UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
_______________
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to______.
DK INVESTORS, INC.
(Exact name of registrant as specified in Charter
New York | 000-53244 | 13-1869744 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File No.) | (IRS Employee Identification No.) |
c/o Primary Capital LLC, 80 Wall Street, 5th Floor, New York, NY 10005
(Address of Principal Executive Offices)
_______________
(212) 300-0070
(Issuer Telephone number)
_______________
(Former Name or Former Address if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
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. Yes x No
State the number of shares outstanding of each of the issuer’s classes of common equity, as of as of August 14, 2009: 13,790,639 shares of common stock.
DK INVESTORS, INC.
FORM 10-Q
June 30, 2009
INDEX
PART I-- FINANCIAL INFORMATION
Page # | ||
Item 1. | Financial Statements | 1-11 |
Item 2. | Management’s Discussion and Analysis of Financial Condition | 12-13 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 13 |
Item 4T. | Control and Procedures | 14 |
PART II-- OTHER INFORMATION
Item 1 | Legal Proceedings | 15 |
Item 1A | Risk Factors | 15 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
Item 3. | Defaults Upon Senior Securities | 15 |
Item 4. | Submission of Matters to a Vote of Security Holders | 15 |
Item 5. | Other Information | 15 |
Item 6. | Exhibits and Reports on Form 8-K | 15 |
SIGNATURE | 16 |
PART I-- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DK INVESTORS, INC.
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S) | |
Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008 (Audited) | 2 |
Consolidated Statements of Operations for the Six Months and Three months ended June 30, 2009 and 2008 and for the period September 18, 2003 (Inception) Through June 30, 2009 | 3 |
Consolidated Statements of Changes in Stockholders’ (Deficit) for the period September 18, 2003 (Inception) Through June 30, 2009 | 4 |
Consolidated Statements of Cash Flow for the Six Months ended June 30, 2009 and 2008 and for the period September 18, 2003 (Inception) Through June 30, 2009 | 5 |
Notes to Consolidated Financial Statements | 6-13 |
DK INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS | ||||||||
June 30, | December 31, | |||||||
2009 (Unaudited) | 2008 (Audited) | |||||||
ASSETS: | ||||||||
Cash and cash equivalents | $ | 3,420 | $ | 5,560 | ||||
TOTAL ASSETS | $ | 3,420 | $ | 5,560 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 144,015 | $ | 152,454 | ||||
Notes Payable | 110,000 | 110,000 | ||||||
Note Payable - officer | 80,000 | 112,969 | ||||||
Total current liabilities | 334,015 | 375,423 | ||||||
Total liabilities | 334,015 | 375,423 | ||||||
STOCKHOLDERS' DEFICIT | ||||||||
Preferred stock, $.001 par value, 10,000,000 shares authorized; | ||||||||
-0- shares issued and outstanding | - | - | ||||||
Common stock, $.0001 par value, 40,000,000 shares authorized; | ||||||||
13,790,639 and 5,925,717 shares issued and outstanding at June 30, 2009 and December 31, 2008 | 1,379 | 593 | ||||||
Additional paid-in capital | 150,576 | 72,707 | ||||||
Accumulated deficit | (482,550 | ) | (443,163 | ) | ||||
Total stockholders' deficit | (330,595 | ) | (369,863 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 3,420 | $ | 5,560 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
DK INVESTORS, INC.
