Notes to the Financial Statements
June 30, 2018
(Unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at June 30, 2018 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2017 audited financial statements. The results of operations for the period ended June 30, 2018 are not necessarily indicative of the operating results for the full year.
NOTE 2 - GOING CONCERN
The Company
’
s financial statements are prepared using accounting principles generally accepted 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 had no revenues and has generated losses from operations. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3
–
RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2018 and 2017, the Company received loans in the amount of $11,875 and $8,200 from related parties of the Company. These loans accrue interest at the rate of 12% per annum, are due on demand and are not convertible into common stock of the Company. The balances due on loans payable to related parties were $124,678 and $112,803 plus accrued interest of $56,126 and $45,584 as of June 30, 2018 and December 31, 2017, respectively.
Beginning August 2017, the Company entered into an oral agreement to pay the Company
’
s sole director $500 per month as payment for use of his personal residence as the Company
’
s office and mailing address. The Company has recorded rent expense of $3,000 during the six months ended June 30, 2018 which is included in the selling, general and administrative expenses on the statements of operations.
During the three months ended September 30, 2017, a convertible promissory note held by two non-affiliated entities was assigned to the Company
’
s sole director and majority shareholder, and subsequently converted into common stock as noted in Note 4.
F-5
SEARS OIL & GAS, INC.
Notes to the Financial Statements
June 30, 2018
(Unaudited)
NOTE 4
–
CONVERTIBLE PROMISSORY NOTES
In March 2014, the Company issued a $40,000 convertible promissory note to the sole officer and director of the Company and a $15,000 convertible promissory note to another affiliated shareholder (the
“
Convertible Notes
”
). The Convertible Notes had a term of one year expiring March 2015, and are now payable on demand, and accrue interest at the rate of 12% per annum. The holders of the Convertible Notes, may, at their option, convert all or any portion of the outstanding principal balance of, and all accrued interest on the Convertible Notes into shares of the Company
’
s common stock, par value $0.001 per share, at a conversion rate of $1.00 per share. Accrued interest on the Convertible Notes totaled $28,154 and $24,881 at June 30, 2018 and December 31, 2017, respectively.
During the year ended December 31, 2009, a shareholder of the Company loaned $15,000 to the Company. The note was later assigned to two non-affiliated entities. During the three months ended September 30, 2017, the note was assigned to the Company
’
s sole director and majority shareholder. The Note was accruing interest at the default rate of 23% per annum. The holder of the Note had the option to convert all of the outstanding principal balance of, and all accrued interest on the Note into 3,000,000 shares of the Company
’
s common stock, par value $0.001 per share. During the three months ended September 30, 2017, the convertible promissory note along with accrued interest of $63,730 was converted into 3,000,000 shares of common stock.
NOTE 5
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SUBSEQUENT EVENTS
On July 18, 2018 the Company entered into a non-binding letter of intent to acquire certain assets from Human Brands, Inc. The Letter of Intent states that if the Company closes on such acquisition of assets that the purchase price will be paid in full by the payment of $50,000 in cash and 6,000,000 shares of the Company
’
s common stock. There can be no assurance that the acquisition proposed by the Letter of Intent will be completed.
F-6
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements that involve risk and uncertainties. We use words such as "anticipate," "believe," "plan," "expect," "future," "intend," and similar expressions to identify such forward-looking statements. Investors should be aware that all forward-looking statements contained within this filing are good faith estimates of management as of the date of this filing and actual results may differ materially from historical results or our predictions of future results.
Overview
We were incorporated on October 18, 2005, in the state of Nevada for the purpose of exploiting the opportunities that exist in the oil and gas sector. We have never declared bankruptcy, never been in receivership, and never been involved in any legal action or proceedings. Since our organization we have not made any significant purchase or sale of assets, nor have we been involved in any mergers, acquisitions or consolidations. We have no subsidiaries and our fiscal year end is December 31st. We have not had revenues from operations since our inception.
We are a shell company as that term is defined under federal securities laws. Our business plan is to seek to acquire assets or shares of an entity actively engaged in business that generates revenues in exchange for our securities. We will not restrict our search to any specific business, industry, or geographical location and we may participate in a business venture of virtually any kind or nature. This discussion of the proposed business is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to search for and enter into potential business opportunities. Management anticipates that it may be able to participate in only one potential business venture because we have nominal assets and limited financial resources. This lack of diversification should be considered a substantial risk to our stockholders because it will not permit us to offset potential losses from one venture against gains from another.
Plan of Operations
We currently plan to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation and, to a lesser extent that desires to employ our funds in its business. Our principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. We will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The analysis of new business opportunities will be undertaken by or under the supervision of Mark A. Scharmann, our sole officer and director. We have not had any conversations with potential merger or acquisition targets nor have we entered into any definitive agreement with any party. In our efforts to analyze potential acquisition targets, we may consider the following kinds of factors:
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Potential for growth, indicated by new technology, anticipated market expansion or new products;
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Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;
•
Strength and diversity of management, either in place or scheduled for recruitment;
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Capital requirements and anticipated availability of required funds, to be provided by us or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
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The cost of participation by us as compared to the perceived tangible and intangible values and potentials;
•
The extent to which the business opportunity can be advanced;
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The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
•
Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, our management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the limited capital we have available for investigation, we may not discover or adequately evaluate adverse facts about the opportunity to be acquired.
The manner in which we participate in an opportunity will depend upon the nature of the opportunity, our respective needs and desires as well as those of the promoters of the opportunity, and the relative negotiating strength of ourselves and such promoters.
