|• 10-Q • EX-31 • EX-32|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
(Commission file number)
SOLAR ACQUISITION CORP.
(Exact name of small business issuer as specified in its charter)
(State or other jurisdiction
of incorporation or organization)
215 Dino Drive, Ann Arbor, MI 48103
(Address of principal executive offices)
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of May 7, 2012 22,503,501shares of common stock
Transitional Small Business Disclosure Format (check one): Yes [x ] No
Solar Acquisition Corp.
Balance Sheet as of March 31, 2012 (unaudited)
Statement of Operations for the Three months ended March 31, 2012 and
2011 and from inception (June3, 2006) to March 31, 2012 (unaudited)
Statement of Stockholders Deficit from December 31, 2009 to
March 31, 2012 (unaudited)
Statements of Cash Flows for the Three months ended March 31, 2012 and 2011 and
from Inception(June 3, 2006) to March 31, 2012 (unaudited)
Notes to Interim Financial Statements (unaudited)
Management's Discussion and Analysis or Plan of Operation
Controls and Procedures
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
SOLAR ACQUISITION CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2012 and 2011
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SOLAR ACQUISITION CORP. (the Company) was incorporated in the State of Florida on June 3, 2006 for the purpose of raising capital that is intended to be used in connection with its business plans which may include a possible merger, acquisition or other business combination with an operating business.
The Company is currently in the development stage. All activities of the Company to date relate to its organization, initial funding and share issuances.
The year end of the Company is December 31.
The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year end of December 31. In the opinion of management, these interim financial statements include all of the necessary adjustments to make them not misleading. The financial statements have, in management's opinion, been properly prepared within the framework of the significant accounting policies summarized below:
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Companys system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
The Company has had no significant operations since inception. Accordingly, the Company is fully dependent on either future sales of securities or advances or loans from significant stockholders or corporate officers to provide sufficient working capital to preserve the integrity of the corporate entity.
The Companys continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.
The Company anticipates offering future sales of equity securities. However, there is no assurance that the Company will be able to obtain additional funding through the sales of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.
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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
For purposes of the statements of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting basis and the tax basis of the assets and liabilities and are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.
Any deferred tax asset has been fully offset by a valuation allowance because at this time the Company believes that it is more likely than not that the future tax benefit will not be realized as the Company has no current operations.
Basic loss per share is calculated using the weighted-average number of common shares outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period. Dilutive instruments include convertible preferred shares which represents an additional 100,000,000 common stock, if converted.
The Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. Fair value estimates are based upon certain market assumptions and pertinent information available to management as of March 31, 2012. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts payable, accrued expenses and derivative liability. The fair value of the Companys notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
Property and equipment is stated at cost. Depreciation is computed by the straight-line method over estimated useful lives (5 years). Intellectual property assets are stated at their fair value acquisition cost. Amortization of intellectual property assets is calculated by the straight line method over their estimated useful lives (10 years). Historical costs are reviewed and evaluated for their net realizable value of the assets. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the
depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment existed at March 31, 2012.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The Company recognized an impairment loss from acquisition of intangible property as the difference in the fair value of the compensation (shares issued) were believed to be greater than the future discounted cash flows that could be determined with reliable positive evidence, as assumptions for the values issued in the exchange were based on certain future events which may not be fulfilled.
The Company issues restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete. Stock compensation for the periods presented were issued to consultants for past services provided, accordingly, all shares issued are fully vested, and there is no unrecognized compensation associated with these transactions.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (level 3) inputs. This ASU is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This newly issued accounting standard requires an entity to disclose
both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions executed under a master netting or similar arrangement and was issued to enable users of financial statements to understand the effects or potential effects of those arrangements on its financial position. This ASU is required to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. As this accounting standard only requires enhanced disclosure, the adoption of this standard is not expected to have an impact our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers the requirement within ASU 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. During the deferral, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the issuance of ASU 2011-05. These ASUs are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. As these accounting standards do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, the adoption of these standards is not expected to have an impact on our financial position or results of operations.
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future financial statements.
