UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
COMMISSION FILE NUMBER 0-29057
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________TO __________________
ALTRIMEGA HEALTH CORPORATION
(Exact name of registrant as specified in charter)
NEVADA 87-0631750
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
4702 OLEANDER DRIVE, SUITE 200,
MYRTLE BEACH, SC 29577
---------------------------------------- --------
(Address of principal executive offices) (Zip)
Issuer's telephone number, including area code (843) 497-7028 Securities
registered pursuant to section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
----------------------------------------
(Title of Class)
As of May 21, 2004, the Company had 49,139,950 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one).
Yes |_| No |X|
PART I: FINANCIAL INFORMATION
INTRODUCTORY NOTE
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains "forward-looking statements" relating to
Altrimega Health Corporation ("Altrimega") which represent Altrimega's current
expectations or beliefs including, but not limited to, statements concerning
Altrimega's operations, performance, financial condition and growth. For this
purpose, any statements contained in this Form 10-QSB that are not statements of
historical fact are forward-looking statements. Without limiting the generality
of the foregoing, words such as "may", "anticipation", "intend", "could",
"estimate", or "continue" or the negative or other comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, such as losses, dependence
on management, variability of quarterly results, and the ability of Altrimega to
continue its growth strategy and competition, certain of which are beyond
Altrimega's control. Should one or more of these risks or uncertainties
materialize or should the underlying assumptions prove incorrect, actual
outcomes and results could differ materially from those indicated in the
forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
2
ITEM 1. FINANCIAL STATEMENTS
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 16,392
Properties held for development or sale 728,212
Prepaid expenses 5,600
-----------
Total Current Assets 750,204
OTHER ASSETS
Deposits 35,000
Accts receivable-related party 58,560
-----------
TOTAL ASSETS $ 843,764
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable - secured by residential units for sale $ 909,752
Accounts payable - related parties 266,911
Accounts payable 79,511
-----------
Total Current Liabilities 1,256,174
-----------
MINORITY INTEREST DEFICIENCY (14,391)
STOCKHOLDERS' DEFICIENCY
Preferred stock 10,000,000 shares authorized at $0.001 par value;
1,000,000 shares issued and outstanding 1,000
Common stock 50,000,000 shares authorized at $0.001 par value;
49,139,950 shares issued and outstanding 49,140
Additional paid in capital 381,560
Accumulated deficit (829,719)
-----------
Total Stockholders' Deficit (398,019)
-----------
TOTAL LIABILITIES & STOCKHOLDERS DEFICIT $ 843,764
===========
The accompanying notes are an integral part of these financial statements.
3
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
Mar 31, Mar 31,
2004 2003
(Restated)
------------ ------------
REVENUE $ -- $ 181,979
COST OF REVENUE -- 154,609
------------ ------------
Gross Profit -- 27,370
------------ ------------
OPERATING EXPENSES
Consultants -- 24,500
Administrative 26,322 4,124
------------ ------------
TOTAL OPERATING EXPENSES 26,322 28,624
------------ ------------
INCOME (LOSS) FROM OPERATIONS 26,322 (1,254)
OTHER INCOME (EXPENSE)
Interest Expense (11,655) --
Other Income 3,150 --
TOTAL OTHER INCOME (EXPENSE) (8,505) --
------------ ------------
LOSS before minority interest (34,827) (1,254)
MINORITY INTEREST 4,193 (5,935)
------------ ------------
NET LOSS $ (30,634) (7,189)
============ ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.00) $ (0.00)
------------ ------------
AVERAGE OUTSTANDING SHARES - (stated in 1,000's)
Basic and diluted 49,140 48,873
------------ ------------
The accompanying notes are an integral part of these financial statements.
4
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
Mar 31, Mar 31,
2004 2003
(Restated)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (30,634) $ (7,189)
Adjustments to reconcile net loss to net cash provided (used) by operating activities
Changes in
Properties held for development or sale (68,697) 107,257
Accts receivable-related party 4,000 --
Advance deposits -- (4,441)
Accts payable-related 6,000 5,000
Accts payable 43,425 59,500
Minority interest (4,193) 5,935
------------ ------------
Net Cash provided (used) by operating activities (50,099) 166,062
CASH FLOWS FROM INVESTING ACTIVITIES -- --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 139,752 --
Payments on notes payable (75,000) (78,270)
------------ ------------
Net cash provided by financing activities 64,752 78,270
------------ ------------
Net Increase in Cash 14,653 87,792
Cash at Beginning of Period 1,739 47,053
------------ ------------
Cash at End of Period $ 16,392 $ 134,845
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 11,655 $ --
============ ============
Cash paid for interest $ -- $ --
============ ============
The accompanying notes are an integral part of these financial statements.