Consolidated Statements of Operations for the Six Months and the Three months ended
June 30, 2009 and 2008 and for the period September 18, 2003 (Inception)
Through June 30, 2009
Six Months | Six Months | Three Months | Three Months | September 18, 2003 (Inception) to | ||||||||||||||||
Ended | Ended | Ended | Ended | September 30, | ||||||||||||||||
June 30, 2009 | June 30, 2008 | June 30, 2009 | June 30, 2008 | 2008 | ||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||
Research contract | $ | - | $ | - | $ | - | $ | - | $ | 96,199 | ||||||||||
Consulting | - | - | - | - | 125,515 | |||||||||||||||
Depreciation expense | - | 1,658 | - | 968 | 11,843 | |||||||||||||||
General and administrative expenses | 869 | - | 426 | - | 4,914 | |||||||||||||||
Officer's salaries | 10,000 | 10,000 | 5,000 | 5,000 | 74,166 | |||||||||||||||
Professional fees | 9,186 | 20,143 | 4,686 | 882 | 126,981 | |||||||||||||||
Total operating expenses | 20,055 | 31,801 | 10,112 | 6,850 | 439,618 | |||||||||||||||
(LOSS) FROM OPERATIONS | (20,055 | ) | (31,801 | ) | (10,112 | ) | (6,850 | ) | (439,618 | ) | ||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||
Sale of equipment | - | - | - | - | 22,785 | |||||||||||||||
Sale of license | - | - | - | - | 6,250 | |||||||||||||||
Interest expense | (9,322 | ) | (8,236 | ) | (3,446 | ) | (3,449 | ) | (61,967 | ) | ||||||||||
Note default fee – related party | (10,000 | ) | - | (10,000 | ) | - | (10,000 | ) | ||||||||||||
TOTAL OTHER INCOME (EXPENSE) | (19,332 | ) | (8,236 | ) | (13,446 | ) | (3,449 | ) | (42,932 | ) | ||||||||||
NET (LOSS) BEFORE PROVISION FOR INCOME TAXES | (39,387 | ) | (40,037 | ) | (23,558 | ) | (10,299 | ) | (482,550 | ) | ||||||||||
Provision for income taxes | - | - | - | - | - | |||||||||||||||
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS | $ | (39,387 | ) | $ | (40,037 | ) | $ | (23,558 | ) | $ | (10,299 | ) | $ | (482,550 | ) | |||||
BASIC LOSS PER COMMON SHARE | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | 7,619,915 | 5,925,717 | 9,296,068 | 5,925,717 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
DK INVESTORS, INC.
Consolidated Statements of Changes in Stockholders’ (Deficit) for the
period September 18, 2003 (Inception) Through June 30, 2008
Common Stock | Preferred Stock | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid - In Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balance, September 18, 2003 (Inception) | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Capital contributed by directors | 1 | - | - | - | 19,000 | - | 19,000 | |||||||||||||||||||||
Net loss for the period ended December 31, 2003 | - | - | - | - | - | (7,515 | ) | (7,515 | ) | |||||||||||||||||||
Balance December 31, 2003 | 1 | - | - | - | 19,000 | (7,515 | ) | 11,485 | ||||||||||||||||||||
Capital contributed by DK Investors, Inc. | - | - | - | - | 4,000 | - | 4,000 | |||||||||||||||||||||
Common stock issued to directors and executive | 479,999 | - | - | - | - | - | - | |||||||||||||||||||||
Net loss for the year ended December 31, 2004 | - | - | - | - | - | (34,322 | ) | (34,322 | ) | |||||||||||||||||||
Balance, December 31, 2004 | 480,000 | - | - | - | 23,000 | (41,837 | ) | (18,837 | ) | |||||||||||||||||||
Effect of reverse merger | 5,445,717 | 593 | - | - | 49,707 | - | 50,300 | |||||||||||||||||||||
Net loss for the year ended December 31, 2005 | - | - | - | - | - | (170,530 | ) | (170,530 | ) | |||||||||||||||||||
Balance, December 31, 2005 | 5,925,717 | 593 | - | - | 72,707 | (212,367 | ) | (139,067 | ) | |||||||||||||||||||
Net loss for the year ended December 31, 2006 | - | - | - | - | - | (82,833 | ) | (82,833 | ) | |||||||||||||||||||
Balance, December 31, 2006 | 5,925,717 | 593 | - | - | 72,707 | (295,200 | ) | (221,900 | ) | |||||||||||||||||||
Net loss for the Year ended December 31, 2007 | - | - | - | - | - | (42,609 | ) | (42,609 | ) | |||||||||||||||||||
Balance, December 31, 2007 | 5,925,717 | 593 | - | - | 72,707 | (337,809 | ) | (264,509) | ) | |||||||||||||||||||
Net loss for the Year ended December 31, 2008 | - | - | - | - | - | (105,354 | ) | (105,354) | ||||||||||||||||||||
Balance, December 31, 2008 | 5,925,717 | 593 | - | - | 72,707 | (443,163 | ) | (369,863) | ||||||||||||||||||||
Common stock issued for redemption of notes payable | 7,865,500 | 786 | - | - | 77,869 | - | 78,655 | |||||||||||||||||||||
Adjustment to agree with transfer agent report | (578) | - | - | - | - | - | - | |||||||||||||||||||||
Net loss for the Six months ended June 30, 2009 | - | - | - | - | - | (39,387 | ) | (39,387) | ) | |||||||||||||||||||
Balance, June 30, 2009 | 13,790,639 | 1,379 | - | - | 150,576 | (482,550 | ) | (330,595) | ) | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
DK INVESTORS, INC.
