1.4 MARCO LEGAL
1.4.2 Plan Nacional del Buen Vivir
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2012 (UNAUDITED)
(1) Organization and Business Description
XR Energy, Inc. (“XR” or the “Company”) was incorporated under the laws of the State of Nevada
on August 31, 2009. XR offers energy consulting services to smaller sized middle market companies in the New York Metropolitan Area. The Company also earns a commission from the related utility for energy services brokered and sold to its customers.
Going Concern Uncertainty
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates the Company continuing as a going concern. As of March 31, 2012, the Company had cash of $16,142 and working capital of $11,417. For the period August 31, 2009 (inception) through March 31, 2012, the Company had minimal revenues and a cumulative net loss of $46,533. These factors raise substantial doubt as to the ability of the Company to continue as a going concern. However, the Company plans to improve its financial condition by raising additional capital by selling shares of its common stock. Also, the Company plans to pursue new customers and acquisition prospects in order to attain profitable operations. However, there is no assurance that the Company will be successful in accomplishing these objectives. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Revenue Recognition
The Company recognizes revenues from consulting fees and commissions earned from various utilities related to sales of energy services to customers in the New York Metropolitan Area. Revenues are recognized for financial reporting purposes when the utility delivers the energy services to the customer, acceptance has been approved by the customer, the fee is fixed or determinable, and collection of the related receivable is probable.
XR ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2012 (UNAUDITED)
Loss Per Common Share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares (such as stock options and convertible securities) had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods presented.
Income Taxes
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740 “ Income Tax ”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes”. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2011 and 2010, the Company had no material unrecognized tax benefits.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with FASB ASC 718, “Compensation – Stock Compensation”. The Company recognizes stock-based compensation expense for the fair value of all shares and stock options that are ultimately expected to vest over the requisite service period of the respective awards. To date, the Company has not granted any stock options.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
XR ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2012 (UNAUDITED)
(3) Due To Officer
Due to Officer at March 31, 2012, December 31, 2011 and December 31, 2010 represents monies advanced to the Company by a major shareholder of the Company for the purpose of providing working capital for the business. The amount due is non-interest bearing and is payable on demand. The balance has been classified as a Long-term Liability because a demand for payment is not expected currently.
(4) Income Taxes
The provision for (benefit from) income taxes for the years ended December 31, 2010 and 2011, and for the three months ended March 31, 2011 and 2012 are as follows, assuming a combined effective tax rate of approximately 40%:
The Company had deferred tax income tax assets as of December 31, 2010 and 2011 and March 31, 2012 as follows:
Three Months Ended Years Ended
March 31, December 31,
2012 2011 2011 2010
Federal and state
taxable income $ - $ - $ - $ -
Total current tax provision - - - -
Federal and state loss carryforwards (522 ) 966 (6,636 ) (5,605 ) Change in valuation allowance 522 (966 ) 6,636 5,605
Total deferred tax provision - - - -
Total income tax provision $ - $ - $ - $ -
March 31, December 31,
2012 2011 2010
Loss carryforwards $ 18,613 $ 18,091 $ 11,455 Less: valuation allowance (18,613 ) (18,091 ) (11,455 )
XR ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2012 (UNAUDITED)
The Company has maintained a full valuation allowance against the total deferred tax assets for all periods due to the uncertainty of future utilization.
As of December 31, 2011, the Company has net operating loss carry forwards of $45,228 which expire $14,625 in 2029, $14,012 in 2030 and $16,591 in 2031.
(5) Common Stock
In September 2009, the Company issued a total of 2,700,000 shares of restricted common stock related to three separate consulting agreements. Each contract had a term of six months and was valued at $1,500 per month, or $9,000 in total. The aggregate value of these agreements was $27,000, was recorded as a Prepaid Expense upon issuance of the shares and was expensed over the six month term of the respective agreements. All shares were fully vested upon issuance.
During 2010, the Company sold and issued a total of 66,800 shares of restricted common stock in a series of private placements for $.25 per share with gross proceeds of $16,700.
During 2011, the Company sold and issued a total of 52,000 shares of restricted common stock in a series of private placements for $.25 per share with gross proceeds of $13,000.
There were no dilutive financial instruments issued or outstanding as of December 31, 2010 and 2011 and March 31, 2012.
(6) Related Party Transactions
Included in Accounts Payable and Accrued Expenses at December 31, 2010, December 31, 2011 and March 31, 2012 is $2,100, $4,200 and $4,725, respectively, due to a Company, which is owned by a founding shareholder and officer of XR, for rent and related cost for office space utilized by XR under a verbal month-to-month agreement.
XR ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011
AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2012 (UNAUDITED)
(7) Commitments and Contingencies
Rental Agreement
The Company rents office space from a related party (see Note 6) under a month-to-month agreement which provides for rent of $175 per month.
Registration Statement
On November 23, 2011, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) to register for sale the 2,818,800 shares of common stock issued to consultants in 2009 and sold to investors in a series of private placements in 2010 and 2011. The Company will not receive any proceeds from the shares sold by the selling shareholders.
On October 13, 2011, the Company executed an agreement with a law firm to assist in the preparation and filing of the registration statement. Pursuant to the agreement, the Company paid the law firm a total of $10,000 in October and November 2011, which has been included in the Statement of Operations as Professional Fees.
On December 20, 2011, the SEC issued a comment letter to the Company. The Company expects to file a response to the SEC comment letter no later than June 30, 2012.
Conflicts of Interests
The Chief Executive Officer of the Company is currently involved in other business activities and may become involved in additional business opportunities in the future. As such, he may face a conflict in selecting between the Company and his other business interests. The Company has not formulated a policy for the resolution of such conflicts.
(8) Subsequent Events
On May 10, 2012, the Company executed a Promissory Note payable to the Chief Executive Officer (the "Holder"). The Promissory Note provides that until May 10, 2013, upon two business days' prior written notice to the Holder, the Company may borrow from the Holder, from time to time, any amounts in increments of up to $5,000, provided that the aggregate principal amount outstanding under this note shall not exceed $25,000 and the Holder shall not be obligated to make any advances if an Event of Default has occurred and is continuing. The Promissory Note bears interest at a rate of 5% (default rate of 15%) and is due no later than May 10, 2013.