5
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission requirements for
interim financial statements. Therefore, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. The financial statements
should be read in conjunction with the Form 10-KSB for the year ended December
31, 2003 of Altrimega Health Corporation and Subsidiary (the "Company").
The interim financial statements present the condensed balance sheet, statements
of operations, and cash flows of Altrimega Health Corporation and Subsidiary.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
The interim financial information is unaudited. In the opinion of management,
all adjustments necessary to present fairly financial position of the company as
of March 31, 2004 and the results of operations and cash flows presented herein
have been included in the financial statements. Interim results are not
necessarily indicative of results of operations for the full year.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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
accounting for the AHC Transaction is identical to that resulting from a reverse
acquisition, except goodwill or other intangible assets will not be recorded.
During November 2002, the Company acquired 80% of Sea Garden Funding, LLC by the
assumption of certain liabilities. Sea Garden Funding, LLC was organized in the
state of South Carolina on November 13, 2002 for the purpose of the development
and sale of residential real estate. (See Note 2)
Going concern - The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred a net loss of approximately $133,000 for the year ended December 31,
2003, with an accumulated loss from inception of approximately $799,000. The
Company's current liabilities exceed its current assets by approximately
$475,000 as of December 31, 2003. The Company had a net loss of $30,634 for the
three months ended March 31, 2004 and an accumulated deficit of $829,719 at
March 31, 2004. The Company's current liabilities exceeded its current assets by
$505,970 at March 31, 2004.
6
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION (CONTINUED)
These conditions give rise to substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include
adjustments relating to the recoverability and classification of reported asset
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing or sale of its common stock as may be required and
ultimately to attain profitability.
Management's plan, in this regard, is to develop and sale real estate in order
to provide additional working capital for its future planned activity and to
service its debt, which will enable the Company to operate for the coming year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassification-Certain prior year balances have been reclassified to conform
to the current year presentation, which have no effect on the loss.
Principles of consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. 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 disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Advertising and marketing costs - The Company recognizes advertising and
marketing costs in accordance with Statement of Position 93-7 "Reporting on
Advertising Costs." Accordingly, the Company expenses the costs of producing
advertisements at the time production occurs, and expenses the costs of
communication advertising in the period in which the advertising space or
airtime is used. Advertising costs are charged to expense as incurred.
Advertising expenses was $6,790 and $- for the year ended December 31, 2003.
Advertising expenses for the three months ended March 31, 2004 was $800.
Fair value of financial instruments - The carrying amounts and estimated fair
values of the Company's financial instruments approximate their fair value due
to the short-term nature.
Earnings (loss) per share - Basic earnings (loss) per share excludes any
dilutive effects of options, warrants and convertible securities. Basic earnings
(loss) per share is computed using the weighted-average number of outstanding
common shares during the applicable period. Diluted earnings per share is
computed using the weighted average number of common and common stock equivalent
shares outstanding during the period. Common stock equivalent shares are
excluded from the computation if their effect is antidilutive.
Income taxes - The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standards No. 109, which requires recognition
of deferred tax assets and liabilities for future tax consequences attributable
7
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (CONTINUED)
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
As of December 31 2003, the Company has available net operating loss carryovers
of approximately $800,000 that will expire in various periods through 2023. Such
losses may not be fully deductible due to the significant amounts of non-cash
service costs. The Company has established a valuation allowance for the full
tax benefit of the operating loss carryovers due to the uncertainty regarding
realization.
Accounting methods - The Company recognizes income and expenses based on the
accrual method of accounting.
Sales of property - Gains from sales of operating properties and revenues from
land sales are recognized using the full accrual method provided that various
criteria relating to the terms of the transactions and any subsequent
involvement by the Company with the properties sold are met. Gains or revenues
relating to transactions which do not meet the established criteria are deferred
and recognized when the criteria are met or using the installment or cost
recovery methods, as appropriate in the circumstances. For land sale
transactions under terms in which the Company is required to perform additional
services and incur significant costs after title has passed, revenues and costs
of sales are recognized proportionately on a percentage of completion basis.
Deposits received prior to closing are recorded as a liability until the
consummation of the sale at which time such amounts are generally applied toward
the purchase price.
Cost of land sales is generally determined as a specific percentage of land
sales revenues recognized for each land development project. The cost
percentages used are based on estimates of development costs and sales revenues
to completion of each project and are revised periodically for changes in
estimates or development plans. The specific identification method is used to
determine cost of sales of certain parcels of land.