Consolidated Statements of Cash Flow for the Six Months ended
June 30, 2009 and 2008 and for the period September 18, 2003
(Inception) Through June 30, 2009
Six Months Ended | Six Months Ended | September 18, 2003 (Inception) to | ||||||||||
June 30, 2009 | June 30, 2008 | June 30, 2009 | ||||||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||||||
Net (loss) | $ | (39,387 | ) | $ | (40,037 | ) | $ | (482,550 | ) | |||
Adjustments to reconcile net loss to net cash | ||||||||||||
(used in) operating activities: | ||||||||||||
Depreciation | - | 1,658 | 11,843 | |||||||||
Changes in assets and liabilities | ||||||||||||
Increase in accounts payable and accrued expenses | 13,750 | 18,846 | 113,569 | |||||||||
Increase in accrued interest | 8,497 | 8,236 | 61,132 | |||||||||
Total adjustments | 22,247 | 28,740 | 186,544 | |||||||||
Net cash used in operating activities | (17,140 | ) | (11,297) | (296,006 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of equipment | - | - | (11,843 | ) | ||||||||
Net cash used in investing activities | - | - | (11,843 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from loan and note payable | 15,000 | 10,000 | 232,969 | |||||||||
Capital contributed by director | - | - | 5,000 | |||||||||
Issuance of common stock | - | - | 73,300 | |||||||||
Net cash provided by financing activities | 15,000 | 10,000 | 311,269 | |||||||||
NET INCREASE (DECREASE) IN CASH | ||||||||||||
AND CASH EQUIVALENTS | (2,140 | ) | (1,297) | 3,420 | ||||||||
CASH AND CASH EQUIVALENTS - | ||||||||||||
BEGINNING OF PERIOD | 5,560 | 4,280 | - | |||||||||
CASH AND CASH EQUIVALENTS - END OF | ||||||||||||
PERIOD | $ | 3,420 | $ | 2,983 | $ | 3,420 | ||||||
SUPPLEMENTAL DISCLOSURE OF NONCASH | ||||||||||||
FINANCING ACTIVITIES: Stock issued for redemption of notes, accrued interest and fees. | $ | 78,655 | - | $ | 78,655 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
DK INVESTORS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - - Basis of Presentation
The accompanying unaudited consolidated financial statements of DK Investors, Inc. (the "Company") reflect all material adjustments consisting of only normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission.
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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the entire year or for any other period.
NOTE 2- Description of Business
The Company is a development stage company organized to identify, develop and exploit nanostructures and, through various means, including commercial manufacturing, exploit proprietary rights in the field of nanotechnology. The Company is focused on developing and perfecting viable nanomaterials, components and devices and then sub-licensing the manufacture and commercialization to strategic partners which incorporate nanotechnology. Nanotechnology involves manipulating matter at a microscopic level to produce materials, coatings, components, designs, products and devices for industrial applications whose characteristics are, at least in part, influenced by the extremely small size of the constituent materials or structures. Within the field of nanotechnology, the Company is focusing on the development and manufacture of a range of nanomaterials, which can be incorporated into components and devices. Application areas include but are not limited to fuel cells, hydrogen storage systems, micro-electronics, semiconductors, bio/life sciences.
The Company expects to incur substantial additional costs, including costs related to ongoing research and development activities. We intend to raise additional debt and/or equity financing to sustain our operations. The Company's future cash requirements will depend on many factors, including continued scientific progress in our research and development programs, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patents, competing technological and market development and the cost of product commercialization. We do not expect to generate a positive cash flow from operations at least until the commercial launch of our first product and possibly later given the expected spending for research and development programs and the cost of commercializing product candidates. Accordingly, we will require external financing to sustain our operations, perhaps for a significant period of time. We intend to seek additional funding through grants and through public or private financing transactions. Successful future operations are subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development, regulatory approvals and market acceptance for our products.