It is likely that we will acquire our participation in a business opportunity through the issuance of common stock or other securities. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), depends upon the issuance to the stockholders of the acquired company of at least 80% of the common stock of the combined entities immediately following the reorganization. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, all prior stockholders would in such circumstances retain 20% or less of the total issued and outstanding shares. Under other circumstances, depending upon the relative negotiating strength of the parties, prior stockholders may retain substantially less than 10% of the total issued and outstanding shares. This could result in substantial additional dilution to the equity of those who were our stockholders prior to such reorganization.
Our present stockholders will likely not have control of a majority of our voting shares following a reorganization transaction. As part of such a transaction, our current director may resign and new directors may be appointed without any vote by stockholders.
In the case of an acquisition, the transaction may be accomplished upon the sole determination of our management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving our company, it will likely be necessary to call a stockholders' meeting and obtain the approval of the holders of a majority of the outstanding shares. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval if possible.
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in our loss of the related costs incurred.
During the six month period ending June 30, 2018 we had only minimal expenses, which mainly consisted of filing fees and expenses associated with our ongoing public reporting expenses, legal fees and minimal fees associated with searching out potential merger or acquisition targets.
We do not currently engage in any business activities that provide us with positive cash flows. As such, the costs of investigating and analyzing business combinations for the next approximately 12 months and beyond will be paid with our current cash and if necessary, with additional funds raised through other sources, which may not be available on favorable terms, if at all.
Our principal executive office is currently located at the home of Mark A. Scharmann, our sole officer and director. Beginning August 2017, the Company entered into an oral agreement to pay Mr. Scharmann $500 per month as payment for use of his personal residence as the Company
’
s office and mailing address. During the next 12 months we anticipate incurring costs related to:
·
filing of our quarterly, annual and other reports under the Securities Exchange Act of 1934, including legal, accounting and filing fees, and
·
costs relating to consummating an acquisition.
We do not believe that we will be able to meet these costs with our current cash on hand and will require additional debt or equity funding in order to maintain operations.
Results of Operation
Three months June 30, 2018 compared to the three months ended June 30, 2017
For the three months ended June 30, 2018 and 2017, the Company had no revenue. For the three months ended June 30, 2018, the Company incurred $16,182 of selling, general and administrative expenses compared to $11,518 for the three months ended June 30, 2017. Such expenses consist primarily of legal and accounting fees as well as annual fees required to maintain the Company
’
s corporate status. For the three months ended June 30, 2018, the Company incurred $5,360 of interest expense on notes payable compared to $8,528 for the three months ended June 30, 2017. The decrease in interest expense is mainly due to the payoff of the convertible promissory note in September of 2017. See Note 4 in the notes to the financial statements.
As a result of the foregoing, the Company incurred a loss of $21,542 and $20,046, respectively, for the three months ended June 30, 2018 and 2017.
Six months June 30, 2018 compared to the six months ended June 30, 2017
For the six months ended June 30, 2018 and 2017, the Company had no revenue. For the six months ended June 30, 2018, the Company incurred $24,034 of selling, general and administrative expenses compared to $14,185 for the six months ended June 30, 2017. Such expenses consist primarily of legal and accounting fees as well as annual fees required to maintain the Company
’
s corporate status. For the six months ended June 30, 2018, the Company incurred $10,542 of interest expense on notes payable compared to $16,368 for the six months ended June 30, 2017. The decrease in interest expense is mainly due to the payoff of the convertible promissory note in September of 2017. See Note 4 in the notes to the financial statements.
As a result of the foregoing, the Company incurred a loss of $34,576 and $30,553, respectively, for the six months ended June 30, 2018 and 2017.
Liquidity
As of June 30, 2018, the Company had $64 of cash and negative working capital of $268,660. This compares with cash of $534 and negative working capital of $234,084 as of December 31, 2017.
For the six months ended June 30, 2018, the Company used cash of $12,345 in operations consisting of the loss of $34,576 which was offset by changes in accounts payable of $11,689 and changes in accrued interest due to related parties of $10,542. This compares with $8,200 used in operations for the six months ended June 30, 2017 consisting of the loss of $30,553 which was offset by changes in accounts payable of $13,611 and changes in accrued interest due to related parties of $8,742.
There were no investing activities during either the six months ended March 31, 2018 or 2017.
For the six months ended June 30, 2018, financing activities provided $11,875 to the Company compared to $8,200 during the six months ended June 30, 2017. These financing activities consisted of proceeds from loans payable to related parties.
As a result of the foregoing, there was a decrease of $470 in cash for the six months ended June 30, 2018 from the cash on hand as of December 31, 2017.
From the date of inception (October 18, 2005) to June 30, 2018, the Company has recorded an accumulated deficit of $614,184, most of which were expenses relating to the initial development of the Company and maintaining reporting company status with the SEC over the past 10 years. In order to survive as a going concern, the Company will require additional capital investments or borrowed funds to meet cash flow projections and carry forward our business objectives. There can be no guarantee or assurance that we can raise adequate capital from outside sources to fund the proposed business. Failure to secure additional financing would result in business failure and a complete loss of any investment made into the Company.
Our ability to continue as a going concern in the next 12 months depends on our ability to obtain sources of capital to fund our continuing operations and to seek out potential merger and acquisition partners. As of June 30, 2018, our remaining cash balance is not sufficient to cover our current liabilities, obligations and working capital needs for the balance of 2018. We will continue to rely on loans from management and/or affiliated shareholders or we may raise additional capital through an interim financing to meet our general cash flow requirements until such time as we are able to complete the acquisition of an operating company. There are no assurances, however, that we will be able raise the necessary additional capital, in which event we may be required
4
to consider a premature reverse merger or business combination upon terms which may not be as favorable to our stockholders as a transaction in the future.
Employees
There were no employees of the Company, excluding the current President and Director, Mark A. Scharmann and the Company does not anticipate hiring any additional employees within the next twelve months. No compensation has been paid to Mr. Scharmann.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.