Deltron, Inc.
(A Development Stage
Company)
Interim Consolidated Statements of Cash Flows
(Unaudited)
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Cumulative
from
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Inception
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(September
14,
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2005) to
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Six Months
Ended March 31,
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March
31,
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2009
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2008
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2009
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OPERATING
ACTIVITIES
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Loss for the period
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$
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(9,467)
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$
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(8,504)
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$
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(81,820)
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Changes in Operating Assets and
Liabilities:
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Increase (decrease) in accounts
payable and
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accrued
liabilities
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3,279
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(712)
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4,179
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Net Cash Used in Operating
Activities
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(6,188)
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(9,216)
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(77,641)
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INVESTING
ACTIVITIES
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Development costs
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-
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-
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(12,514)
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Property purchased
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-
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-
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(40,657)
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Net Cash Used in Investing
Activities
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-
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-
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(53,171)
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FINANCING
ACTIVITIES
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Advances from (payments to)
related party
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-
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-
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42,265
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Common stock issued for
cash
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-
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-
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105,900
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Net Cash Provided by (used in)
Financing
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Activities
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-
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-
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148,165
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INCREASE (DECREASE) IN CASH
AND CASH
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EQUIVALENTS
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(6,188)
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(9,216)
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17,353
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CASH AND CASH EQUIVALENTS AT
BEGINNING
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OF PERIOD
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23,541
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38,816
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-
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CASH AND CASH EQUIVALENTS AT
END OF
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PERIOD
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$
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17,353
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$
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29,600
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$
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17,353
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Supplemental Cash Flow
Disclosures:
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Cash paid for:
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Interest expense
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$
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-
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$
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-
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$
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-
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Income taxes
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$
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-
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$
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-
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$
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-
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- The Accompanying
Notes Are An Integral Part Of These Financial Statements -
8
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
1.
Organization
and Description of Business
Deltron, Inc. (the “Company”) is a Nevada corporation incorporated
on September 14, 2005. It is based in San Jose, Costa Rica. The
Company incorporated a wholly owned subsidiary, Deltron Holdings Corporation
S.A., in San Jose, Costa Rica on November 17, 2005.
The
Company is a development stage company that intends to engage principally in the
acquisition and development of rental housing properties in the district of San
Isidro de Heredia, Costa Rica. To date, the Company’s activities have been
limited to its formation, the raising of equity capital and the acquisition and
development of property
(Note 4)
.
2.
Significant
Accounting Policies
Basis of Consolidation
These consolidated financial statements presented are those of the
Company and its wholly-owned subsidiary, Deltron Holdings Corporation S.A.
All intercompany balances and transactions have been eliminated.
Basis of Presentation
The accounting
and reporting policies of the Company conform to U.S. generally accepted
accounting principles (US GAAP) applicable to development stage companies.
Use of Estimates
The
preparation of financial statements in conformity with United States generally
accepted accounting principles 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 amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The
Company’s periodic filings with the Securities and Exchange Commission include,
where applicable, disclosures of estimates, assumptions, uncertainties and
markets that could affect the financial statements and future operations of the
Company.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, money market
funds, and certificates of term deposits with maturities of less than three
months from date of purchase, which are readily convertible to known amounts of
cash and which, in the opinion of management, are subject to an insignificant
risk of loss in value. The Company had $17,353 and $23,541 in cash and cash
equivalents at March 31, 2009 and September 30, 2008, respectively.
Start-Up
Costs
In
accordance with the American Institute of Certified Public Accountant’s
Statement of Position 98-5, “
Reporting on the Costs of Start-up
Activities,
” the Company expenses all costs incurred in connection with the
start-up and organization of the Company.
9
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
2.
Significant
Accounting Policies
– Continued
Fair Value of Financial Instruments and Derivative Financial
Instruments
The
Company has adopted Statement of Financial Accounting Standards (“SFAS”) Number
119,
“Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments”.
