UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 10-KSB  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2006   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from ______________to ______________  Commission file number 0-22934   Animal Cloning Sciences, Inc.(Exact Name of Small Business Issuer as Specified in Its Charter)
  Washington91-1268870(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
  69930 Highway 111, Suite 108, Rancho Mirage, CA 92270(Address of Principal Executive Offices)
  Issuer’s Telephone Number, Including Area Code: (760) 219-2776
  Securities registered pursuant to Section 12(b) of the Act:  Preferred Stock, no par value:  None.  Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 No  Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB.  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes XNo   State issuer's revenues for its most recent fiscal year: $0  State the aggregate market value of the voting stock held by non- affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days: The Company does not have an active trading market and it is, therefore, difficult, if not impossible, to determine the market value of the stock.  Indicate the number of shares outstanding of each of the issuer's classes of Common Equity, as of the latest practicable date. Common Stock, No par value  142,894 Title of Class Number of Shares Outstanding   at April 20, 2006    PART I  Item 1. Description of Business. Animal Cloning Sciences, Inc. was incorporated on August 16, 1984 in the state of Washington under the name Gold Valley, Inc. On October 4, 1993 the Company's shareholders authorized the issuance of preferred stock, adopted a stock option plan and ratified a reverse stock split. On November 14, 2000, the Company changed its name to Animal Cloning Sciences, Inc. to reflect the direction of the firm's efforts.  The Company had been conducting research on cloning horses and evaluating license agreements to distribute equine DNA for equine clones. The Company was focusing its research on a cloning method that would lend itself to commercialization of equine cloning. In early 2003, the Company was informed by the USDA that its license to import frozen embryos, which was expected to be issued, would not be forthcoming because of concerns arising due to the tragic events occurring on September 11, 2001.  As a result, the Company ceased its efforts at cloning and disposed of assets used for cloning in the third quarter of 2003.  For full details on these matters, please refer to the Company's Form 10-QSB for the quarter ended September 30, 2003, and Form 10-KSB for the year ended December 31, 2003.  As of September 3, 2003, the Company is considered to have re-entered the development stage.  Since 2003, the Company has neither generated revenues nor conducted any operations.  The Company's only activity is the incurrence of general and administrative expenses to maintain its status as a reporting company with the SEC.  The Company's current business plan is to locate a suitable candidate for merger or acquisition.  Employees The Company has no employees.  The officers of the Company do not work exclusively for the Company. Subsidiaries. The Company's only subsidiary, Societe Financiere de Distribution, Geneva, SA, was dissolved with the liquidation of the Company's cloning assets during the quarter ended September 30, 2003.  Item 2. Description of Property  With the closing of and disposition of the Company's ranch and equine cloning operations, the Company's headquarters were relocated in early 2006 to Rancho Mirage, CA in an office furnished free of charge by Mr. Dempsey Mork, the Company's CEO. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None.  PART II  Item 5. Market for Registrant's Common Equity and Related Stockholder Matters  There is not currently a public trading market for the Company's securities.  As of December 31, 2006, there were 142,894 common shares and no preferred shares issued and outstanding.  No dividends have been declared or paid on the Company's securities, and it is not anticipated that any dividends will be declared or paid in the foreseeable future. As of December 31, 2006, there were approximately 166 common shareholders of record. Item 6.   Management's Discussions and Analysis or Plan of Operations The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements and notes thereto included in this Form 10-KSB and the prior reports for fiscal year 2006. No significant business activity was conducted by the Company during the fiscal year 2006.  As a result, no income was earned by the Company in 2006 and there was no cash at the end of the year. The primary activity of the Company will involve seeking merger or acquisition candidates it can acquire or with whom it can merge.  The Company has not selected any company for acquisition or merger and does not intend to limit potential acquisition candidates to any particular field or industry, but does retain the right to limit acquisition or merger candidates, if it so chooses, to a particular field or industry. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets.  We will encounter various risks in implementing and executing our business strategy.  We can provide no assurance that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business. The Company does not intend to make any loans to any prospective merger or acquisition candidate, or to any unaffiliated third parties. The officers and directors of the Company are currently involved in other activities and will devote only a portion of their time to the specific business affairs of the Company until such time as a merger or acquisition candidate has been determined.  At such a time, they expect to spend the necessary time and effort to investigate and finalize any merger or acquisition. The Company intends to structure a merger or acquisition in such manner as to minimize federal and state tax consequences to the Company and the target company. Capital and Source of Liquidity. During the third quarter of 2003, the Company sold its ranch and equine cloning facilities, which were originally purchased during the first quarter of 2002 through the issuance of its note payable and the assumption of long-term debt.  The Company has not engaged in any investing activities since then. Plan of Operations. The Company has not engaged in any material operations or had any operations during the past two fiscal years.  