Properties - Properties under development are carried at cost reduced for
impairment losses, where appropriate. Properties held for sale are carried at
cost reduced for valuation allowances, where appropriate. Acquisition,
development and construction costs of properties in development and land
development projects are capitalized including, where applicable, salaries and
related costs, real estate taxes, interest and preconstruction costs. The
pre-construction development (or an expansion of an existing property) includes
efforts and related costs to secure land control and zoning, evaluate
feasibility, and complete other initial tasks, which are essential to
development. Provisions are made for potentially unsuccessful preconstruction
efforts by charges to operations.
8
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Properties held for sale are carried at the lower of their carrying values
(i.e., cost less accumulated depreciation and any impairment loss recognized,
where applicable) or estimated fair values less costs to sell. Generally,
revenues and expenses related to property interests acquired with the intention
to resell are not recognized.
Dividend policy - The Company has not adopted a policy regarding payment of
dividends.
Comprehensive loss - The Company has no components of other comprehensive loss.
Accordingly, net loss equals comprehensive loss for all periods.
Segment information - The Company discloses segment information in accordance
with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which uses the Management approach to determine reportable
segments. The Company operates under one segment.
Stock-based compensation - The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations, in accounting for stock options issued to employees. Under APB
No. 25, employee compensation cost is recognized when estimated fair value of
the underlying stock on date of the grant exceeds exercise price of the stock
option. For stock options and warrants issued to non-employees, the Company
applies SFAS No. 123, Accounting for Stock-Based Compensation, which requires
the recognition of compensation cost based upon the fair value of stock options
at the grant date using the Black-Scholes option pricing model.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends the transition and
disclosure provisions of SFAS No. 123. The Company is currently evaluating SFAS
No. 148 to determine if it will adopt SFAS No. 123 to account for employee stock
options using the fair value method and, if so, when to begin transition to that
method.
Net loss per common share - The Company computes net loss per share in
accordance with SFAS No. 128, Earnings per Share and SEC Staff Accounting
Bulletin No. 98. Under the provisions of SFAS 128 and SAB 98, basic net loss per
share is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share gives effect to
common stock equivalents, however, potential common shares are excluded if their
effect is antidilutive. For the three months ended March 31, 2004, for the year
ended December 31, 2003 and the period from July 3, 2002 (Inception) through
December 31, 2003, no shares were excluded from the computation of diluted
earnings per share because their effect would be antidilutive.
New accounting pronouncements - In July 2001, the FASB issued SFAS No. 143,
Accounting for Obligations Associated with the Retirement of Long-Lived Assets.
SFAS No. 143 establishes accounting standards for the recognition and
9
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
measurement of an asset retirement obligation and its associated asset cost. Its
retirement also provides accounting guidance for legal obligations associated
with the retirement of tangible long-lived assets. SFAS No. 143 is effective in
fiscal years beginning after June 15, 2002, with early adoption permitted. The
adoption of SFAS No. 143 did not have a material impact on the Company's
financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 establishes a single accounting model
for the impairment or disposal of long-lived assets, including discontinued
operations. SFAS 144 superseded Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The
provisions of SFAS No. 144 are effective in fiscal years beginning after
December 15, 2001, with early adoption permitted, and in general are to be
applied prospectively. The adoption of SFAS No. 144 did not have a material
impact on the Company's financial statements for the three months ended March
31, 2004 or the years ended December 31, 2003 and 2002.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities, such as
restructurings, involuntarily terminating employees, and consolidating
facilities initiated after December 31, 2002. The implementation of SFAS No. 146
did not have a material effect on the Company's financial statements for the
three months ended March 31, 2004 or the years ended December 31, 2003 and 2002.
In April 2003, the FASB issued SFAS No. 149, Amendment of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149
amends SFAS No. 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to SFAS No.
133, (2) in connection with other Board projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative. The Statement clarifies
under what circumstances a contract with an initial net investment meets the
characteristics of a derivative discussed in paragraph 6(b) of SFAS No. 133,
clarifies when a derivative contains a financing component, amends the
definition of underlying to conform it to language used in FASB Interpretation
No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, and amends certain
other existing pronouncements. Those changes will result in more consistent
reporting of contracts as either derivatives or hybrid instruments. This
statement is effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The
implementation of SFAS No. 149 did not have a material on the Company's
financial statements.
10
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. In
addition, the Statement requires an issuer to classify certain instruments with
specific characteristics described in it as liabilities. This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The implementation of SFAS No. 150 is not
expected to have a material effect on the Company's financial statements.
