U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-QSB
[X] |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE |
For
the quarterly period ended March 31, 2005
[
] |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
transition period from _______________ to _______________.
Commission
file number: 000-49687
M-GAB
Development Corporation
(Exact
name of registrant as specified in its charter)
Florida
(State
or other jurisdiction of
incorporation
or organization) |
33-0961490
(I.R.S.
Employer
Identification
No.) |
22342
Avenida Empresa
Suite
220
Rancho
Santa Margarita, CA
(Address
of principal executive offices) |
92688
(Zip
Code) |
Registrant's
telephone number, including area code (949) 635-1240
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Applicable
only to issuers involved in bankruptcy proceedings during the preceding five
years
Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes
No
Applicable
only to corporate issuers
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date. As of May 16, 2005, there were 6,550,512
shares of common stock, par value $0.001, issued and outstanding.
Transitional
Small Business Disclosure Format
(check
one):
Yes
No
.
M-GAB
Development Corporation
TABLE
OF CONTENTS
PART
I
ITEM
1 |
|
Financial
Statements |
2 |
|
|
|
|
ITEM
2 |
|
Managements
Discussion and Analysis or Plan of Operation |
11 |
|
|
|
|
ITEM
3 |
|
Controls
and Procedures |
15 |
|
|
|
|
|
|
PART
II |
|
|
|
|
|
ITEM
1 |
|
Legal
Proceedings |
16 |
|
|
|
|
ITEM
2 |
|
Changes
in Securities and Use of Proceeds |
16 |
|
|
|
|
ITEM
3 |
|
Defaults
Upon Senior Securities |
16 |
|
|
|
|
ITEM
4 |
|
Submission
of Matters to a Vote of Security Holders |
16 |
|
|
|
|
ITEM
5 |
|
Other
Information |
16 |
|
|
|
|
ITEM
6 |
|
Exhibits
and Reports on Form 8-K |
16 |
PART
I
This
Quarterly Report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based
on management's beliefs and assumptions, and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth under
the heading “Management's Discussion and Analysis of Financial Condition or Plan
of Operation.” Forward-looking statements also include statements in which words
such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,”
“consider” or similar expressions are used.
Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. The Company's future results and shareholder
values may differ materially from those expressed in these forward-looking
statements. Readers are cautioned not to put undue reliance on any
forward-looking statements.
ITEM
1 Financial
Statements
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
|
|
March
31, 2005
|
|
December
31, 2004
|
|
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
Cash |
|
$ |
1,729 |
|
$ |
17,403 |
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
1,729 |
|
$ |
17,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
|
$ |
1,795 |
|
$ |
9,324 |
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
$ |
1,795
|
|
$ |
9,324
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; no shares
|
|
|
|
|
|
|
|
issued or outstanding |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 100,000,000 shares authorized; |
|
|
|
|
|
|
|
6,383,845 and 6,383,845 shares issued and outstanding |
|
|
6,384 |
|
|
6,384
|
|
Additional
paid in capital |
|
|
64,840
|
|
|
64,840
|
|
Deficit
accumulated during the development stage |
|
|
(71,290 |
) |
|
(63,145 |
) |
Total
stockholders' equity |
|
|
(66 |
) |
|
8,079
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity |
|
$ |
1,729 |
|
$ |
17,403 |
|
|
|
|
|
|
|
|
|
The
accompanying condensed notes are an integral part of these unaudited condensed
consolidated financial
statements.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Statement
of Operations
|
|
|
|
Three
Months Ended |
|
|
|
Cumulative from
inception
(March
27, 2001) through
March
31, 2005 |
|
March
31, 2005 |
|
March
31, 2004 |
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses |
|
|
154,645
|
|
|
8,145
|
|
|
8,979
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income |
|
|
83,355
|
|
|
- |
|
|
83,355
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(71,290 |
) |
$ |
(8,145 |
) |
$ |
74,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income (loss) per share |
$ |
(0.00 |
) |
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding |
|
|
|
|
|
6,383,845
|
|
|
6,143,282
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying condensed notes are an integral part of these unaudited condensed
consolidated financial statements.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Statement
of Cash Flows
|
|