NOTE 2 GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period ended March 31, 2012, the Company has had no significant operations, has a history of recurring losses resulting in accumulated deficit and has negative working capital. As of March 31, 2012, the Company has not emerged from the development stage. In view of these matters, the Companys ability to continue as a going concern is dependent upon the Companys ability to begin operations and to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of:
Depreciation of equipment was $229 and$916 for the three month period ended March 31, 2012 and the year ended December 31, 2011, respectively.
NOTE 4 INTANGIBLE ASSETS
The Company owns intellectual property, which it is amortizing on a straight-line basis over the assets useful life. The Company assesses fair market value for any impairment to the carrying values.
Amortization of the intangible assets was $166,675 and $0 for the three months ended March 31, 2012 and 2011, respectively.
Management periodically reviews the valuation of this asset for potential impairments. Consideration of various risks to the valuation and potential impairment includes, but is not limited to: (a) the technologys acceptance in the marketplace and our ability to attain projected forecasts of revenue (discounted cash flow of projections); (b) competition of alternative solutions; and (c) federal and state laws which may prohibit the use of our technology as currently designed. Management does not anticipate any negative impact from known current business developments. Management continuously measures the marketplace, potential revenue developments and competitive developments in the industry.
Intangible assets were the results of the following transactions:
Clean Power, Inc.
On January 11, 2011 the Company closed on the purchase of Clean Power, Inc. in an exchange for 5,459,501 shares of common stock, which represented approximately 40% of the outstanding shares. The Company has valued the transaction at $26,205,605 based on the fair market of shares issued in the exchange. The purchase price was allocated to all identified tangible assets and then to intangible assets. The Company immediately recorded an impairment of $25,546,027, resulting in an unamortized value of $655,000, or 2.5% of the gross purchase price valuation, as of December 31, 2011, to reflect the estimated return of the intangible assets, based on projected discounted cash flows and other subjective considerations.
Nano CP, LLC
On February 9, 2011 the company closed a series of transactions with Nano CP, LLC, a Florida limited liability company (Nano), WATT Fuel Cell Corp, a New York corporation (WATT), and Evolution Fuel Cell, Inc., a Delaware corporation (Evolution) whereby the Company simultaneously acquired assets for the development of solid oxide fuel cells and created two (2) subsidiaries capitalized by the equipment and intellectual property, CP SOFC Equipment, LLC and CP SOFC IP, LLC, respectively. The subsidiaries, wholly owned by the Company, in turn, have leased the equipment to WATT and have licensed the intellectual property to WATT and Evolution, with conflicts resolved through a cross licensing agreement between WATT and Evolution. As consideration for the assets purchased from Nano, the Company has made a promissory note for three million three hundred thousand dollars ($3,300,000.00) and issued exactly one million (1,000,000) preferred shares, convertible at 100:1, common for preferred. As consideration for the leasing and licensing, the Company shall receive exactly five percent (5%) of WATT outstanding and issued shares and thirty five percent (35%) of the outstanding and issued shares of Evolution. The Company also maintains an option to purchase from WATT sixteen percent (16%) of Evolution for exactly one million one hundred two hundred fifty thousand (1,250,000) shares of the Companys common stock, if certain triggering events occur. The contract was negotiated by the Board of Directors and the valuation was set arbitrarily. The Company has valued the transaction at $510,000,000 based on the fair market of shares issued in the exchange. The purchase price was allocated to all identified tangible assets and then to intangible assets. The Company immediately recorded an impairment of $508,167,000, resulting in an unamortized value of $5,133,000, or 1.0% of the gross purchase price valuation, as of December 31, 2011, to reflect the estimated return on the investment, based on projected discounted cash flows and other subjective considerations.
Global Natural Energy, Ltd.
On March 16, 2011 the Company entered into a Joint Venture with Global Natural Energy, Limited, a corporation duly formed in the Republic of Cyprus (GNE) to develop algae farms in the United States. The Master Agreement stipulates the creation of the entity, GNE-USA, Inc., an Arkansas based company that will lead the algae production efforts, whereby the Company shall retain fifty one percent (51%) and GNE shall retain forty nine percent (49%) of the outstanding shares of the subsidiary. As part of the transaction, the Company issued exactly two million (2,000,000) shares of restricted common stock of the Company. The contract was negotiated by the Board of Directors and the valuation was set arbitrarily. The Company has valued the transaction at $10,000,000 based on the fair market of shares issued in the exchange. The purchase price was allocated to all identified tangible assets and then to intangible assets. The Company immediately recorded an impairment of $9,500,000, resulting in an unamortized value of $500,000, or 5.0% of the gross purchase price valuation, as of December 31, 2011, to reflect the estimated return on the investment, based on projected discounted cash flows and other subjective considerations.