3. BUSINESS COMBINATIONS AND ACQUISITIONS
Sea Garden Funding, LLC - In November 2001, the Company acquired 80% of Sea
Garden Funding, LLC (a South Carolina Limited Liability Company) in exchange for
the assumption of certain liabilities. The Company will account for its 80%
ownership interest in Sea Garden Funding, LLC using the purchase method of
accounting under APB No. 16. The results of operations for the acquired company
have been included in the consolidated financial results of the Company from the
date of such transaction forward. The Company acquired the project from Sea
Garden, LLC on October 21, 2002 for the payment of $210,000 and the assumption
of $1,071,344.66 in mortgages on the real property held by Horry County State
Bank. The remaining 20% interest in Sea Garden Funding, LLC, is owned by an
unaffiliated party, Tom Roe, an individual, of Myrtle Beach, South Carolina. The
acquisition was made by exercising an option that Creative Holdings, Inc., held
on the parcel. The option was not valued as no consideration was given by
Creative Holdings to hold the option. The real property held by Sea Garden, LLC
was acquired prior to Creative's acquisition of Sea Garden Funding, LLC.
In accordance with APB No. 16, all identifiable assets were assigned a portion
of the cost of the acquired company (purchase price) on the basis of their
respective fair values. Intangible assets were identified and valued by
considering the Company's intended use of the acquired assets and analysis of
data concerning products, technologies, markets, historical performance, and
underlying assumptions of future performance. The economic environments in which
the Company and the acquired company operate were also considered in the
valuation analysis.
4. NOTES PAYABLE
As of March 31, 2004, the Company has two notes payable with outstanding
balances of $370,000 and $400,000. The outstanding balances are secured by real
estate, payable in quarterly installments of interest only at the prime lending
rate plus 0.5% (4.5% as of December 31, 2003), and maturity in March 2005 and
December 2004, respectively.
During March 2004, the Company entered into a Prommissory Note with the ability
to draw funds up to $360,000. The outstanding balances are secure by real
estate, payable in monthly installments of interest only at the greater of the
prime lending rate plus 0.1% or 6.75%, and maturity in December 2004. As of
March 31, 2004, the Company has drawn $139,752 on the Promissory Note.
5. RELATED PARTY TRANSACTIONS
Accounts receivable - related party - The Company has made a non-interest
bearing, due on demand loan to the minority interest holder of Sea Garden
Funding LLC, which as of March 31, 2004 totaled $58,560.
11
ALTRIMEGA HEALTH CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(UNAUDITED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Accounts payable-related parties - As of March 31, 2004, officers-directors, and
their controlled entities, have acquired 36% of the outstanding stock of the
Company, after the conversion of the preferred shares to common shares, and have
made non-interest bearing, due on demand loans to the Company totaling $266,911.
Executive employment agreement - During 2003 the Company entered into an
employment agreement with an officer, which provides for an annual salary of
$100,000 with a 5% increase each year to a maximum of $125,000, provided the
Company has a profit in the previous year.
6. RESTATED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's financial statements, management
became aware that those financial statements did not reflect account balances
properly for the period from July 3, 2002 (date of inception) through December
31, 2002. The change in the statement of operations primarily related to the
accounting of stock based compensation and the AHC Transaction, which was not
properly reported as a transaction identical to that resulting from a reverse
acquisition, except goodwill or other intangible assets are not recorded. The
net change of $171,756 increased the net loss from $494,507 ($0.01 per weighted
average common share outstanding) to $666,263 ($0.06 per weighted average common
share outstanding) for the period from July 3, 2002 (date of inception) through
December 31, 2002.
Additionally, the issuance of the financial statements as of and for the period
ended March 31, 2003 as reported did not properly reflect certain historical
balances. Therefore, the financial statement presentation has been restated to
conform to the proper reporting of these transactions.
7. STOCKHOLDERS' DEFICIT
During 2002, the Company issued 10,500,000 shares of common stock at a weighted
average fair value of approximately $0.03 per share for services.
During 2002, the Company issued 18,499,700 shares of the Company's common stock
in consideration of the AHC Transaction, as discussed in Note 1. A recipient of
approximately 5,000,000 shares of the common stock returned 4,879,750 shares to
the Company which were cancelled accordingly.
During the first quarter of 2003, the Company issued 3,000,000 shares of common
stock in satisfaction of accounts payable of $79,500 (including interest of
$39,500).