Cumulative
from inception
(March
27, 2001) to
March
31, 2005 |
|
Three
Months Ended
March
31, 2005 |
|
Three
Months Ended
March
31, 2004 |
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
(71,290 |
) |
$ |
(8,145 |
) |
$ |
74,376 |
|
Adjustments
to reconcile net income (loss) to cash |
|
|
|
|
|
|
|
|
|
|
used
in operating activities: |
|
|
|
|
|
|
|
|
|
|
Forgiveness
of accounts payable and payable |
|
|
|
|
|
|
|
|
|
|
to
shareholder |
|
|
(83,355 |
) |
|
- |
|
|
- |
|
Contributed
capital for services rendered |
|
|
14,199
|
|
|
- |
|
|
- |
|
Common
stock issued to pay operating expenses |
|
|
- |
|
|
- |
|
|
- |
|
Increase
(decrease) in accounts payable |
|
|
|
|
|
|
|
|
|
|
and
accrued liabilities |
|
|
75,150
|
|
|
(7,529 |
) |
|
(84,175 |
) |
Net
cash used in operating activities |
|
|
(65,296 |
) |
|
(15,674 |
) |
|
(9,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of stock |
|
|
57,025
|
|
|
- |
|
|
54,125
|
|
Advance
from shareholder |
|
|
10,000
|
|
|
- |
|
|
(10,000 |
) |
Net
cash flow from financing activities |
|
|
67,025
|
|
|
- |
|
|
44,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash |
|
|
1,749 |
|
|
(15,674 |
) |
|
34,326
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period |
|
|
- |
|
|
17,403
|
|
|
- |
|
Cash
and cash equivalents, end of period |
|
$ |
1,729 |
|
$ |
1,729 |
|
$ |
34,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
Cash paid for interest and income
taxes |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of accounts payable and payable |
|
$ |
83,355 |
|
$ |
- |
|
$ |
83,355 |
|
to
stockholder |
|
|
|
|
|
|
|
|
|
|
The
accompanying condensed notes are an integral part of these unaudited condensed
consolidated financial statements.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Condensed
Notes to Unaudited Financial Statements
March
31, 2005
NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations. The
Company incorporated in Florida on March 27, 2001. The fiscal year end of the
Company is December 31. Planned principal operations of the company have not yet
commenced; activities to date have been limited to forming the Company,
developing its business plan, and obtaining initial capitalization. On May 16,
2003, the Company filed an election to be treated as a business development
company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”), which
became effective on the date of filing. Subsequent to the BDC election the
Company’s principal business is to make venture capital investments in
early-stage and/or developing enterprises that are principally engaged in the
development or exploitation of inventions, technological improvements, and new
or unique products or services.
Principles
of Accounting. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
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 March 31, 2005 and 2004 and for the
periods then ended have been made.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted account principles 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, 2004 audited
financial statements. The results of operations for the periods ended March 31,
2005 and 2004 are not necessarily indicative of the operating results for the
full year.
Accounting
Estimates. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities and disclosures 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 may differ
from those estimates.
Shares
Issued in Exchange for Services. The
fair value of shares issued in exchange for services rendered to the Company is
determined by the Company's officers and directors, as there is currently no
market for the Company's stock. To date, we have not issued any shares for
services.
Cash
and Cash Equivalents. The
Company includes cash on deposit and short-term investments with original
maturities less than ninety days as cash and cash equivalents in the
accompanying financial statements.
General
and Administrative Expenses. The
Company's general and administrative expenses consisted primarily of legal and
accounting fees for the three months ended March 31, 2005 and 2004.
Research
and Development.
Research and development costs are expensed as incurred as required by Statement
of Financial Accounting Standards No. 2, "Accounting for Research and
Development Costs." As of March 31, 2005, no such costs had been incurred.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Condensed
Notes to Unaudited Financial Statements
March
31, 2005
Advertising.
Advertising costs are charged to operations when incurred. The Company has not
incurred any advertising costs.
Stock-Based
Compensation.