In 2006 and 2005, the Company generated no revenues, and incurred administrative expenses of $12,500 and $9,375, respectively.  In 2003, the Company generated no revenues and had a net loss of $698,806. We do not expect to purchase any significant equipment for the foreseeable future. We do not expect any significant changes in the number of employees in the next twelve months. We do not currently provide any services and have not generated any revenues, and we do not expect to generate revenues for the foreseeable future, nor do we anticipate incurring any significant expenses. Therefore, we will continue to operate on a minimal budget. Any expenses incurred will be paid for by our officers and directors and reimbursed once a merger or acquisition transaction takes place and we start generating cash flows.  We intend to limit our operations to seeking merger and acquisition candidates, and don't believe it is necessary to raise any additional funds during the next twelve months.  Item 7.   Financial Statements and Supplementary Financial Data.  See attached financial statements.  Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. In September 2005, we engaged Pritchett, Siler & Hardy, Salt Lake City, UT, to be our independent auditor, replacing our previous auditor, Mr. David Winings, CPA, Palm Desert, CA.  This change was made in order to comply with SEC Regulations, which require that all public companies have a PCAOB registered accountant audit and certify year-end financial statements.  Mr. Winings was not registered with the PCAOB.  No Form 8- K was filed in connection with this change in auditors.  The decision to change our independent auditor was approved by our Board of Directors. On April 10, 2006, we engaged Child, Van Wagoner & Bradshaw, PLLC, of Salt Lake City, Utah, to be our independent auditor, replacing Pritchett, Siler & Hardy.  A Form 8-K was subsequently filed on April 13, 2006 indicating the change in auditor.  The decision to change our independent auditor was approved by our Board of Directors. None of the reports of Mr. Winings or Pritchett, Siler & Hardy (collectively 'the Prior Auditors') on our financial statements for either of the past two years or subsequent interim period contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. There were no disagreements between us and the Prior Auditors for either of the past two years or subsequent interim period on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of the Prior Auditors, would have caused it to make reference to the subject matter of the disagreement in connection with its report.  No reportable events of the type described in item 304(a)(1)(iv)(B) of Regulation S-B occurred during the two most recent fiscal years.  Item 8A.   Controls and Procedures.  Evaluation of The Company's Disclosure Controls.  As of the end of the period covered in this Form 10-KSB, the Company's principal executive officer and principal financial officer have evaluated the effectiveness of the Company's "Disclosure Controls and Procedures" ("Disclosure Controls").   Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-KSB, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (SEC) rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company's management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been discovered. The CEO and CFO have made an evaluation of the Disclosure Controls and procedures relating to the annual report on Form 10-KSB for the year ended December 31, 2006 as filed with the SEC, and have judged such controls and procedures to be effective as of December 31, 2006, the evaluation date. There have not been any significant changes in the internal controls of the Company or other factors that could significantly affect internal controls relating to the Company since the evaluation date.  Item 8b.  Other Information. None.  PART III  Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(A) of the Exchange Act. The members of the Board of Directors of the Company serve until the next annual meeting of stockholders, or until their successors have been elected.  No annual meeting has been set.  The names and positions of the present directors and officers of the Company are set forth below:  NameAgePositionDempsey K. Mork65Chief Executive Officer and DirectorRiccardo Mortara57President and DirectorDarren J. Holm42Secretary & Chief Financial Officer and Director  Business Experience of Directors/Executive Officers:  Riccardo Mortara has been President and a Director of the Company since June 1993. Mr. Mortara is the managing director of Societe Financiere du Seujet, Geneva, Switzerland, a company which provides portfolio management and financial services to banks, corporations, and high net- worth individuals primarily in Europe. Between the years of 1984 and 1991, Mr. Mortara was a director of a Geneva private portfolio management company in which he still is a co-owner. Mr. Mortara currently serves on the boards of five financial services companies, and 2 publicly traded companies: Mediticnic, Inc. and Space Launches, Inc. Dempsey K. Mork has been the Chief Financial Officer and a Director of the Company since December 1992 and was President from December 1992 to June 1993. Mr. Mork is now Chief Executive Officer and Director of the Company.  Mr. Mork's background includes corporate development, mergers & acquisitions, and financial services, and he has been active in these fields for the past 25 years. Mr. Mork is also an officer/director of Magellan Capital Corporation, Knickerbocker Capital Corporation, China Holdings, Inc., Apex Capital, Asian Financial, and North Star Ventures. Darren J. Holm is currently Secretary & Chief Financial Officer of the Company. His educational background includes Ambulance and Emergency Care, Georgian College through 1984; A.S. EMS Systems Management at Davenport University through December 1985,  A.S. Respiratory Care through June 1988, and,. Business experience includes 13 years with Springs  Ambulance/American Medical Response as Paramedic/Field Training Officer;  three years as Medical Division Manager with Desert Airlines, (an  aero medical transport company); and, two years with Air Service  International as General Manager. Significant Employees. The Company has no employees who are not executive officers.  Audit Committee. The Board of Directors is the acting audit committee.  There is currently no audit committee expert, as the Company does not have available funds to compensate such an individual.  