8. COMMITMENTS AND CONTINGENCIES
Leased facility - The Company pays $600 per month to lease a townhouse unit for
its model on a non-cancelable lease which expired in April 2004. The owner of
the unit agreed to a three-month extension of the lease for $2,400. The lease
agreement is with an unrelated couple from North Carolina, who intends to occupy
the unit for vacation use when the lease expires. The Company will then have a
unit in one of its other buildings currently under construction for use as a
model.
The Company has a consulting agreement, with unrelated parties, which provides
for a quarterly payment of $45,000.
9. SUBSEQUENT ENEVTS
During April 2004, the Company entered into a Promissory Note with the ability
to draw funds up to $360,000. The outstanding balances are secured by real
estate, payable in monthly installments of interest only at the greater of the
prime lending rate plus 0.1% or 6.75%, and maturity in December 2004. During
April and May 2004, the Company has drawn $150,135 on the Promissory Note.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
GENERAL
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements, and the Notes thereto
included herein. The information contained below includes statements of
Altrimega's or management's beliefs, expectations, hopes, goals and plans that,
if not historical, are forward-looking statements subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. For a discussion on
forward-looking statements, see the information set forth in the Introductory
Note to this Annual Report under the caption "Forward Looking Statements", which
information is incorporated herein by reference.
GOING CONCERN
As reflected in Altrimega's financial statements for the three
months ended March 31, 2004, Altrimega's accumulated deficit of $829,719 and its
working capital deficiency of $505,970 raise substantial doubt about its ability
to continue as a going concern. The ability of Altrimega to continue as a going
concern is dependent on Altrimega's ability to raise additional debt or capital.
The financial statements for March 31, 2004 do not include any adjustments that
might be necessary if Altrimega is unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires that we make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses. At each
balance sheet date, management evaluates its estimates. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The estimates and critical
accounting policies that are most important in fully understanding and
evaluating our financial condition and results of operations include those
listed below.
REVENUE RECOGNITION
Gains from sales of operating properties and revenues from
land sales are recognized using the full accrual method provided that various
criteria relating to the terms of the transactions and any subsequent
involvement by the Company with the properties sold are met. Gains or revenues
relating to transactions which do not meet the established criteria are deferred
and recognized when the criteria are met or using the installment or cost
recovery methods, as appropriate in the circumstances. For land sale
transactions under terms in which the Company is required to perform additional
services and incur significant costs after title has passed, revenues and costs
of sales are recognized proportionately on a percentage of completion basis.
Deposits received prior to closing are recorded as a liability until the
consummation of the sale at which time such amounts are generally applied toward
the purchase price.
Cost of land sales is generally determined as a specific
percentage of land sales revenues recognized for each land development project.
The cost percentages used are based on estimates of development costs and sales
revenues to completion of each project and are revised periodically for changes
in estimates or development plans. The specific identification method is used to
determine cost of sales of certain parcels of land.
PROPERTIES
Properties under development are carried at cost reduced for
impairment losses, where appropriate. Properties held for sale are carried at
cost reduced for valuation allowances, where appropriate. Acquisition,
development and construction costs of properties in development and land
development projects are capitalized including, where applicable, salaries and
related costs, real estate taxes, interest and preconstruction costs. The
pre-construction development (or an expansion of an existing property) includes
efforts and related costs to secure land control and zoning, evaluate
feasibility, and complete other initial tasks, which are essential to
13
development. Provisions are made for potentially unsuccessful preconstruction
efforts by charges to operations.
Properties held for sale are carried at the lower of their
carrying values (i.e., cost less accumulated depreciation and any impairment
loss recognized, where applicable) or estimated fair values less costs to sell.
Generally, revenues and expenses related to property interests acquired with the
intention to resell are not recognized.
Stock-based compensation - The Company applies Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and Related Interpretations, in accounting for stock options issued
to employees. Under APB No. 25, employee compensation cost is recognized when
estimated fair value of the underlying stock on date of the grant exceeds
exercise price of the stock option. For stock options and warrants issued to
non-employees, the Company applies SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the recognition of compensation cost based upon the
fair value of stock options at the grant date using the Black-Scholes option
pricing model.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends the
transition and disclosure provisions of SFAS No. 123. The Company is currently
evaluating SFAS No. 148 to determine if it will adopt SFAS No. 123 to account
for employee stock options using the fair value method and, if so, when to begin
transition to that method.
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements shown in this report
excludes the historical operating information of the parent before September 30,
2002, and includes the operating information of the subsidiary, Creative
Holdings, Inc., from July 3, 2002 (date of inception of the subsidiary), and the
operating information of Sea Garden Funding, LLC from November 2002 (the date of
the purchase of 80% of the LLC) to December 31, 2002.
