person listed is in care of 2600 E. Southlake Boulevard, Suite 120-366, Southlake, Texas 76092. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

Name of Beneficial Owner
Amount and Nature of
Beneficial Ownership
% of Class
Darren Dunckel
-
 
-%
 
All officers and directors as a group (one person)
-
 
-%
 
J.H. Brech, LLC(1)
493,725(2)
 
13.22%
 
David J. Cutler (3)
395,469
 
9.03%
 
Mark Margolis(4)
400,000
 
9.14%
 
Jeffrey L. Perlmutter(5)
600,000
 
13.7%
 
Mark A. Armstrong (6)
300,000
 
6.85%
 

(1)           Sometime following the year ended December 31, 2011, Mr. Harry McMillan ("McMillan") became the majority owner of JHB and the CE McMillan Family Trust (the "CE Trust") became the managing member of JHB, with sole voting and dispositive control over shares held by JHB; McMillan is trustee of the CE Trust.  Mr. McMillan is the Trustee for the benefit of his wife, Christy McMillan and their children, who also own shares of our common stock and therefore, McMillan and the CE Trust may be deemed to beneficially own such shares.  Each disclaims beneficial ownership of such shares.

(2)           This amount includes: 175,921 shares of common stock and 317,804 shares issuable upon the conversion of $143,733 principal amount and approximately $15,169 of accrued interest as of December 31, 2011 due under a convertible promissory note which is convertible into shares of our common stock at a conversion price of $0.50 per share.

(3)           Mr. Cutler’s address is 2460 W 26 Street, Suite 380-C, Denver, CO  80220.
 
 
 
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(4)           Mr. Margolis’ address is 3395 Forest Trace Drive, Dacula, GA  30019.

(5)           Mr. Perlmutter’s address is 279 Moraine Road, Highland Park, IL  60035.

(6)           Mr. Armstrong’s address is 1902 Hunter Ridge Drive, Grapevine, TX  76051.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2012.
 
 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants a
nd rights (a)
Weighted
average
exercise price
of outstanding
options,
warrants
and rights (b)
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a)) (c)
Plan category
     
       
Plans approved by our shareholders:
     
2010 Stock Option and Award Incentive Plan
-
n/a
2,000,000
2003 Stock Option and Award Incentive Plan
-
n/a
2,000,000


ITEM 13.             CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Other than the relationships and transactions discussed below, we are not a party to, nor are we proposed to be a party, to any transaction since the beginning of the fiscal year ending December 31, 2012  involving an amount that exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which a related person, as such term is defined by Item 404 of Regulation S-K, had or will have a direct or indirect material interest.

Our first President and then sole director, Barbara J. Smith, loaned us a total of $11,864 for working capital.  This loan, which is evidenced by a promissory note dated July 1, 2003, bears interest at an annual rate of 6.5% and it matured on July 15, 2004. In lieu of repayment of the principal and interest, Ms. Smith had the right to elect to receive 43,600 shares of our common stock.  This loan was not been repaid and Ms. Smith has declined to convert the outstanding balance into shares.  As of December 31, 2012, we owed $11,864 under this note which includes the principal and $7,128 of accrued interest.

On February 18, 2010, we entered into a Consulting Agreement with J.H. Brech, LLC ("JHB") a principal stockholder of our company.  Under the terms of the agreement, JHB consults with us on a variety of matters including strategic planning, business development, internal capital structuring, and the structuring of debt or equity offerings, together with providing other advice we may request.  The agreement remains in effect until terminated by either party upon a breach of the agreement.  In 2011, the Company converted the balance owed to JHB of $45,444 into a revolving line of credit.  The agreement contains customary confidentiality provisions.
 
 
 
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As of December 31, 2012, we owed JHB $143,733 which represented funds it had advanced to us for working capital.  On March 29, 2010, we issued a Commercial Promissory Note in the principal amount of $143,733 to JHB evidencing this obligation.  The note, which bears interest at 6% per annum, was due on March 29, 2012. Currently the note is still outstanding and accruing interest.  At the option of the holder, the principal and accrued interest due under this note is convertible into shares of our common stock at a conversion price of $0.50 per share.  As of December 31, 2012, we owed $143,733 under this note which includes the principal and $23,816 of accrued interest.

Mr. Dominey and our former director, Mr. Weathers, each waived the director fees due them for the period ended September 30, 2011 and the Company recorded that amount as a capital contribution of $1,000 in services.

On July 13, 2011, we entered into an 8% revolving line of credit with JHB to provide access to funding for our operations up to $500,000. As of December 31, 2012 we owed $96,345 and accrued interest of $11,203. Funding under this line of credit are presently in abeyance. Management expects funding will restart in the next several months. In the meantime, management is evaluating other, short-term, related party financing.

Interest is payable at 8% per annum on the outstanding principal amount due under the revolving line of credit and is payable semi-annually on June 30 and December 31 of each year commencing June 30, 2011. The principal and any accrued but unpaid is due on July 13, 2014. At our sole discretion, we can pay the interest in shares of our common stock valued as follows:

if our common stock is not listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the Pink Sheets, interest shares are valued at the greater of $0.50 per share or the fair market value as determined in good faith by us based upon the most recent arms-length transaction; or

if our common stock is listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group (formerly, the Pink Sheets), interest shares will be valued at the greater of (A) the closing price of our common stock on the trading day immediately preceding the date the interest payment is due and payable, or (B) the average closing price of the common stock for the five trading days immediately preceding the date the interest payment is due and payable.

We may prepay the note at any time without penalty. Upon an event of default, JHB has the right to accelerate the note. Events of default include:

our failure to pay the interest and principal when due;
   
a default by us under the terms of the note;
   
appointment of a receiver, filing of a bankruptcy provision, a judgment or levy against our company exceeding $50,000 or a default under any other indebtedness exceeding $50,000;
   
a liquidation of our company or a sale of all or substantially all of our assets; or
   
a change of control of our company as defined in the note.
 
 
 
 
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