The carrying amounts of cash and cash
equivalents, accounts payable and amount due to related party approximate their
fair values because of the short maturity of these items. Certain fair
value estimates may be subject to and involve, uncertainties and matters of
significant judgment, and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect these estimates.
The Company does not hold or issue financial instruments for trading
purposes, nor does it utilize derivative instruments in the management of its
foreign exchange, commodity price or interest rate market risks.
Segment Reporting
SFAS Number 131,
“Disclosure About Segments of an Enterprise
and Related Information”
, changed the way public companies report
information about segments of their business in their quarterly reports issued
to shareholders. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in which it
holds assets and reports revenues and its major customers. The Company
presently operates only in Costa Rica.
Risks and Uncertainties
The
Company operates in the real estate development and property rental industry
that is subject to significant risks and uncertainties, including financial,
operational, technological and other risks associated with operating a real
estate development and property rental business, including the potential risk of
business failure.
Earning (Loss) Per Share of Common Stock
The
Company has adopted Financial Accounting Standards Board (“FASB”) Statement
Number 128,
“Earnings per Share,”
(“EPS”) which requires presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying financial statements, basic
loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period.
The
Company has no potentially dilutive securities, such as options or warrants,
currently issued and outstanding.
Comprehensive Income (Loss)
SFAS No. 130, “Reporting Comprehensive Income”, establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. From inception
(September 14, 2005) to March 31, 2009, the Company had no items of other
comprehensive income. Therefore, net loss equals comprehensive loss from
inception (September 14, 2005) to March 31, 2009.
10
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
2.
Significant
Accounting Policies
- Continued
Advertising
The
Company expenses its advertising as incurred. There has been no
advertising since inception.
Concentrations of Credit Risk
The
Company’s financial instruments that are exposed to concentrations of credit
risk primarily consist of its cash and cash equivalents and related party
payables. The Company places its cash and cash equivalents with financial
institutions of high credit worthiness. At times, its cash and cash
equivalents with a particular financial institution may exceed any applicable
government insurance limits. The Company’s management plans to assess the
financial strength and credit worthiness of any parties to which it extends
funds, and as such, it believes that any associated credit risk exposures are
limited.
Foreign Currency Translations
The
Company’s functional currency is the Costa Rican Colone. The Company’s reporting
currency is the U.S. dollar. All transactions initiated in Costa Rican
Colones are translated into U.S. dollars in accordance with SFAS No. 52 "Foreign
Currency Translation" as follows:
i)
Monetary assets and liabilities at the rate of exchange in effect
at the balance sheet date;
ii)
Equity at historical rates; and
iii)
Revenue and expense items at the average rate of exchange
prevailing during the period.
Adjustments arising from such translations are deferred until
realization and are included as a separate component of stockholders’ equity
(deficit) as a component of comprehensive income or (loss). Therefore,
translation adjustments are not included in determining net income (loss) but
reported as other comprehensive income (loss).
For foreign currency transactions, the Company translates these
amounts to the Company’s functional currency at the exchange rate effective on
the invoice date. If the exchange rate changes between the time of
purchase and the time actual payment is made, a foreign exchange transaction
gain or loss results which is included in determining net income (loss) for the
period. No significant realized exchange gains or losses were recorded since
September 14, 2005 (inception) to March 31, 2009
Revenue Recognition
The
Company recognizes revenue from the sale of products and services in accordance
with the Securities and Exchange Commission Staff Accounting Bulletin No. 104
(“SAB 104”),
“Revenue Recognition in Financial Statements.”
Revenue
will consist of rental income and will be recognized only when all of the
following criteria have been met:
i)
Persuasive evidence for an agreement exists;
ii)
Delivery has occurred;
iii)
The
fee is fixed or determinable; and
iv)
Revenue is reasonably assured.
11
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
2.
Significant
Accounting Policies - Continued
Recent Accounting Pronouncements
Recent accounting pronouncements that are listed below did and/or
are not currently expected to have a material effect on the Company’s financial
statements.
FASB Statements:
In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities,
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included in
the computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, “Earnings per
Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning on or after December 15, 2008 and earlier adoption is
prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe
that FSP EITF 03-6-1 would have material effect on our consolidated financial
position
and results of operations if adopted.