Code of Ethics. The Company has not adopted a code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  The Company has not adopted such a code of ethics because all of management's efforts have been directed to acquiring a business for the Company; at a later time, the board of directors may adopt such a code of ethics.  Item 10. Executive Compensation During the period of 1995 through 2003 and in accordance with compensation agreements then in effect, Mr. Riccardo Mortara and Mr. Dempsey Mork (the Officers) had accumulated $1,020,000 in accrued salaries.  As of December 31, 2005, $645,000 was still owed to the Officers. To date, no additional compensation has been provided to the officers and directors.  There are currently no standard arrangements pursuant to which the Company's directors are compensated for any services provided as director.  No additional amounts are payable to the Company's officers or directors for committee participation, special assignments, or other services rendered in the normal course of business.  Compliance with Section 16(A). N/A  Item 11. Security Ownership of Certain Beneficial Owners and Management Principal Shareholders.  The following table lists forth information on the beneficial ownership of Company securities by executive officers, directors and those persons beneficially holding more than 5% of the Company's total common stock of 142,894 outstanding at December 31, 2005:  Name and AddressOf BeneficialOwnershipAmount of SharesBneficiallyOwned*PercentOf ClassDempsey K. Mork69930 Highway 111, Suite 108Rancho Mirage, CA 9227013,6299.5%Riccardo Mortara14 Quai Du SeujetCH-1201 GenevaSwitzerland24,20717%Robert J. Filiatreaux77545 ChillonLa Quinta, CA 922537,9285.5%Total45,76432%  Item 12. Certain Relationships and Related Transactions  In March 2002, the Company entered into a $150,000 convertible promissory note with an entity affiliated with the Company's CEO.  The note is convertible at a rate of $.05 per share at the option of the holder for a total of 3,000,000 shares of common stock.  Interest of 5% is accrued on the principal quarterly. If not sooner converted into common stock, the principal and interest are due March 1, 2007.  At December 31, 2006, the Company had accrued $28,125 in interest. Current year interest expense was $7,500.  The Company's officers and directors have resolved to provide for various expenses incurred by the Company with only minimal repayment due at the time a merger or acquisition is effected and cash flows are available.  These expenses consist of, but are not limited to accounting, filing requirements, and management services.  At December 31, 2006, the Company had accumulated $3,375 in such fees payable to its officers and directors.  Certain conflicts of interest now exist and will continue to exist between the Company and its officers and directors due to the fact that each has other business interests to which he devotes his primary attention.  Each officer and director may continue to do so notwithstanding the fact that management time should be devoted to the business of the Company. No procedures have been adopted to resolve such conflicts of interest.  Item 13.  Exhibits and Reports on Form 8-K (a)  The Exhibits listed below are filed as part of this Annual Report.  Exhibit No. - -------------- 3.1 Articles of Incorporation (Incorporated by reference from Registration Statement on Form 10-SB previously filed with the Securities and Exchange Commission). 3.2 Bylaws (Incorporated by reference from Registration Statement on Form 10-SB previously filed with the Securities and Exchange Commission). 31.1 Certification Under Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Under Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Under Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification Under Section 906 of the Sarbanes-Oxley Act of 2002 (b) The Corporation did not file a report on Form 8-K during the quarter ended December 31, 2006.  ITEM 14. Principal Accountant Fees and Services All audit and related services are approved by the Board of Directors (the acting audit committee) prior to the rendering of services. Audit Fees The fees incurred during the years ending December 31, 2006 and 2005 for professional services rendered by our principal accountants, Pritchett, Siler & Hardy (2005) and Mr. David Winings (2004), for the audits of our annual financial statements and review of our quarterly financial statements totaled $3,500 and $0, respectively.  Audit-Related Fees The Company did not incur any fees for the year ending December 31, 2005 or 2004 for professional services that are reasonably related to the audit or review of our financial statements that are not covered in the Audit Fees disclosure above.  Tax Fees The Company did not incur any fees for the year ending December 31, 2005 or 2004 for professional services rendered for tax compliance, tax advice, and tax planning.  All Other Fees There were no fees billed for the years ending December 31, 2005 or 2004 for professional services rendered by our auditors for all other services not disclosed above.   SIGNATURES  In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  Dated: April 20,2007 Animal Cloning Sciences, Inc.  By:  /s/  Riccardo Mortara 
  - ------------------------------------- 
  Riccardo Mortara 
  President  By:  /s/  Dempsey Mork 
  - ------------------------------------- 
  Dempsey Mork 
  CEO  By:  /s/  Darren J. Holm 
  - ------------------------------------- 
  Darren J. Holm 
  CFO         ANIMAL CLONING SCIENCES, INC.
  (A Development Stage Company) 
  BALANCE SHEET 
  December 31, 2006 
  (Unaudited)   ASSETSTotal assets$-LIABILITIES AND SHAREHOLDERS’ DEFICITCURRENT LIABILITIESAccounts Payable$3,500Due to related parties3,375Accrued salaries - officers/directors645,000Total current liabilities651,875LONG-TERM LIABILITIESConvertible note payable - related party150,000Accrued interest - related party28,125Total long-term liabilities830,000STOCKHOLDERS' DEFICITPreferred stock, no par value; 2,000,000shares authorized; 0 shares issued and outstanding-Common stock, no par value; 100,000,000shares authorized; 142,894 sharesissued and outstanding11,990,765Retained deficit(12,797,015) Deficit accumulated sincere-entering development stage(23,750)TOTAL STOCKHOLDERS' DEFICIT(830,000)TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT$-   See accompanying notes to the financial statements.  ANIMAL CLONING SCIENCES, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS  Years Ended Dec. 31
      