6
DK INVESTORS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2- Description of Business (Continued)
Development Stage Company
The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises”. The Company has devoted substantially all of its efforts to business planning, research and development.
NOTE 3- Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of DK Investors, Inc. and SGK Nanostructures, Inc. All significant intercompany balances and transactions have been eliminated.
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 the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash and cash equivalents. At June 30, 2009 and December 31, 2008, the Company maintained cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful asset lives, which range from three to five years. Repairs and maintenance are charged to expense as incurred.
Research and Development
Research and development costs are charged to operations when incurred.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and accrued expenses and notes payable-officer approximate fair value because of their short-term nature.
Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, we record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. We consider, among
7
DK INVESTORS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3- Summary of Significant Accounting Policies (Continued)
Income Taxes (Continued)
other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment. In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) which was effective for fiscal years beginning after December 15, 2006. This interpretation clarified the accounting for uncertainty in income taxes recognized in accordance with SFAS 109. Specifically, FIN 48 clarifies the application of SFAS 109 by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise's financial statements. Additionally, FIN 48 provides guidance on measurement, de recognition, classification, interest and penalties, accounting in interim periods of income taxes, as well as the required disclosure and transition. This interpretation was effective for fiscal years beginning after December 15, 2006. Effective January 1, 2007, the Company adopted FIN 48 and has determined that such adoption has not had a significant effect on the Company's consolidated financial position and results of operations.
NOTE 4- Recent Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of SFAS No. 115 (“SFAS No. 159”), which provides all entities, including not-for-profit organizations, with an option to report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the complex provisions of hedge accounting. Certain specified items are eligible for the irrevocable fair value measurement option as established by SFAS No. 159. SFAS No. 159 became effective as of January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on the Company’s financial position, results of operations and cash flows.
In December 2007, the FASB issued FAS No. 160, “Non controlling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” (“FAS No. 160”). FAS No. 160 establishes accounting and reporting standards for the non controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS No. 160 became effective for the Company in its fiscal year beginning January 1, 2009. The adoption of this statement did not have a material impact on its financial position and results of operations.
In December 2007, the FASB issued FAS No. 141 R “Business Combinations” (“FAS No. 141R”). FAS No. 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. FAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141R becamr effective for the Company’s fiscal year beginning January 1, 2009. The adoption of this statement did not have a material impact on its financial position and results of operations.
NOTE 5- Research and Development Agreement
We have been granted free access to processing equipment, along with test and measurement instruments,including direct access to an Electron Microscope, at Brookhaven National Lab’s new Center for FunctionalNanomaterials (BNL CFN). We can now proceed at our own pace, limited only by equipment availability.
8
DK INVESTORS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5- Research and Development Agreement (Continued)
Gregory Konesky, our Chief Scientist is the principal investigator on this project. This agreement is for two years.
After having been at the CFN for about 8 months now, BNL has agreed to build a custom piece of processingequipment for us, significantly expanding equipment availability. We will also be able to process samplesabout 3" in diameter. Up until now, we have been limited to a spot size of about 3/8". This new custom equipment will probably be available by October. We are continuing our research to:
1. Process functionalization of carbon nanotube samples
2. Develop a method and a set-up for the measurements of thermal conductivity in the 2-D layers of carbon nanotubes.
3 Estimate the possibility of using the manufactured chips for the measurements of thermal conductivity in the2-D layers of carbon nanotubes.
4. Manufacture samples of arrays of functionalized multiwall carbon nanotubes on the chips for the measurements of thermal conductivity in the 2D layers of carbon nanotubes, using Langmuir-Blodgett technique.
5. Treat samples of arrays of functionalized multi wall carbon nanotubes on Si02 substrates using Ar-ion beam at different parameters of acceleration voltage and the time duration. We have advanced to using thick freestanding films, which is what industry will need for practical applications, such as heat spreaders. These films are sufficiently strong that they do not need any backing support, such as a silicon substrate, as previously indicated in item 5.
6. Develop a method of lift-off the treated layers of multiwall carbon nanotubes and placing them on different substrates.
NOTE 6- Commitments
At the present time the Company pays no rent and operates from the office of its President. The Company carries no liability, directors, officer’s liability or office contents insurance.