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, encourages, but does not require, companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to account for stock-based compensation using the intrinsic value method
prescribed in previously issued standards. Accordingly, compensation cost for
stock options issued to employees is measured as the excess, if any, of the fair
market value of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock. Compensation is charged to expense over
the shorter of the service or vesting period. Stock options issued to
non-employees are recorded at the fair value of the services received or the
fair value of the options issued, whichever is more reliably measurable, and
charged to expense over the service period.
Income
Taxes. The
Company has not made a provision for income taxes because of its financial
statement and tax losses since its inception on March 27, 2001. A valuation
allowance has been used to offset the recognition of any deferred tax assets
related to net operating loss carry-forwards due to the uncertainty of future
realization. The use of any tax loss carry-forward benefits may also be limited
as a result of changes in Company ownership.
Fair
Value of Financial Instruments. The
Company considers all liquid interest-earning investments with a maturity of
three months or less at the date of purchase to be cash equivalents. Short-term
investments generally mature between three months and six months from the
purchase date. All cash and short-term investments are classified as available
for sale and are recorded at market using the specific identification method;
unrealized gains and losses are reflected in other comprehensive income. Cost
approximates market for all classifications of cash and short-term investments;
realized and unrealized gains and losses were not material.
Net
Loss per Common Share. Net
loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic net loss per share is
based upon the weighted average number of common shares outstanding. Diluted net
loss per share is based on the assumption that options are included in the
calculation of diluted earnings per share, except when their effect would be
anti-dilutive. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Recently
Enacted Accounting Standards -
Statement of Financial Accounting Standards ("SFAS") No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets,” No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities", SFAS No. 147, "Acquisitions
of Certain Financial Institutions - an Amendment of FASB Statements No. 72 and
144 and FASB Interpretation No. 9", SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123", SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities", and SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", were recently
issued. SFAS No. 144, 146, 147, 148, 149 and 150 have no current applicability
to the Company or their effect on the financial statements would not have been
significant.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Condensed
Notes to Unaudited Financial Statements
March
31, 2005
NOTE 2 -
GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the financial statements, the
Company has no established source of revenue, and as of March 31, 2005, the
Company had negative working capital of $66. In addition, the Company has been
in the development stage since its inception on March 27, 2001 and is dependent
on outside financing to fund its operations. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's
plans in regard to these matters are to continue to raise additional capital
from selling the Company's stock. However, there is no assurance that the
Company will be able to obtain such financing. Management believes actions
currently being taken provide the opportunity for the Company to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 3 -
STOCKHOLDERS’ EQUITY
Founders'
Stock. The
Company issued 6,000,000 shares of common stock on April 20, 2001 for cash
totaling $600.
2001
Private Placement Memorandum . On June
1, 2001, the Company began an offering to sell up to 100,000 shares of common
stock at $0.10 per share pursuant to a Private Placement Memorandum. In August
2001, the Company sold 13,000 shares of its common stock at $0.10 under this
private placement. All proceeds from this offering were used for
pre-incorporation expenditures, consulting fees and working
capital.
Registered
Stock Offering. During
the quarter ended December 31, 2002, the Company sold 10,000 shares of its
common stock at $0.10 per share for total proceeds of $1,000. The stock offering
was pursuant to the Company's effective Form SB-2/A registration statement dated
November 15, 2001. The Company used the proceeds to repay advances and general
and administrative expenses. The Company's registered offering expired on
October 30, 2002.
2004
Private Placement Memorandum. On March
2, 2004, the Company issued 360,845 shares of its common stock, and warrants to
purchase a total of 333,334 shares of its common stock at $0.15 per share. The
Company’s net proceeds of $54,125 from this stock sale will be used to fund
Company operations.
