10-Q: UBUYHOLDINGS Reports Dormant Status, Eyes Reverse Merger

UbuyHoldings, Inc., a dormant shell company, reported no current operations or revenue for the quarter ended November 30, 2024, while outlining plans for a potential reverse merger and disclosing significant management changes.

Summary

• UbuyHoldings, Inc. remains a dormant shell company with no current operations, products, or services.
• The company reported zero revenue and zero net loss for the six months ended November 30, 2024, compared to a net loss of $23,623 for the same period in 2023.
• Total assets and cash and cash equivalents were $0 as of November 30, 2024.
• Total liabilities decreased from $45,102 as of May 31, 2024, to $0 as of November 30, 2024, primarily due to the forgiveness of $45,102 in related party debt by David Lazar.
• The accumulated deficit stood at $14,213,560 as of November 30, 2024.
• Common stock outstanding increased significantly to 284,367,820 shares as of November 30, 2024, from 179,367,820 shares as of May 31, 2024.
• The company's management intends to explore and identify business opportunities, including a potential acquisition of an operating entity through a reverse merger, asset purchase, or similar transaction.
• Significant changes in control and management occurred, with AEI Capital Ltd. acquiring 10,000,000 shares of Series A-1 Preferred Stock, representing 95% of the total voting power, leading to the resignation of previous officers and the appointment of new management.

Sentiment

Score: 3

Explanation: The sentiment is low due to the company's dormant status, lack of operations, significant accumulated deficit, and identified material weaknesses in internal controls. While the debt forgiveness is positive, and the intent to pursue a reverse merger offers speculative upside, the high dilution risk and going concern doubt present substantial challenges for investors.

Positives

• Related party debt of $45,102 was forgiven by David Lazar, eliminating current liabilities and improving the balance sheet.
• The company has a stated plan to pursue a reverse merger, which could bring in an operating business and new capital.

Negatives

• The company has no current operations, products, services, or revenue.
• It reported $0 in cash and cash equivalents as of November 30, 2024, and has no working capital.
• An accumulated deficit of $14,213,560 indicates significant historical losses.
• Management identified material weaknesses in internal control over financial reporting, including insufficient segregation of duties, lack of an independent board or audit committee, and no written internal control policies.
• The company faces substantial doubt about its ability to continue as a going concern without external financing.

Risks

• Limited management, labor, and financial resources pose challenges to future operations.
• Ability to establish and maintain adequate internal controls is currently ineffective.
• Difficulty in developing and maintaining a market for its securities.
• Uncertainty in obtaining financing on acceptable terms, if and when needed.
• Potential target businesses for acquisition may be financially unstable or in early stages of development, carrying inherent risks.
• Lack of diversification post-merger, as the company anticipates only one business combination, heightening investment risk.
• Competition for business opportunities, especially at discounted rates, may hinder acquisition efforts.
• The continued negative effects of the coronavirus pandemic on the U.S. and global economies could impact business plans.
• Future issuances of equity or convertible debt securities for a business combination will result in significant dilution to current shareholders.

Future Outlook

Management intends to identify and explore business opportunities within the U.S., specifically targeting a potential acquisition of an operating entity through a reverse merger, asset purchase, or similar transaction. The company anticipates incurring operating losses in the next 12 months, primarily related to SEC reporting costs, and expects to need additional capital as a condition of closing any acquisition, which will likely result in significant dilution to current shareholders.

Management Comments

• Management intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase, or similar transaction.
• Our Chief Executive Officer has experience in business consulting, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits.
• We do not currently engage in any business activities that provide revenue or cash flow.
• Based upon our current operations, we do not have sufficient working capital to fund our operations over the next 12 months.
• If we are able to close a reverse merger, it is likely we will need capital as a condition of closing that acquisition.
• Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders.
• Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development.

Industry Context

UbuyHoldings, Inc. operates as a shell company, a common vehicle in the U.S. capital markets for private companies seeking to become publicly traded without undergoing a traditional IPO. The change of control and stated intent to pursue a reverse merger align with typical strategies for revitalizing dormant public shells. The market for such shells can be competitive, with various entities seeking opportunities at discounted rates, especially given general economic conditions and capital shortages. The company's lack of current operations and reliance on future acquisitions for business activity is standard for this segment of the market.

Comparison to Industry Standards

• UbuyHoldings' financial state (zero revenue, zero assets, accumulated deficit) is typical for a dormant shell company, aligning with the profile of entities seeking a reverse merger.
• The significant increase in common shares outstanding and the issuance of preferred stock with high voting power are common mechanisms used in shell company transactions to facilitate changes in control and prepare for new business integration, similar to other shell companies undergoing custodianship and subsequent sale.
• The identified material weaknesses in internal controls (e.g., lack of segregation of duties, no independent board/audit committee) are frequently observed in small, non-operating entities with limited resources, contrasting sharply with the robust governance structures expected of established public companies like Apple Inc. or Microsoft Corp.
• The reliance on a custodian for financing and the explicit need for future capital raises for a potential merger are standard for shell companies, unlike mature operating businesses that typically fund growth through retained earnings or established credit lines.
• The company's plan to acquire an operating entity through a reverse merger is a well-established path for private companies to access public markets, comparable to SPAC (Special Purpose Acquisition Company) mergers, though without the initial capital raise and trust structure of a SPAC.

Management Changes

Corporate Governance

Related Party Transactions

• David Lazar, the former CEO and custodian, forgave $45,102 in related party debt owed to him by the company.
• Custodian Ventures was awarded 55,000,000 shares of Class A Preferred Stock and 10,000,000 shares of newly designated Class A-1 Preferred Stock on December 6, 2023, for services performed and to cancel advances made to cover operating expenses. The Class A-1 Preferred Stock was valued at $202,448 as stock-based compensation.

Stakeholder Impact

• Shareholders: Face significant potential dilution from future equity issuances required for a reverse merger. The change in control and new management may alter strategic direction.
• Creditors: The forgiveness of related party debt by David Lazar has eliminated existing liabilities, which is positive for the company's balance sheet.
• Employees: Currently minimal, but future operations post-merger would create employment opportunities.
• Customers/Suppliers: Currently none, as the company is dormant. Future operations would establish these relationships.

Next Steps

• Management will explore and identify business opportunities within the U.S.
• The company plans to investigate, evaluate, and negotiate potential business combinations, such as a reverse merger or asset purchase.
• The company intends to implement an independent board of directors, establish written policies and procedures for internal control, and hire additional accounting personnel after completing a reverse merger or similar business acquisition.

Key Dates

Recommendation

For a seasoned investor, UbuyHoldings represents a highly speculative 'hold' for those specifically interested in shell company plays. The company has no current operations, significant accumulated deficit, and material weaknesses in internal controls, making it unsuitable for traditional investment. However, the recent change of control, debt forgiveness, and explicit intent to pursue a reverse merger position it as a potential vehicle for a private company to go public. The value lies solely in its status as a public shell. Investors should be aware of the high risk of dilution from future capital raises and the inherent uncertainties of identifying and completing a viable business combination. This is not a 'buy' for general investors due to the lack of fundamentals, nor a 'sell' for those who understand and seek out shell opportunities, as the current actions are consistent with preparing a shell for a transaction.

Keywords

Shell company, Reverse merger, Dormant company, SEC filing, Corporate governance, Financial reporting, Going concern, Capital raise, Management change, Preferred stock