All intercompany transactions have been eliminated.
RESTATEMENT OF FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
Subsequent to the issuance of the Company's financial
statements, management became aware that those financial statements did not
reflect account balances properly for the period from July 3, 2002 (date of
inception) through December 31, 2002. Properly accounting of these items in the
revised financial statements has the following effect:
For the period from July 3, 2002 (date of inception) through
December 31, 2002, the change in the statement of operations primarily related
to the accounting for the share exchange agreement between Altrimega and
Creative Holdings, which was not properly reported as a transaction identical to
that resulting from a reverse acquisition, except goodwill or other intangible
assets are not recorded. The net change of $171,756 increased the net loss from
$494,507 ($0.01 per weighted average common share outstanding) to $666,263
($0.06 per weighted average common share outstanding) for the period from July
3, 2002 (date of inception) through December 31, 2002. The Company is in the
process of preparing an amendment to its Form 10-KSB for fiscal year ended
December 31, 2002.
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2004, COMPARED TO THE
PERIOD ENDED MARCH 31, 2003
REVENUES
Revenue for the period ended March 31, 2004, was $0.00, a
decrease of $181,979, as compared to $181,979 in revenues for the period ended
March 31, 2003. The decrease in revenues in 2004 was attributable to no sales of
units at the Sea Garden project in the first quarter, where the Company sold 2
units in 2003. We anticipate revenues for the fiscal year ending 2004 to consist
mainly or completely of the sale of units at the Sea Garden Project.
COST OF REVENUE. There was no cost of revenue for the period
ended March 31, 2004, as there were no construction revenues.
GROSS PROFIT. There was no gross profit for the period ended
March 31, 2004. The gross profit relates to the sale of units at the Sea Garden
project.
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OPERATING EXPENSES. Operating expenses for the period ended
March 31, 2004, were $26,322, as compared to $28,624, for the period ended March
31, 2003. Operating expenses in 2004 consisted of $26,322 in general and
administrative expenses. The decrease of $2,302 from 2003 to 2004 was
attributable to a decrease in consulting and professional fees, which equaled
$24,500 in the period ended March 31, 2003. this decrease was offset by an
increase of $22,198 to administrative expense.
OTHER INCOME (EXPENSE). Other income (expense) for the period
ended March 31, 2004, was a net expense of $8,505, an increase of $8,505, as
compared to a net expense of $0 for the period ended March 31, 2003. The
increase in other expense in 2004 was primarily attributable to $11,655 in
interest expense from loans used in the construction of two buildings at Sea
Gardens and the two mortgages on the remaining land at the Sea Garden project.
NET LOSS. Altrimega had a net loss of $30,634 for the period
ended March 31, 2004, as compared to a net loss of $7,189 for the period ended
March 31, 2003. The increase of $17,403 was mostly attributable to no revenues
being recognized in the period.
LIQUIDITY AND CAPITAL RESOURCES
Altrimega's financial statements have been prepared on a going
concern basis that contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. Altrimega incurred
a net loss of $30,634 and $17,403 for the periods ended March 31, 2004 and March
31, 2003, respectively, and has an accumulated deficit of $829,719 at March 31,
2004. As of March 31, 2004, we had total assets of $843,764 and total
liabilities of $1,256,174, a difference of $412,410. Additionally, our current
assets were $750,204 and our current liabilities were $1,256,174, creating a
working capital deficit of $505,970. The majority of the assets, $728,212,
consist of building sites contained within the Sea Garden town home community.
Consequently, the majority of our liabilities, $909,752, are
mortgage loans on the Sea Garden assets. Accounts payable to related parties
equal to $266,911 are also included in our liabilities. Management recognizes
that Altrimega must generate or obtain additional capital to enable it to
continue operations. Management is planning to obtain additional capital
principally through the sale of equity securities. The realization of assets and
satisfaction of liabilities in the normal course of business is dependent upon
Altrimega obtaining additional equity capital and ultimately obtaining
profitable operations. However, no assurances can be given that Altrimega will
be successful in these activities. Should any of these events not occur, the
accompanying consolidated financial statements will be materially affected.
We had limited operations and revenues during the period ended
March 31, 2004. Our shortfall in working capital has been met through advances
from our president, John Gandy, and other shareholders who have advanced funds
to pay expenses incurred by the Company from time to time. At no time during the
period did these short term loans exceed $50,000.
For the three months ended March 31, 2004, the Company used
net cash in operations of $50,099, no cash for investing activities and had
$64,752 in cash provided by financing activities.