Amended
and Restated 2001 Stock Option Plan. The
Company's Board and shareholders approved a Stock Option Plan, effective June 1,
2001. The plan was amended by the Board and shareholders to the Company’s
Amended and Restated 2001 Omnibus Securities Plan, effective May 27, 2004 (“2001
Plan”). The 2001 Plan limits the aggregate number of shares available to
600,000. Each award under the 2001 Plan will be evidenced by a Stock Purchase
Agreement; each agreement will establish the vesting requirements and the
maximum term of the options granted. On November 4, 2003, the Company agreed to
issue 600,000 stock options to two directors under the 2001 Plan. In accordance
with the Company’s status as a business development company, the stock options
will not be issued until the Securities and Exchange Commission (“SEC”) approves
the issuances, which the Company believes will occur during the next quarter. If
approved by the SEC, the exercise price of the stock options will be at or above
the fair market value of the Company s common stock on the issuance date.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Condensed
Notes to Unaudited Financial Statements
March
31, 2005
2004
Omnibus Securities Plan. The
Company’s Board and shareholders approved the Company’s 2004 Omnibus Securities
Plan, effective May 27, 2004 (“2004 Plan”). The 2004 Plan limits the aggregate
number of shares that can be issued under the plan to 650,000 shares. Each award
under the 2004 Plan will be evidenced by a Stock Purchase Agreement; each
agreement will establish the vesting requirements and the maximum term of the
options granted. The Company has not issued, or agreed to issue, any stock or
options under the 2004 Plan. In accordance with the Company’s status as a
business development company, no stock or options will be issued under the Plan
until the SEC approves the 2004 Plan. If approved by the SEC, any stock or
option issuances under the 2004 Plan will be at or above the fair market value
of the Company’s common stock on the date of issuance.
NOTE 4 -
INCOME TAXES
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 “Accounting for Income Taxes” which requires the
liability approach for the effect of income taxes.
The
Company has available at March 31, 2005 and December 31, 2004, unused operating
loss carryforwards of approximately $71,000 and $63,000, respectively, which may
be applied against future taxable income and which expire in various years
through 2025. If certain substantial changes in the Company’s ownership should
occur, there could be an annual limitation on the amount of net operating loss
carryforward which can be utilitized. The amount of and ultimate realization of
the benefits from the operating loss carryforwards for income tax purposes is
dependent, in part, upon the tax laws in effect, the future earnings of the
Company and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the loss
carryforwards, the Company has established a valuation allowance equal to the
tax effect of the loss carryforwards; therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax assets were
approximately $25,000 and $22,000 at March 31, 2005 and December 31, 2004,
respectively, with an offsetting valuation allowance of the same amount
resulting in a change in the valuation allowance of approximately $3,000 during
the three months ended March 31, 2005.
NOTE 5 -
RELATED PARTY TRANSACTIONS
The
Company had engaged one of its shareholders, Mr. Lebrecht, as its corporate
counsel. For the years ended December 31, 2004 and 2003, the Company incurred
total legal services and out of pocket costs to Mr. Lebrecht’s firm of $324 and
$37,730, respectively. As of December 31, 2004 and 2003, the Company had amounts
due to Mr. Lebrecht of $24 and $32,889, respectively, which are recorded in
accounts payable and accrued liabilities in the accompanying financial
statements. In addition, the Company received an advance of $10,000 from Mr.
Lebrecht for organizational costs. The Company recorded this advance as a
payable to stockholder as of December 31, 2003. On March 26, 2004, the Lebrecht
Group, APLC, agreed to forgive amounts owed to them of $73,955, including the
$10,000 advance. The forgiveness of these amounts were recorded as other income
in the accompanying financial statements for the year ended December 31, 2004.
As of March 31, 2005 the Company had amounts due to Mr. Lebrecht of
$125.
The
Company’s President, Mr. Berg, has elected to forego a salary during its early
development stages. Mr. Berg has also provided office space to the Company. In
prior years, the Company estimated the value of these services to be $6,000 for
the year ended December 31, 2004. As of December 31, 2003, the Company had
amounts due to Mr. Berg of $9,400, which were recorded in accounts payable and
accrued liabilities in the accompanying financial statements. On March 26, 2004,
the Company’s director and officer agreed to forgive $9,400 of the Company’s
debt owed to him. As of March 31, 2005, there were no amounts due Mr. Berg. The
forgiveness of debt was recorded as other income in the accompanying financial
statements for the year ended December 31, 2004.
M-GAB
DEVELOPMENT CORPORATION
(A
Florida Development Stage Corporation)
Condensed
Notes to Unaudited Financial Statements
March
31, 2005
In
addition, one of the Company’s directors, Mr. Gadawski, provided consulting
services to the Company in 2005 and 2004. As of March 31, 2005 and December 31,
2004, the Company had $1,250 and $2,500, respectively, due to Mr. Gadawski for
services rendered during the three months ended March 31, 2005 and the year
ended December 31, 2004.