In
May 2008, the FASB issued SFAS No. 163,
“Accounting for Financial Guarantee
Insurance Contracts - an interpretation of FASB Statement No. 60.”
Diversity exists in practice in accounting for financial guarantee
insurance contracts by insurance enterprises under FASB Statement No. 60,
“Accounting and Reporting by Insurance Enterprises.”
That diversity
results in inconsistencies in the recognition and measurement of claim
liabilities because of differing views about when a loss has been incurred under
SFAS Statement No. 5,
“Accounting for Contingencies.”
This
Statement requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. This Statement is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and all
interim periods within those fiscal years.
In
May 2008, the FASB issued SFAS No. 162,
“The Hierarchy of Generally Accepted
Accounting Principles.”
This Statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.”
12
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
2.
Significant
Accounting Policies
- Continued
New Accounting
Pronouncements
- Continued
In
March 2008, the FASB issued SFAS No. 161,
“Disclosure about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133.”
The use and complexity of derivative instruments and hedging
activities have increased significantly over the past several years.
Constituents have expressed concerns that the existing disclosure requirements
in SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”
, do not provide adequate information about how derivative and
hedging activities affect an entity's financial position, financial performance,
and cash flows. Accordingly, this Statement requires enhanced disclosures about
an entity's derivative and hedging activities and thereby improves the
transparency of financial reporting. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008.
In
December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”
This
Statement amends ARB No. 51 to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards of the portion of equity in a subsidiary not attributable, directly or
indirectly, to a parent. SFAS No. 160 is effective for fiscal years, and
interim periods with those fiscal years, beginning on or after December 15, 2008
(that is, January 1, 2009, for entities with calendar year-ends).
In
December 2007, the FASB issued a revision to SFAS No. 141 (revised 2007),
“Business Combinations.”
The objective of this Statement is to
improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and its effects. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008.
3.
Capital Stock
Authorized Stock
The
Company has authorized 100,000,000 common shares with a par value of $0.001 per
share. Each common share entitles the holder to one vote, in person or
proxy, on any matter on which action of the stockholder of the corporation is
sought.
Share Issuances
From inception of the Company (September 14, 2005) to December 31,
2008, the Company has issued 500,000 common shares at $0.01 per share and
5,045,000 common shares at $0.02 per share, resulting in total proceeds of
$105,900 and 5,545,000 common shares issued and outstanding at March 31, 2009.
Of these shares, 400,000 were issued to a director of the Company, 400,000
were issued to a former director and officer, 1,000,000 were issued to the
spouse of a director of the Company, and 3,745,000 were issued to independent
investors.
13
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
4.
Development in Progress
On
March 29, 2006, through the wholly-owned subsidiary Deltron Holdings Corporation
S.A., a property was purchased for $40,657. The funds to purchase the property
were loaned to Deltron Holdings Corporation S.A., by the President of the
Company. As at March 31, 2009, the Company has incurred development costs
of $12,514, relating primarily to architecture and construction permit fees.
5.
Related Party Balances and Transactions
As
of March 31, 2009, the Company was obligated to a director of the Company, for a
non-interest bearing demand loan with a balance of $42,265. The Company
plans to pay the loan back as cash flows become available. Interest has
not been imputed on these advances due to its immaterial impact on the financial
statements.
6.
Provision for Income Taxes
The
Company recognizes the tax effects of transactions in the year in which such
transactions enter into the determination of net income, regardless of when
reported for tax purposes. Deferred taxes are provided in the financial
statements under SFAS No. 109 to give effect to the resulting temporary
differences which may arise from differences in the bases of fixed assets,
depreciation methods, allowances, and start-up costs based on the income taxes
expected to be payable in future years. Minimal development stage deferred tax
assets arising as a result of net operating loss carryforwards have been offset
completely by a valuation allowance due to the uncertainty of their utilization
in future periods. Operating loss carryforwards generated during the period from
September 14, 2005 (date of inception) through March 31, 2009 of $81,820 will
begin to expire in 2025. Accordingly, deferred tax assets of approximately
$28,500 were offset by the valuation allowance, which increased by $3,200 and
$3,000 during the six months ended March 31, 2009 and 2008, respectively.