      Since reentering
      development stage2006
      2005
      
      2006
      
      2005Revenues
      $
      -
      $
      -
      $ExpensesGeneral and administrative
      
      5,000
      
      1,875
      
      6,875Net loss from operations
      
      (5,000)
      
      (1,875)
      
      (6,875)Other expensesInterest expense
      
      (7,500)
      
      (7,500)
      
      (16,875)Total other income/(expenses)
      
      (7,500)
      
      (7,500)
      
      (16,875)Net loss before income taxes
      
      (12,500)
      
      (9,375)
      
      (23,750)Income tax benefit (expense)
      
      -
      
      -
      
      -Net loss
      $
      (12,500)
      $
      (9,375)
      $
      (23,750)Basic and diluted loss percommon share
      $
      (0.09)
      $
      (0.07)Weighted average commonShares outstanding
      
      142,894
      
      142,894  See accompanying notes to the financial statements.    ANIMAL CLONING SCIENCES, INC. 
  (A Development Stage Company) 
  NOTES TO FINANCIAL STATEMENTS 
  For the Years Ended December 31, 2006 and 2005, and the Period of 
  September 3, 2003 (Re-Entering Development Stage) to December 31, 2006 
  (Unaudited)   Preferred StockCommon Stock
      Retained
        DeficitDeficit Accumulated
    During the Development
    Stage
        
        Total Stock- 
          Holders’ DeficitShares
          
          Amount
          Shares
          
          AmountBalance, 9/3/03
            
            
            
            142,825
            $
            11,990,765
            (12,797,015)
            $
            -
            $
            (806,250)Net loss
              
              
              
              -
              
              -
              -
              
              (1,875)
              
              (1,875)Balance, 12/31/03
                
                
                
                142,825
                
                11,990,765
                (12,797,015)
                
                (1,875)
                
                (808,125)10-to-1 reverse stocksplit, 2/24/04,       rounding
                    
                    
                    
                    69
                    
                    -
                    -
                    
                    -
                    
                    -Shares issued, 2/24/04
                      
                      
                      