In
November 2003, the Company agreed to issue to each of Mr. Gadawski and Mr.
Stewart opinions to acquire 300,000 share of our common stock for services as
directors of the Corporation. As of December 31, 2004, the Company has not
issued these options, as this issuance of options is subject to approval of the
SEC pursuant to provisions of the Investment Company Act of 1940.
NOTE 6 -
LOSS PER SHARE
The
following data show the amounts used in computing loss per share for the periods
presented:
|
|
Three
Months Ended |
|
|
|
March
31,2005 |
|
March
31,2004 |
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Net
income (loss) from continuing operations available |
|
|
|
|
|
|
|
to
common shareholders (numerator) |
|
$ |
(8,145 |
) |
$ |
74,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares used in |
|
|
|
|
|
|
|
loss
per share during the
period (denominator) |
|
|
6,383,845
|
|
|
6,143,282
|
|
Dilutive
loss per share was not presented, as the Company had no common equivalent shares
for all periods presented that would effect the computation of diluted loss per
share.
NOTE 7 -
SUBSEQUENT EVENTS
On April
1, 2005, the Company entered into a Stock Exchange Agreement with NuQuest, Inc.
(“NuQuest”). Pursuant to the agreement, the Company agreed to issue a total of
166,667 shares of its common stock to NuQuest in exchange for a total of 20,000
shares of NuQuest common stock. The value of the stock to be exchanged by both
parties was agreed to be $25,000. NuQuest further agreed to declare a dividend
and distribute the shares of the Company’s exchanged common stock pro-rata to
all of their shareholders except for three, who agreed to forego the
dividend. The balance sheet as of March 31, 2005 does not reflect the
amounts related to this transaction as the transaction will be recorded by the
Company during the three months ended June 30, 2005.
ITEM
2 Managements
Discussion and Analysis or Plan of Operation
Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other risks that might be
detailed from time to time in our filings with the Securities and Exchange
Commission.
Although
the forward-looking statements in this Quarterly Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because forward-looking
statements are inherently subject to risks and uncertainties, the actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review and consider
the various disclosures made by us in this report and in our other reports as we
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, and results of operations and
prospects.
Overview
M-GAB
Development Corporation, a Florida corporation (the “Company”) was incorporated
in March 2001. On May 16, 2003, M-GAB filed an election to be treated as a
business development company (“BDC”) under the Investment Company Act of 1940
(the “1940 Act”), which became effective on the date of filing.
Subsequent
to the BDC election our principal business is to make venture capital
investments in early-stage and/or developing enterprises that are principally
engaged in the development or exploitation of inventions, technological
improvements, and new or unique products and services. Our principal objective
is long-term capital appreciation. We may invest in debt securities of these
companies, or may acquire an equity interest in the form of common or preferred
stock, warrants or options to acquire stock or the right to convert the debt
securities into stock. We may invest alone, or as part of a larger investment
group. Consistent with our status as a BDC and the purposes of the regulatory
framework for BDC’s under the 1940 Act, we will provide managerial assistance,
potentially in the form of a consulting agreement or in the form of a board of
director’s seat, to the developing companies in which we invest.
In
addition, we may acquire either a minority or controlling interest in mature
companies in a roll-up strategy. It is anticipated that any acquisitions will be
primarily in exchange for our common stock, or a combination of cash and stock.
The principal objective of acquisitions pursuant to a roll-up strategy would be
to consolidate an industry and either sell the acquired entities as a larger
unit, or take the unit public through an initial public offering, spin-off to
our shareholders, or reverse merger into a publicly traded shell
corporation.
We
operate as an internally managed investment company whereby our officers and
employees conduct our operations under the general supervision of our Board of
Directors. We have not elected to qualify to be taxed as a regulated investment
company as defined under Subchapter M of the Internal Revenue Code.
During
the quarter ended March 31, 2005, a market maker filed an application to list
our securities on the OTC Bulletin Board. We are currently responding to
comments from the National Association of Securities Dealers and hope to be
listed for trading on the OTC Bulletin Board by the end of 2005.