7.
Going Concern and Liquidity Considerations
The
accompanying unaudited consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in
the normal course of business. As at March 31, 2009, the Company had a
working capital deficiency of $28,912 and an accumulated deficit of $81,820.
The Company intends to fund operations through equity financing
arrangements, which may be insufficient to fund its capital expenditures,
working capital and other cash requirements for the year ending September 30,
2009.
The
ability of the Company to emerge from the development stage is dependent upon,
among other things, obtaining additional financing to continue operations,
and development of its business plan.
14
Deltron, Inc.
(A Development Stage
Company)
Notes to Interim Consolidated Financial Statements
March 31, 2009
(Unaudited)
7.
Going Concern and Liquidity Considerations
-
Continued
In
response to these problems, management intends to raise additional funds through
public or private placement offerings.
These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern. The accompanying
unaudited consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
15
ITEM
2
.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of
Operations
We
are a development stage corporation. We have generated no revenues from
our business operations since inception and have incurred $81,820 in expenses
through March 31
st
, 2009.
The
following table provides selected financial data about our company for the three
months ended March 31, 2009.
Balance Sheet Data
March
31, 2009
Cash
and cash equivalents
$
17,353
Total
assets
$
70,524
Total
liabilities
$
46,444
Stockholders’
equity
$
24,080
Net
cash provided by financing activities since inception through March 31, 2009 was
$148,165, consisting of $105,900 raised from the sale of our common stock and
$42,265 advanced from a director and former officer of the company.
Plan
of Operation
We are a start-up,
development stage corporation and have not yet generated or realized any
revenues from our business operations. Our plan is to build housing in
Costa Rica and market the units for rent to local residents via classified
newspaper advertising and word of mouth.
In
its report on our September 30, 2008, audited financial statements, our auditors
expressed an opinion that there is substantial doubt about our availability to
continue as a going concern.
See
Note 7.
Our financial statements do not include any adjustments
that may result from the outcome of this uncertainty. We have been in the
development stage and have had no revenues since inception. For the period
from September 14, 2005 (inception) to March 31, 2009, we recorded a net loss of
$81,820. Our continuation as a going concern is dependent on future
events, including our ability to raise additional capital and to general
positive cash flows.
Accordingly,
we must raise sufficient capital from sources other than from the rental sales.
Our only other source for cash at this time is investments by others. We
must raise cash to implement our project and stay in business. We raised $74,900
from our public offering. Under this offering we sold 3,745,000 common shares at
$0.02 per share to independent shareholders, thus we have a total of 5,545,000
shares issued and outstanding. As of March 31, 2009, we had cash on hand of
$17,353. This probably will not enable us to fund operations for the next twelve
months, and we will have to rely on additional loans from our directors, a
second public offering, or a private placement of securities.
16
We
have used the above-mentioned funds to start to develop our property located in
San Jose, Costa Rica by hiring an architect who has completed the architectural
plans for the two units that we intend to build on our property and eventually
rent to the public.
However,
Deltron, Inc. and its wholly owned subsidiary, Deltron Holdings Corporation SA,
has cancelled its contract with the architects, Tropical Design Group, and
suspended negotiations with the construction firm, Trim Studios SA, in March of
2007, due to the increase in the cost of building materials and our lack of
funds.
As
of the date of this writing, the construction phase of our plan has been placed
on hold until we are able to raise additional funds in order to complete
construction. If we are unable to complete the construction phase of
our plan due to lack of funding, we will cease operations until we raise more
money. If we cannot or do not raise more money, we will be forced to cease
operations entirely.
We
have no plans or expectations to acquire or sell any plant or significant
equipment during the next 12 months of operations, and do not intend to hire any
employees at this time.