                      25,415,000
                      
                      -
                      -
                      
                      -
                      
                      -Shares issued, 3/4/04
                        
                        
                        
                        2,400,000
                        
                        -
                        -
                        
                        -
                        
                        -Shares cancelled, 4/7/04
                          
                          
                          
                          (27,815,000)
                          
                          -
                          -
                          
                          -
                          
                          -Net loss
                            
                            
                            
                            -
                            
                            -
                            -
                            
                            (9,375)
                            
                            (9,375)Balance, 12/31/05
                              
                              
                              
                              142,894
                              
                              11,990,765
                              (12,797,015)
                              
                              (11,250)
                              
                              (817,500)Net loss
                                
                                
                                
                                -
                                
                                -
                                -
                                
                                (12,500)
                                
                                (12,500)Balance, 12/31/06
                                  
                                  
                                  
                                  142,894
                                  $
                                  11,990,765
                                  (12,797,015)
                                  $
                                  (23,750)
                                  $
                                  (830,000)   See accompanying notes to the financial statements.   ANIMAL CLONING SCIENCES, INC. 
  (A Development Stage Company) 
  STATEMENTS OF CASH FLOWS 
  (Unaudited)   For the Years Ended
        December, 31
      From Reentering
        Dev. Stage 
        (Sept. 30, 2003)
      to Dec. 31,2006
      2005
      
      2006Operating ActivitiesNet Loss
      $
      (12,500)
      (9,375)
      $
      (23,750)Changes in operating assetsand liabilities:Accounts payable
      