Management
does not anticipate that we will engage in any material product research and
development, nor do we anticipate that we will purchase a plant or significant
equipment.
Our
financial statements have been prepared assuming we will continue as a going
concern. Because we have not generated any revenues to date and have minimal
capital resources, our Certified Public Accountants included an explanatory
paragraph in their report raising substantial doubt about our ability to
continue as a going concern.
Regulation
as a BDC
Although
the 1940 Act exempts a BDC from registration under that Act, it contains
significant limitations on the operations of BDC’s. Among other things, the 1940
Act contains prohibitions and restrictions relating to transactions between a
BDC and its affiliates, principal underwriters and affiliates of its affiliates
or underwriters, and it requires that a majority of the BDC’s directors be
persons other than “interested persons,” as defined under the 1940 Act. The 1940
Act also prohibits a BDC from changing the nature of its business so as to cease
to be, or to withdraw its election as, a BDC unless so authorized by the vote of
the holders of a majority of its outstanding voting securities. BDC’s are not
required to maintain fundamental investment policies relating to diversification
and concentration of investments within a single industry.
Generally,
a BDC must be primarily engaged in the business of furnishing capital and
providing managerial expertise to companies that do not have ready access to
capital through conventional financial channels. Such portfolio companies are
termed “eligible portfolio companies.” More specifically, in order to qualify as
a BDC, a company must (1) be a domestic company; (2) have registered a class of
its equity securities or have filed a registration statement with the Securities
and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of
1934; (3) operate for the purpose of investing in the securities of certain
types of portfolio companies, namely immature or emerging companies and
businesses suffering or just recovering from financial distress; (4) extend
significant managerial assistance to such portfolio companies; and (5) have a
majority of “disinterested” directors (as defined in the 1940 Act).
An
eligible portfolio company is, generally, a U.S. company that is not an
investment company and that (1) does not have a class of securities registered
on an exchange or included in the Federal Reserve Board’s over-the-counter
margin list; or (2) is actively controlled by a BDC and has an affiliate of a
BDC on its board of directors; or (3) meets such other criteria as may be
established by the Securities and Exchange Commission. Control under the 1940
Act is generally presumed to exist where a BDC owns 25% of the outstanding
voting securities of the company.
The 1940
Act prohibits or restricts companies subject to the 1940 Act from investing in
certain types of companies, such as brokerage firms, insurance companies,
investment banking firms and investment companies. Moreover, the 1940 Act limits
the type of assets that BDC’s may acquire to “qualifying assets” and certain
assets necessary for its operations (such as office furniture, equipment and
facilities) if, at the time of acquisition, less than 70% of the value of the
BDC’s assets consist of qualifying assets. Qualifying assets include: (1)
securities of companies that were eligible portfolio companies at the time the
BDC acquired their securities; (2) securities of bankrupt or insolvent companies
that were eligible at the time of the BDC’s initial acquisition of their
securities but are no longer eligible, provided that the BDC has maintained a
substantial portion of its initial investment in those companies; (3) securities
received in exchange for or distributed in or with respect to any of the
foregoing; and (4) cash items, government securities and high-quality short-term
debt. The 1940 Act also places restrictions on the nature of the transactions in
which, and the persons from whom, securities can be purchased in order for the
securities to be considered qualifying assets. These restrictions include
limiting purchases to transactions not involving a public offering and acquiring
securities from either the portfolio company or its officers, directors, or
affiliates.
A BDC is
permitted to invest in the securities of public companies and other investments
that are not qualifying assets, but those kinds of investments may not exceed
30% of the BDC’s total asset value at the time of the investment.
A BDC
must make significant managerial assistance available to the issuers of eligible
portfolio securities in which it invests. Making available significant
managerial assistance means, among other things, any arrangement whereby the
BDC, through its directors, officers or employees, offers to provide, and, if
accepted does provide, significant guidance and counsel concerning the
management, operations or business objectives and policies of a portfolio
company. The portfolio company does not have to accept the BDC’s offer of
managerial assistance, and if they do accept may be required to pay prevailing
market rates for the services.