The
development target for Deltron, Inc is to raise enough money within the next
twelve months of operations to construct two rental units on our property in San
Isidro de Heredia. At this time we do not know when we will be able to start
generating revenues for the Company. Our success depends on being able to
finance the construction of the units, which will require us to raise more funds
in order to complete.
Management
has discussed the possibility of raising additional funds via additional loans
from our directors, or the sale of additional securities in order to complete
construction, but at this time no firm decision or commitments have been
made.
When and if we build
the apartments, we will advertise them for rent by way of classified newspaper
advertising, word of mouth, and a large billboard sign that we will erect in
front of the property. We feel that the location of the property, combined
with classified newspaper advertising and a billboard sign
placed in front of the lot will be an important
part to the success of our business development, acting as an effective way to
introduce Deltron and its product to the public. Our advertising will
focus on reasonably priced rental housing in a desirable area. Special
emphasis will be placed on the “modern” features that come with each apartment
including hot water, cable access, internet, and telephone access.
In order for us to
sustain our cash flow requirements over the next twelve months, we will most
likely require additional outside funding, like a second public offering, a
private placement of securities, or loans from our officers or others.
Equity financing could result in additional dilution to existing
shareholders.
If we are unable to
meet our needs for cash, then we may be unable to continue, develop, or expand
our operations.
17
The
development program for 2006, 2007, and 2008, consisted of purchasing property
for the construction of our rental units, and hiring an architect to design two
apartments. The architectural designs have been completed and have been
approved by the College of Architects and Engineers of Costa Rica (a requirement
before plans can be submitted to the city engineering department for approval
and issuance of the construction permits) and we have received the construction
permits from the city of San Isidro de Heredia. However, these
construction permits were never used and they expired in December of 2007.
As such, if we are able to raise enough funds to proceed with the
construction phase of our business plan, we will need to apply once again to the
city of San Isidro de Heredia for construction permits.
If
we are unable to complete any phase of construction because we do not have
enough money, we will cease operations until we raise more money. If we cannot
or do not raise more money, we will be forced to cease operations. If we cease
operations, we do not know what we will do and we do not have any plans to do
anything.
Any
construction done on the property over the course of the next 12 months would be
conducted by unaffiliated independent contractors that would be hired by Deltron
Holdings Corporation S.A. and/or Deltron, Inc. The independent contractors will
be responsible for the construction, contracting tradesmen and sub-contractors,
as well as the hiring and supervision of the labor required for the
construction.
Limited
Operating History; Need for Additional Capital
There is no
historical financial information about us upon which to base an evaluation of
our performance. We are a development stage corporation and have not generated
any revenues from operations. We cannot guarantee we will be successful in our
business operations. Our business is subject to risks inherent in the
establishment of a new business enterprise, including limited capital resources,
possible delays in the development of our property, and possible cost overruns
due to price and cost increases in services and supplies.
To become profitable
and competitive, we will need to complete the construction of the apartments and
find tenants to rent our units and generate revenues from rental income.
We believe that the funds raised from our public offering may not be
sufficient enough for us to operate for the next 12 months, and that we will
need to raise more funds in order to continue our business.
We have no assurance
that future financing will be available to us on acceptable terms. If financing
is not available on satisfactory terms, we may be unable to continue, develop or
expand our operations. Equity financing could result in additional dilution to
existing shareholders. Currently, we have no financing plans.
Liquidity and
Capital Resources
To meet our need for
cash, we raised $74,900 from our public offering. However, it appears that
we have not raised enough money through the public offering in order to stay in
business and, there is a high probability that we will run out of money before
the construction of the two rental
18
units which we intend
to build is complete. If that is the case, we will attempt to raise
additional money by way of loans from officers of the company, and/or sale of
additional securities. Additional equity financing would result in
additional dilution to our existing shareholders.