During March 2004, the Company entered into a Prommissory Note
with the ability to draw funds up to $360,000. The outstanding balances are
secure by real estate, payable in monthly installments of interest only at the
greater of the prime lending rate plus 0.1% or 6.75%, and maturity in December
2004. As of March 31, 2004, the Company has drawn $139,752 on the Promissory
Note.
During April 2004, the Company entered into a Promissory Note
with the ability to draw funds up to $360,000. The outstanding balances are
secured by real estate, payable in monthly installments of interest only at the
greater of the prime lending rate plus 0.1% or 6.75%, and maturity in December
2004. During April and May 2004, the Company has drawn $150,135 on the
Promissory Note.
During April 2004, the Company entered into a second
Promissory Note with the ability to draw funds up to $360,000. The outstanding
balances are secured by real estate, payable in monthly installments of interest
only at the prime lending rate plus 0.1%, and maturity in April 2005. During
April and May 2004, the Company has drawn $137,928 on the Promissory Note.
During April 2004, the Company paid an additional $150,000 in
principal on a note payable.
We anticipate that we will require significant capital to
maintain our corporate viability and execute our plan to develop real estate
projects. We anticipate necessary funds will most likely be provided by our
existing shareholders, our officers and directors, and outside investors. We
will require significant loan guarantees to acquire properties for development
and to complete construction on any additional construction projects. We may be
required to pledge equity in the Company to induce individuals, officers or
directors or other shareholders to guarantee our loans when necessary.
Altrimega is at present meeting its current obligations from
its monthly cash flows, which during 2003, and to date in 2004 has included cash
from operations, investor capital, and loans from related parties. However, due
to insufficient cash generated from operations, Altrimega currently does not
have internally generated cash sufficient to pay all of its incurred expenses
and other liabilities. As a result, Altrimega is dependent on investor capital
and loans to meet its expenses and obligations. Although related party loans
have allowed Altrimega to meet its obligations in the recent past, there can be
no assurances that Altrimega's present methods of generating cash flow will be
sufficient to meet future obligations. There can be no assurances that Altrimega
will be able to raise sufficient additional capital in the future.
We have incurred losses since inception. Management believes
that it will require approximately $150,000 in additional capital to fund
overall Company operations for the next twelve months. This amount does not
include monies necessary to construct new townhouse units at Sea Garden.
Altrimega currently has approximately $16,000 in cash and cash equivalents as of
March 31, 2004 and has $22,100 in cash as of May 21, 2004.
15
PLAN OF OPERATION
The Company derives its revenue from the sale of developed or
undeveloped real estate parcels. At present, the Company has one project
generating revenues, Sea Garden Town Homes, located in North Myrtle Beach, South
Carolina These Town Homes sell in the $95,000 to $105,000 range per Town Home
unit. The Company owns the building sites for an additional 49 units and is
under construction on 15 units. These units have been pre-sold and construction
is set to begin on another 10 units in June, 2004.
It is important for the Company to raise capital funds through
the sale of its common stock in order to provide funding for additional
projects. The projected revenues and subsequent net earnings from the Sea Garden
project are not adequate to cover the Company's annual operating costs on an
ongoing basis.
Altrimega intends to strive to locate, evaluate and proceed to
finance and develop multiple projects located primarily in the Myrtle Beach,
South Carolina area and the Carolinas area of the United States. Management
believes that these areas provide the population growth necessary to achieve
profits from new construction projects. For the last three years, Horry County,
South Carolina has been one of the top three fastest growing counties in the
United States. In 1997, Horry County showed a population of only 180,000. Based
on current projections and the 2000 census data, the county will have a
permanent population of 500,000. The principal industries of the area are
tourism related. Myrtle Beach is considered a drive-in market, where tourists
will drive their cars rather than fly to the destination. The tourism industry
in Myrtle Beach has developed three seasons, spring golf, summer beach vacations
and fall golf. The spring and fall golf seasons bring approximately 150,000
visitors per week to play on the areas over 100 golf courses. The summer
vacation season brings in approximately 400,000 per week. The average tourist
stay is one week.
Altrimega's business strategy includes a focus on interval
ownership properties, also known as time-share properties, that cater to this
major tourism industry. As well, we intend to develop projects in the medium
price ranges for the areas permanent service industry population.
Management intends to attempt to seek out low-risk projects
that do not require large financing commitments. In addition, we will continue
to evaluate projects throughout the Carolinas in high growth areas.