The
Company does not currently have any investments in eligible portfolio
companies. However,
we are actively seeking quality eligible portfolio companies in which to make an
investment and provide managerial assistance.
Three
Months Ended March 31, 2005 Compared to Three Months Ended March 31,
2004
Results of Operations
Introduction
We did
not have any revenues for the quarter ended March 31, 2005. We do not anticipate
having revenue until we begin making investments in eligible portfolio companies
and subsequently liquidate those investments. Because we are actively seeking
eligible portfolio companies we anticipate that our revenues from
quarter-to-quarter may differ significantly depending on when we realize a
return on those investments. Our operating expenses decreased when compared to
the same quarter during the previous year due, primarily, to the fact we
incurred less costs related to legal services. We had no other income during the
quarter ended March 31, 2005, which is the same as the previous year. A
breakdown of our operating expenses and other expenses, as well as management’s
explanation of each, is outlined below.
Revenues
and Loss from Operations
As stated
above, because we do not have any investments in eligible portfolio companies,
we did not have any revenues for the quarter ended March 31, 2005. Our total
operating losses for the quarter ended March 31, 2005, were $8,145, compared to
$8,979 for the quarter ended March 31, 2004. Our expenses for the quarter were
made up entirely of general and administrative expenses. General
and administrative expenses consist of accounting, insurance, and other
professional fees for the quarters ended March 31, 2005 and 2004.
Net
Income (Loss)
We had
net loss for the quarter ended March 31, 2005 of ($8,145), compared to a net
income of $74,376 for the same quarter a year ago. Despite this disparity in our
net income (loss), our operating expenses were consistent for the quarter ended
March 31, 2005, $8,145, compared to the quarter ended March 31, 2004, $8,979.
The significant difference in our net income (loss) between these two periods is
due to the fact that during the three months ended March 31, 2004, Mr. Carl
Berg, a director and our sole officer, and The Lebrecht Group, APLC, our
attorneys, agreed to
forgive $83,355 in total debt (accounts payable and shareholder advances).
Because we do not have any investments in eligible portfolio companies, we
anticipate that our net income (loss) could differ significantly from quarter to
quarter.
Liquidity
and Capital Resources
Introduction
As of
March 31, 2005, we had cash of $1,729, which is the remaining cash from our
financing activities during the quarter ended March 31, 2004. As of March 31,
2005, this cash is our only asset. Our total current liabilities as of March 31,
2005 were $1,795 consisting entirely of accrued liabilities. Although our assets
were nearly identical to our liabilities on March 31, 2005, given the lack of
investments in eligible portfolio companies, our financial results at the end of
future quarters could differ significantly. Until we begin to realize a return
from our investment in eligible portfolio companies, we will have to fund
operations from the sale of our stock and from loans. We have been successful in
obtaining the necessary funding in the past, and anticipate that we will be able
to continue to do so in the future.
Our cash,
accounts payable and accrued liabilities, and total current liabilities for this
three-month period as compared to the end of our last fiscal year
were:
|
|
As
of
March
31, 2005 |
|
As
of
December
31, 2004 |
|
Change |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,729 |
|
$ |
17,403 |
|
$ |
(15,674 |
) |
Accounts
payable and accrued liabilities |
|
|
1,795 |
|
|
9,324 |
|
|
(7,529 |
) |
Total
current liabilities |
|
$ |
1,795 |
|
$ |
9,324 |
|
$ |
(7,529 |
) |
Cash
Requirements
Currently,
our cash requirements are minimal, related only to the cost of maintaining the
Company in good standing. Last year we raised a small amount of capital through
an offering under Regulation E, which covered our expenses for approximately
next twelve (12) months. If necessary, we anticipate raising additional funds
through another offering under Regulation E to fund our operations until we
begin making investments into eligible portfolio companies or for the next
twelve (12) months. Additionally, our two primary shareholders, Mr. Berg and Mr.
Lebrecht, have verbally agreed to advance funds to us to fund our minimal cash
requirements that cannot otherwise be covered by the proceeds from the offering.
For the
three-month period ended March 31, 2005 our net cash used in operating
activities was ($15,674). Due to our lack of substantial operations to date we
do not believe this is necessarily indicative of our cash flow needs for future
three-month periods when we may be actively providing managerial assistance to
eligible portfolio companies. We anticipate that our cash flow needs will
increase when we have active investments in eligible portfolio companies.