We have discussed
this matter with our officers and directors, and they have agreed to advance
funds as needed. However, there is no written agreement with any officer or
director to this affect. The agreement is entirely oral. At the present time, we
have not made any arrangements to raise additional cash. If we need additional
cash and cannot raise it, we will either have to suspend operations until we do
raise the cash, or cease operations entirely. The funds raised in our public
offering, together with the loans advanced, will probably not allow the company
to operate for the next 12 months. Other than as described in this paragraph, we
have no other financing plans.
Since inception of
the Company on September 14, 2005, to March 31, 2009, the Company has issued
5,545,000 common shares at $0.01 and $0.02 per share for total proceeds of
$105,900. This was accounted for as an acquisition of shares.
We received a $42,265
loan from Mr. Phillips, a director and former officer of the company. This
amount owed to Mr. Phillips is non-interest bearing, unsecured, and due on
demand.
As of the date of
this filing, we have yet to begin operations and therefore have not generated
any revenues.
As of March 31, 2009,
our total assets were $70,524 and our total liabilities were $46,444.
Off-Balance
Sheet Arrangements
We have no
off-balance sheet arrangements.
ITEM
3. QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM 4T. CONTROLS
AND PROCEDURES
Evaluation of Our Disclosure Controls and Internal
Controls
Under the supervision
and with the participation of our senior management, including our chief
executive officer and chief financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
period covered by this quarterly report (the “Evaluation Date”). Based on
this evaluation, our chief executive officer and chief financial officer
concluded as of the Evaluation Date that our disclosure controls and procedures
were not effective such that the information relating to us, including our
consolidated subsidiaries, required to be disclosed in our Securities
19
and Exchange
Commission (“SEC”) reports was not (i) recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and (ii)
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Management’s
Report on Internal Control Over Financial Reporting.
As
of March 31, 2009, management assessed the effectiveness of our internal control
over financial reporting. The Company's management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as
a process designed by, or under the supervision of, the Company's CEO and
contract CFO and effected by the Company’s Board of Directors, management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP in the United States of America and includes
those policies and procedures that:
Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets;
Provide
reasonable assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statement.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance of achieving their control
objectives. In evaluating the effectiveness of our internal control over
financial reporting, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control – Integrated Framework . Based on that evaluation, they concluded that,
during the period covered by this report, such internal controls and procedures
were not effective to detect the inappropriate application of US GAAP rules as
more fully described below.
This was due to
deficiencies that existed in the design or operation of our internal controls
over financial reporting that adversely affected our internal controls and that
may be considered to be material weaknesses.
The matters involving
internal controls and procedures that our management considered to be material
weaknesses under the standards of the Public Company Accounting Oversight Board
were: (1) lack of a functioning audit committee due to a lack of a majority of
independent members and a lack of a majority of outside directors on our board
of directors, resulting in
20
ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (2) inadequate segregation of duties consistent with control
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were
identified by our Chief Executive Officer in connection with the review of our
financial statements as of March 31, 2009.
Management believes
that the material weaknesses set forth in items (2) and (3) above did not have
an effect on our financial results. However, management believes that the
lack of a functioning audit committee and the lack of a majority of outside
directors on our board of directors results in ineffective oversight in the
establishment and monitoring of required internal controls and procedures, which
could result in a material misstatement in our financial statements in future
periods.
Officers’ Certifications
Appearing as exhibits to this quarterly report are
“Certifications” of our Chief Executive Officer and Chief Financial Officer. The
Certifications are required pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (the “Section 302 Certifications”). This section of the Quarterly Report
contains information concerning the Controls Evaluation referred to in the
Section 302 Certification. This information should be read in conjunction with
the Section 302 Certifications for a more complete understanding of the topics
presented.
Changes in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended March 31, 2009 that have materially affected
or are reasonably likely to materially affect our internal control over
financial reporting.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings which are incidental to our
business. We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions involving us.
ITEM
1A. RISK FACTORS
Not
applicable.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did
not issue any equity securities during the quarter ended December 31, 2008.
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ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
31.1
Rule
13(a)-14(a)/15(d)-14(a) Certification of Principal Executive and Financial
Officer
32.1
Rule
1350 Certification of Chief Executive and Financial Officer
22