Expenses during the liquidation period are continually reviewed in order to insure that the overall cost structure during the wind down of the Company is reduced to minimal levels necessary to effectively manage the liquidation.
Example 2.13: Liquidation Is Not Imminent
Organization and Nature of Business As a result of the factors described below, the Company has no meaningful revenue‐producing operations. Historically, the Company has operated an investment banking business, predominately fixed‐income sales and trading and financial advisory services, through three principal business units: Investment Banking, Diamond Star Investments, and Credit Products. The Company also engaged in residential mortgage lending operations through Family Funding, Inc. (“Family Funding”) until this business was discontinued, and the business sold to North Star Residential, Inc. (“North Star”), in February 20X3 (the “North Star Transaction”).
The Company has disclosed previously various uncertainties that had adversely impacted counterparty relationships, employee turnover, and operating results. Those factors impacted the overall stability of the Company. During the second quarter of 20X3, the Company's Board of Directors approved plans to discontinue operations in its Diamond Star Investments (including Western Financial Services [“Western“]) and Homeland Products divisions (together, “Fixed Income” or the “Fixed Income businesses”) as well as, later in the quarter, its Investment Banking division. Exiting these businesses impacted approximately 125 employees. As of December 14, 20X3, the Company had approximately 30 employees. Refer to Notes 20 and 21 herein for additional information.
The Company is evaluating several strategic alternatives in order to preserve and maximize stockholder value. These include:
Pursuing a strategic transaction with a third party, such as a merger or sale of the Company;
Reinvesting the Company's liquid assets in favorable opportunities; and
Winding down the Company's remaining operations and distributing its net assets, after making appropriate reserves, to its stockholders.
The Company does not believe that discontinuing the businesses referenced above will have a significant near‐term impact on its liquidity. The Company's liquidity needs will depend to a large extent on decisions it makes regarding the alternatives described above and its future business operations, generally. The Company's available liquidity, which consists primarily of cash, is currently anticipated to be sufficient to meet its ongoing financial obligations for a reasonable period of time.
Example 2.14: Going Concern—Substantial Doubt Remains—Contingent on Raising Capital
As shown in the accompanying consolidated financial statements the Company has incurred recurring losses of $688,217 and $709,913 for the years ended June 30, 20X8 and 20X7 respectively, and has incurred a cumulative loss of $4,075,605 since inception (November 14, 20X1). The Company is currently in the development stage and has spent a substantial portion of its time in the development of its technology.
There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
Management believes that the Company's capital requirements will depend on many factors. These factors include the final phase of development and mass production being successful as well as product implementation and distribution.
The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.
Example 2.15: Going Concern—Substantial Doubt Remains—Contingent on Obtaining Financing
The accompanying financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated revenues since inception and has never paid dividends and is unlikely to pay dividends or generate earnings in the near future. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity or debt financing to continue operations, the successful development of one or more alternative oil and gas properties, and the attainment of profitable operations. As of February 28, 20X4, the Company has not generated any revenues and has an accumulated loss of $1,889,899 since inception. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
On May 15, 20X2, the Company modified an October 20X1 capital raising agreement with Emerald Capital Partners, LLP (“Emerald”), a corporate finance firm based in Dallas and regulated by the SEC. While the Company no longer pays a monthly fee to Emerald, it is obligated for a period of 18 months beginning May 1, 20X2 to pay Emerald a success fee for any transaction completed with any prospect previously introduced by Opal. Subsequent to the agreement modification, Emerald has introduced the Company to a very small number of further potential investors or joint venture partners. If the Company consummates a transaction with any of these, it generally expects to pay to this firm the stock success fee represented by 4,289,052 shares of the Company's common stock, which is subject to forfeiture, as originally agreed upon.
Example 2.16: Going Concern—Substantial Doubt—Management's Plans
The Company's consolidated financial statements have been prepared using accounting principles generally accepted in the United States. applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has a working capital deficit, recurring losses, and negative cash flows from operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
At February 28, 20X1, the Company had an accumulated deficit of $4,891,093. Subsequent to February 28, 20X1 the Company has not received any cash proceeds from its stock subscriptions receivable, but the Company entered into stock purchase agreements and issued 1,283,500 restricted common shares at $0.26 per share, for total cash proceeds of $320,875. The Company anticipates that expected future proceeds from its stock subscriptions receivable, additional financing through the sale of its common stock or other equity‐based securities, and additional sales of existing domain names will be sufficient to meet its working capital and capital expenditure needs through at least February 28, 20X2. In the event that the Company is unable to obtain additional capital in the future, it would be forced to further reduce operating expenses and/or cease operations altogether.
3 ASC 210 BALANCE SHEET
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Authoritative Literature
Subtopics
Scope and Scope Exceptions
ASC