Sources
and Uses of Cash
Operations
We did
not receive any cash from operations for the three-month period ended March 31,
2005. As noted above, we used $15,674 in cash for operating activities during
this three-month period. We anticipate that both our cash generated from
operations and used for operations will increase as soon as we have investments
in eligible portfolio companies. Until that time we believe this figure will be
fairly indicative our cash generation and cash used for operations in a
three-month period.
Financing
During
the three-month period ended March 31, 2005 we paid our operating expenses
primarily with the money raised from the sale of our stock during the quarter
ended March 31, 2004. We anticipate that we will have to continue to pay our
operating expenses out of the proceeds from financing activities until we begin
to realize a return from our investments in eligible portfolio companies.
Debt
Instruments, Guarantees, and Related Covenants
Currently,
we do not have any debt instruments, guarantees or related covenants.
Critical
Accounting Policies
The
discussion and analysis of the Company’s financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. Due to the relative inactivity of
the Company to date, we have not identified any critical accounting
policies.
ITEM
3 Controls
and Procedures
The
Company's Chief Executive Officer and Chief Financial Officer (or those persons
performing similar functions), after evaluating the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date
within 90 days of the filing of this quarterly report (the “Evaluation Date”),
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective to ensure the timely collection,
evaluation and disclosure of information relating to the Company that would
potentially be subject to disclosure under the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder. There were no
significant changes in the Company’s internal controls or in other factors that
could significantly affect the internal controls subsequent to the Evaluation
Date.
PART
II
ITEM 1 Legal
Proceedings
In the
ordinary course of business, we may be from time to time involved in various
pending or threatened legal actions. The litigation process is inherently
uncertain and it is possible that the resolution of such matters might have a
material adverse effect upon our financial condition and/or results of
operations. However, in the opinion of our management, matters currently pending
or threatened against us are not expected to have a material adverse effect on
our financial position or results of operations.
ITEM
2 Changes
in Securities and Use of Proceeds
There
have been no events that are required to be reported under this
Item.
ITEM
3 Defaults
Upon Senior Securities
There
have been no events that are required to be reported under this
Item.
ITEM
4 Submission
of Matters to a Vote of Security Holders
There
have been no events that are required to be reported under this
Item.
ITEM
5 Other
Information
On April
1, 2005, we entered into a Stock Exchange Agreement with NuQuest, Inc. Pursuant
to the agreement, we agreed to issue to NuQuest a total of 166,667 shares of our
common stock, and in exchange they agreed to issue to us a total of 20,000
shares of their common stock. The value of the stock to be exchanged by both
parties was agreed to be $25,000. NuQuest further agreed to declare a dividend
and distribute the shares of our common stock pro-rata to all of their
shareholders except for three, who agreed to forego the dividend.
ITEM
6 Exhibits
and Reports on Form 8-K
(a) Exhibits
|
|
|
3.1
(1) |
|
Articles
of Incorporation of M-GAB Development Corporation |
|
|
|
3.2
(1) |
|
Bylaws
of M-GAB Development Corporation |
|
|
|
10.1
(2) |
|
Stock
Exchange Agreement with NuQuest, Inc., dated April 1,
2005 |
|
|
|
31.1 |
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer |
|
|
|
31.2 |
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer |
|
|
|
32.1 |
|
Chief
Executive Officer Certification Pursuant to 18 USC, Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
|
|
32.2 |
|
Chief
Financial Officer Certification Pursuant to 18 USC, Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
(1) Incorporated
by reference from our Pre-Effective Registration Statement on Form SB-2 dated
and filed with the Commission on August 31, 2001.
(2) Incorporated
by reference from our Current Report on Form 8-K dated April 1, 2005 and filed
with the Commission on April 4, 2005.
(b) Reports
on Form 8-K
None.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
M-GAB
Development Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
May 20, 2005 |
|
/s/
Carl M. Berg |
|
By: |
Carl
M. Berg |
|
|
President,
Director, |
|
|
Chief
Executive Officer, |
|
|
Chief
Financial Officer |