Our continuation as a going concern is dependent on our
ability to meet our obligations and obtain additional debt or equity financing
required until our current and proposed real estate projects are under way and
generating earnings. Until such time as these projects are generating earnings,
we have taken the following steps to revise our operating and financial
requirements in an effort to enable us to continue in existence:
o We have reduced administrative expenses to a minimum by
consolidating management responsibilities to our president and chief executive
officer.
o We intend to seek either equity or further debt funding.
o We intend to attempt to obtain the professional services of
third-parties through favorable financing arrangements or payment by the
issuance of our common stock.
We believe that the foregoing plan should enable us to
generate sufficient funds to continue its operations for the next twelve months.
Management has implemented this plan to attempt to overcome
the Company's serious going concern conditions. The first step is to reduce
operating costs. To this end the Company's President and Chief Executive
Officer, John Gandy, has assumed almost all of the Company's functions from
sales and marketing, locating and evaluating new real estate projects, most
accounting functions, shareholder relations and general administrative
functions. Mr. Gandy has foregone any compensation for the last half of 2003,
and has committed to continue with no compensation through at least the first
six months of 2004. The Company's Chief Financial Officer is receiving no
compensation. The Company anticipates reduced consulting expense in the next
fiscal year. Only one consultant is on hand for additional help in evaluating
projects and working with the accounting and reporting functions of the Company.
Administrative expenses, including mostly legal and accounting charges, will
constitute the largest expense items for the year. The Company has made
arrangements with these outside professionals to work more efficiently with them
to help reduce the overall costs associated with these services.
16
In addition, the Company has located some potential sources of
equity financing that could contribute to the Company's financial requirements
in the upcoming fiscal year. This element is especially critical to the
Company's going concern situation. Before these sources can be fully explored,
the Company must correct some of its prior filings with the Securities and
Exchange Commission. Management is in the process of correcting its prior 1934
Securities Act filings, including its annual report of for 10-KSB for the fiscal
year ended December 31, 2002, and its quarterly reports on Forms 10-QSB for the
quarters ended March 31, 2003, June 30, 2003 and September 30, 2003.
For the next 12 months we anticipate that we will need
$150,000 to continue to fund basic operations, in addition to funding necessary
to acquire and develop real estate projects. The Company anticipates
approximately $50,000 in consulting fees in the next fiscal year and only minor
operating expenses. Any new real estate projects will require debt financing. In
summary, we expect expenses to decline in the coming fiscal year due to a
decrease in consulting fees and no other increases in operating expenses.
The Company plans to continue operating with small
administrative and consulting fees in the next fiscal year in order to continue
operations. Continuing to work with its accounting and legal professionals more
efficiently, the Company plans to reduce its fees for such services. In
addition, the Company plans to utilize only one consultant for accounting
services.
From time to time, Altrimega may evaluate potential
acquisitions involving complementary businesses, content, products or
technologies. Altrimega has no present agreements or understanding with respect
to any such acquisition. Altrimega's future capital requirements will depend on
many factors, including an increase in Altrimega's real estate projects, and
other factors including the results of future operations.
ITEM 3. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's Principal Executive Officer and Principal
Financial Officer of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. The Company's disclosure controls
and procedures are designed to provide a reasonable level of assurance of
achieving the Company's disclosure control objectives. The Company's Principal
Executive Officer and Principal Accounting Officer have concluded that the
Company's disclosure controls and procedures are, in fact, effective at this
reasonable assurance level as of the period covered.
(B) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In connection with the evaluation of the Company's internal
controls during the Company's quarter ended March 31,2004, the Company's
Principal Executive Officer and Principal Financial Officer have determined that
there are no changes to the Company's internal controls over financial reporting
that has materially affected, or is reasonably likely to materially effect, the
Company's internal controls over financial reporting.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO BE A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT NUMBER TITLE OF DOCUMENT LOCATION
-------------- ----------------- --------
31.1 Certification by Chief Executive Officer pursuant Provided herewith
to 15 U.S.C. Section 7241, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Officer pursuant to Provided herewith
15 U.S.C. Section 7241, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification by Chief Executive Officer pursuant to Provided herewith
18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(B) REPORTS ON FORM 8-K:
During the three months ended March 31, 2004, the Company did
not file any current reports on Form 8-K with the Commission. On April 14, 2004,
the Company filed a Form 8-K reporting under Item 4 that the Company engaged
L.L. Bradford & Company, LLC, as its independent auditors, replacing Seller &
Andersen, L.L.C.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JUNE 2, 2004 ALTRIMEGA HEALTH CORPORATION
By: /s/ John Gandy
--------------------------------------
John Gandy,
Chief Executive Officer and
Director
By: /s/ Ron Hendrix
--------------------------------------
Ron Hendrix,
Chief Financial Officer and
Secretary
19