      1,925
      1,575
      
      3,500Due to related party
      
      3,075
      300
      
      3,375Accrued interest - related party
      
      7,500
      7,500
      
      16,875 Net cash used in operatingActivities-
      
      
      -Investing Activities-
        
        
        -Financing Activities-
          
          
          -Net change in cashCash, beginning of periodCash, end of period$-
                $
                -
                $-Supplemental Disclosures:Cash paid for interestincome taxes$-
                        $
                        -
  $-  See accompanying notes to the financial statements.   ANIMAL CLONING SCIENCES, INC. 
  (A Development Stage Company) 
  NOTES TO FINANCIAL STATEMENTS 
  For the Years Ended December 31, 2005 and 2004, and the Period of 
  September 3, 2003 (Re-Entering Development Stage) to December 31, 2005 
  (Unaudited)   Note 1 - NATURE OF ORGANIZATION  Animal Cloning Sciences, Inc. (the Company) was organized in Washington on August 16, 1984 as a holding company involved in the cloning of horses.  Because of adverse rulings from the U.S. Department of Agriculture in refusing to grant licenses for importing animal embryos into the United States, the Company discontinued its operations and its cloning efforts and sold its ranch facilities during the third quarter of 2003.  The results of these transactions were reported in Form 10-QSB for the quarter ending September 30, 2003, and Form 10-KSB for the year ended December 31, 2003. As of September 3, 2003, the Company is considered to have re-entered the development stage, in accordance with SFAS 7, "Accounting and Reporting by Development Stage Enterprises."  Since 2003, the Company has neither generated revenues nor conducted any operations.  The Company's only activity is the incurrence of general and administrative expenses to maintain its status as a reporting company with the SEC. The Company's current business plan is to locate a suitable candidate for merger or acquisition.  Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of the accompanying 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, liabilities, and 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. Cash Equivalents For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.  No cash was paid for interest or income taxes during the years ended December 31, 2005 or 2004. Loss Per Common Share SFAS 128, "Earnings per Share," requires a dual presentation of earnings per share-basic and diluted. Basic loss per common share is computed by dividing the net loss for the period by the weighted average shares outstanding. The Company's convertible debt (Note 4) is a potentially dilutive security, but does not impact the computation of fully diluted EPS because its effect would be anti-dilutive. Accordingly, basic and diluted losses per share are the same. Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and tax basis of assets and liabilities for financial and income tax reporting.  The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes. Recently Issued Accounting Standards In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123."  SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, the statement amends the disclosure requirement of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities."  SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."  SFAS 149 is generally effective for contracts entered into or modified, and for hedging relationships designated after June 30, 2003. In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity."  SFAS 150 establishes standards for how an issuer measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument within its scope as a liability  (or asset in some circumstances). SFAS 150 was effective for contracts entered into or modified after May 31, 2003. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3."  This statement changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, Opinion 20 required that most voluntary changes in accounting principle be recognized by including in net income of the period of change the cumulative effect of changing to a new principle. This statement requires retrospective application to prior periods' financial statements of changes in accounting principle, when practicable. SFAS 148, 149, and 154 do not have current application to the Company, but may be applicable to the Company's future financial reporting.  The Company does have convertible debt (Note 3), which management has determined does not fall under the scope of SFAS 150.  The Company's convertible debt is not mandatorily redeemable, rather it is redeemable at the option of the holder.  In addition, it is not redeemable for a fixed amount based on a variable number of shares, rather both the amount and the number of shares are fixed.  NOTE 3 - RELATED PARTY TRANSACTIONS In March 2002, the Company entered into a $150,000 convertible promissory note with an entity affiliated with the Company's CEO.  The note is convertible at a rate of $.05 per share at the option of the holder for a total of 3,000,000 shares of common stock.  Interest of 5% is accrued on the principal quarterly. If not sooner converted into common stock, the principal and interest are due March 1, 2007.  At December 31, 2006, the Company had accrued $28,125 in interest. Current year interest expense was $7,500. The Company's officers and directors have resolved to provide for various expenses incurred by the Company at a minimal cost until such time that a merger candidate is found.  These expenses consist of, but are not limited to, accounting, filing requirements, and management services.  The costs of these services were $1,500 and $1,500 during 2006 and 2005, respectively, for a total of $3,000 payable to officers and directors at December 31, 2006.  NOTE 4 - STOCKHOLDERS' EQUITY  Preferred Stock. During February 2004, the Company's shareholders voted to increase the number of authorized shares from 1,000,000 to 2,000,000.  The Company has not issued any preferred stock since inception.  The rights for preferred stock not designated as Class A or B will be determined by the Board of Directors prior to issuance.  Class A Preferred Stock. The Company has designated 1,500 shares of no par value Class A preferred stock.   Class A shareholders are not entitled to receive dividends, but are entitled to elect two-thirds of the directors of the Company.  Class B Convertible Preferred Stock. The Company has designated 110,000 shares of no par value convertible  Class B preferred stock. Class B shareholders are entitled to receive dividends in a manner similar to common shareholders when declared by the board of directors.   Each Class B share is convertible into one share of common stock at the option of the shareholder, provided that the market price for the Company's common stock is at or above $4.50 per share.  Common Stock. During February 2004, the Company's shareholders voted to increase the number of shares authorized from 50,000,000 per their articles of incorporation to 100,000,000. On February 24, 2004, the Company effected a 10-to-1 reverse split on its common stock.  The financial statements, for all periods presented have been restated to reflect the stock split. During February and March 2004, the Company issued 27,815,000 shares of its common stock for the cancellation of salaries payable to officers, the cancellation of a note payable of $150,000, and 100% of the stock of a company with which it was merging.  However, during April 2004, the Company reversed the transaction and cancelled the 27,815,000 shares of its previously issued stock for the attempted merger and reduction of liabilities.  NOTE 5 - INCOME TAXES The Company accounts for income taxes in accordance with SFAS 109, "Accounting for Income Taxes."  SFAS 109 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.  At December 31, 2006, the Company has available unused operating loss carryforwards of approximately $1,337,500, which may be applied against future taxable income and which expire in various years through 2026.  The amount of and ultimate realization of the benefits from the deferred tax assets 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 effect of which cannot be determined.  Because of the uncertainty surrounding the realization of the deferred tax assets, the Company has established a valuation allowance equal to their tax effect and, therefore, no deferred tax asset has been recognized for the net operating loss carryforwards. The net deferred tax asset, which is based on an effective tax rate of 35% and consists mainly of net operating loss carryforwards and accrued compensation expense, is approximately $468,125 as of December 31, 2006. It has been fully offset with a valuation allowance, which increased by $4,375 during 2006.  NOTE 6 - COMMITMENTS AND CONTINGENCIES During the period of 1995 through 2003 and in accordance with compensation agreements then in effect, the Company's president and CEO had accumulated $1,020,000 in accrued salaries, of which $645,000 was still payable at December 31, 2006.  NOTE 7 - GOING CONCERN  The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern.  However, the Company has no on-going operations and has current liabilities in excess of current assets.  These factors raise substantial doubt about the ability of the Company to continue as a going concern.  In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through sale of its common stock or through a possible business combination with another entity. There is no assurance that the Company will be successful in raising this additional capital or in establishing profitable operations.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.