The Company has two employees both of whom are executive officers. The Company compensates these officers and stockholders under employment agreements with an initial five year term ending October 14, 2010. Base salaries under the agreements are $10,000 each per year.
9
DK INVESTORS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7- Notes Payable
As of June 30, 2009 and December 31, 2008 notes payable consisted of the following: | ||||||||
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Note payable at 6% interest. If, on or before December 31, 2009, the Company or its successor consummates Equity Financing, this note shall be automatically mature as of the date of the consummation of the Equity Financing and shall be payable in full. For purposes of this Note, Equity Financing shall mean one or more equity financings by the Company resulting in the Company receiving, in the aggregate, at least $2,000,000 in consideration for the equity issued to one or more investors. If the Company does not consummate Equity Financing as of December 31, 2009, this Note shall be payable thereafter on demand. Prior to December 31, 2009 and consummation of Equity Financing, payment on this Note shall be made solely from royalties payable to the Company pursuant to that certain Exclusive License Agreement by and between the Company and the note holder dated December 15, 2004. Holder may, by notice to the Company, require payments of all such royalties be made directly to the holder. All payments received by the holder shall be applied first to the payment of interest. | $ | 110,000 | $ | 110,000 | ||||
Notes payable to an officer / shareholder at 15%. | ||||||||
Proceeds of the notes were used for general | ||||||||
working capital and to provide the Company with | ||||||||
short term liquidity and to pay overdue bills. The | ||||||||
notes originally became due on January 2, 2008. | ||||||||
The due date for the notes has been extended by the | ||||||||
officer to July 11, 2009. | 80,000 | 112,969 | ||||||
Total notes payable | $ | 190,000 | $ | 222,969 |
* The collateral for the $110,000 loan is all the rights, title and interest to all personal property and fixtures of the Debtor or in which the Debtor has an interest, in each case whether now or hereafter existing or now owned or hereafter acquired and whether subject to the Uniform Commercial Code including all goods, money, instruments, accounts, inventory, equipment, documents, chattel paper, securities and general intangibles and all interest, dividends and other distributions thereon paid and payable in cash or in property; and all replacements and substitutions for, and all accessions and additions to, and all products and proceeds of, all of the foregoing.
NOTE 8- Going Concern
As shown in the accompanying financial statements, the Company incurred substantial losses for the six months ended June 30, 2009 and 2008, and from Inception (September 18, 2003) to June 30, 2009, has a working capital deficiency of $330,595 and has no revenue stream to support itself. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
10
DK INVESTORS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8- Going Concern (Continued)
The Company’s future success is dependent upon its ability to raise additional capital or to secure a future business combination. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. Management believes they can raise the appropriate funds needed to support their business plan and acquire an operating, cash flow positive company.
The financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
NOTE 9- Provision For Income Taxes
Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s consolidated tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At June 30, 2009, deferred tax assets consist of the following:
June 30, | ||||
2009 | ||||
Deferred taxes due to net operating | ||||
loss carryforwards | $ | 116,000 | ||
Less: Valuation allowance | (116,000) | ) | ||
Net deferred tax assets | $ | - | ||
At June 30, 2009, the Company had deficits accumulated during the development stage in the approximate amount of $330,595 available to offset future taxable income through 2029. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
NOTE 10- Related Party Transactions
Mr. John Leo, President, Corporate Secretary and a shareholder of the Company, holds our notes payable with a total outstanding balance of $80,000 and $112,969 at June 30, 2009 and December 31, 2008, respectively. Accrued interest as of June 30, 2009 and December 31, 2008 is $10,713 and $26,771, respectively which is included in accounts payable and accrued expenses on the Company’s consolidated balance sheet. Interest expense for the six months ended June 30, 2009 and December 31, 2008 is $5,197 and $4,936, respectively.
Mr. John Leo, President, Corporate Secretary and a shareholder of the Company, received 7,865,500 shares of Common stock for the retirement of $47,969 of notes in default, $10,000 of default fees and $20,686 of accrued Interest payable in May 2009.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Regarding Forward-Looking Statements
You should read the following discussion in conjunction with the combined financial statements and the corresponding notes. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report. Please see “Forward Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
We are a development stage company organized to identify, develop and exploit nanostructures and, through various means, including commercial manufacturing, exploit proprietary rights in the field of nanotechnology. We are focused on developing and perfecting viable nanomaterials, components and devices and then sub-licensing the manufacture and commercialization to strategic partners which incorporate nanotechnology. Nanotechnology involves manipulating matter at a microscopic level to produce materials, coatings, components, designs, products and devices for industrial applications whose characteristics are, at least in part, influenced by the extremely small size of the constituent materials or structures. Within the field of nanotechnology, we are focusing on the development and manufacture of a range of nanomaterials, which can be incorporated into components and devices. Application areas include but are not limited to fuel cells, hydrogen storage systems, micro-electronics, semiconductors, bio/life sciences.
On March 30, 2005 we completed a reverse merger with DK Investors, Inc. Until August 25, 2004, we were a closed-end managed investment company which, until the end of 2003, invested solely in tax exempt municipal and state issued securities.
Financial Operations Overview
We expect to incur substantial additional costs, including costs related to ongoing research and development activities. We intend to raise additional debt and/or equity financing to sustain our operations. The Company's future cash requirements will depend on many factors, including continued scientific progress in our research and development programs, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patents, competing technological and market development and the cost of product commercialization. We do not expect to generate a positive cash flow from operations at least until the commercial launch of our first product and possibly later given the expected spending for research and development programs and the cost of commercializing product candidates. Accordingly, we will require external financing to sustain our operations, perhaps for a significant period of time. We intend to seek additional funding through grants and through public or private financing transactions. Successful future operations are subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development, regulatory approvals and market acceptance for our products.
Selling, General and Administrative Expenses
Our selling, general and administrative, or SG&A, expenses include costs associated with salaries and other expenses related to research and other administrative costs. In addition, we have incurred expenses through the use of consultants and other outsourced service providers to take advantage of specialized knowledge and capabilities that we required for short durations of time to avoid unnecessary hiring of full-time staff.
Results of operations
For the six months ended June 30, 2009 and 2008 we had no revenue. We incurred operating expenses (Income), excluding interest expense, of $20,055, $10,112, $31,801 and $ 6,850 for the six months and the three months ended June 30, 2009 and 2008, respectively. Interest expense and Note default fees for the six months and the three months ending June30, 2009 and 2008 was $19,332, $13,446, $8,236 and $3,449 respectively. We incurred net losses of $39,387, $23,558, $40,037 and $10,299 for the six months and the three months ended June 30, 2009 and 2008 respectively.
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Plan of Operations
During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:
We have entered into an exclusive license agreement with Nanodynamics to market our technology through products that we will develop. These marketing plans will have to be successfully implemented. The first commercial product we are planning to market from our nanotechnology platform is a “nano heat spreader”. The product will be marketed to producers of high value products for electronic chips. These chips are typically used in commercial and military applications. In addition to our core nano platform, we will continue to develop and build commercial and research vacuum process reactors. In addition, we will use our technical know-how to help with design and consulting services on production processes associated with the reactors.
We will require outside capital to implement our business plan. We will have to expand our management team with qualified personnel. Our intent is to continue to develop products that will be marketed by third parties such as Nanodynamics. In addition, we plan on developing products that would potentially be sold or licensed to third parties. We anticipate having products ready for market in 2009 but cannot be sure that this will be the case. There can be no assurance that our management will be successful in completing our product development programs, implementing the corporate infrastructure to support operations at the levels called for by our business plan, conclude a successful sales and marketing plan with third parties to attain significant market penetration or that we will generate sufficient revenues to meet our expenses or to achieve or maintain profitability.
Liquidity and Capital Resources
We do not currently have sufficient resources to cover ongoing expenses and expansion. As of May 14, 2009 we had $7,414 of cash and current liabilities owing of $392,809. We plan on raising additional funds from institutional investors to implement our business model. In the event we are unsuccessful this will have a negative impact on our operations. Our President, John Leo, has previously provided funding for working capital needs and our hope is that he would continue to do so.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 3 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain market risks, including changes in interest rates and currency exchange rates. We do not undertake any specific actions to limit those exposures.
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Item 4. - Controls and Procedures
a) Evaluation of Disclosure Controls. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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
(a) Exhibits
31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DK INVESTORS, INC. | ||
Date: August 14, 2009 | By: | /s/ JOHN C. LEO |
JOHN C. LEO | ||
President, Chief Executive Officer, Secretary, and Director |
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