Solar Teyin, S.L.
On March 25, 2011 the Company closed an Asset Purchase Agreement with Solar Teyin, S.L., a limited liability company formed in the Kingdom of Spain (Solar Teyin) related to the production and distribution of portable solar lighting units. The Asset Purchase Agreement stipulates the creation of an entity to oversee the operations of all things related to the solar lighting technology. The Company shall maintain eighty percent (80%) of the subsidiary. As consideration for the transaction, the company issued exactly one million five hundred thousand (1,500,000) shares to Solar Teyin, S.L. The contract was negotiated by the Board of Directors and the valuation was set arbitrarily. The Company has valued the transaction at $7,575,000 based on the fair market of shares issued in the exchange. The purchase price was allocated to all identified tangible assets and then to intangible assets. The Company immediately recorded an impairment of $7,196,000, resulting in an unamortized value of $379,000, or 5.0% of the gross purchase price valuation, as of December 31, 2011, to reflect the estimated return on the investment, based on projected discounted cash flows and other subjective considerations.
NOTE 5 RELATED PARTY TRANSACTIONS
The Company does not require office space at the current time. The officers and directors have provided office space, as necessary, at no cost. The Company will consider arrangements at such time that operations commence.
The above transactions may have had different results, had these transactions occurred with unrelated third parties.
NOTE 6 - PROMISSORY NOTE PAYABLE
On February 9, 2011 the Company issued a promissory note in agreement to purchase assets. The promissory note bears interest at the rate of 15% per annum, due February 1, 2016. Interest shall be paid in monthly payments of interest in arrears. If the Buyer has insufficient cash on hand to pay interest due it may pay interest in common shares at a price per share equal to the 20 day moving average price of common shares of the Buyer, rounded up to the next whole share. If the Buyer does have sufficient cash on hand to pay interest due, Seller may, at its sole discretion, elect to take payment in common shares instead of cash. The method for calculation shall be the same as if the Buyer had insufficient cash on hand. Principle shall be paid as cash flow allows, thereafter to be paid on Maturity Date or a funding event sufficient to pay the balance of the note, whichever occurs first.
Seller shall agree that note shall be subordinate to any debt instrument or other encumbrance against the physical assets, provided that prior to or simultaneously with any such encumbrance the Buyer has paid/pays at least $1,500,000 of the outstanding principle balance. In the event the Buyer wishes to encumber any of the assets but has not paid $1,500,000 of the outstanding principle, the Seller shall allow the encumbrance, provided that the Buyer ensures that only such part of the assets equal in value to the financing resulting in the encumbrance are in fact encumbered, and no less than 80% of the financing is utilized to reduce the outstanding balance due to Seller.
As of March 31, 2012 the Company has accrued $564,503 of unpaid interest on the promissory note.
NOTE 7-STOCKHOLDERS EQUITY
No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.
On February 9, 2011, the Company issued 1,000,000 shares of preferred stock, convertible 1:100, preferred into common as payment for the intellectual property acquired from Nano CP, LLC. Upon intent to exercise, Seller shall give notice to Buyer and Buyer shall take action required to duly authorize the issuance of common shares sufficient to fulfill Sellers exercise. See Note 4.
The total number of shares of capital stock which the Company shall have authority to issue is 100 million common shares with a par value of $.001, as amended in the Articles of Incorporation, filed with the State of Florida on May 12, 2008.
Holders of shares of common stock shall be entitled to cast one vote for each share held at all stockholders' meetings for all purposes, including the election of directors. The common stock does not have cumulative voting rights.
On June 3, 2006, date of inception, the company issued 100,000 shares at par value of $.001 for $100.
In 2008, the Company issued 9,900,000 shares of common stock for services, at fair market value of $.10 per share or $990,000.
In 2009, the Company issued 1,533,333 shares of common stock for cash, at a purchase price of $.30 per share or $452,500.
In 2011, the Company issued 2,010,667 shares of common stock for services, at fair market value of $5.00 per share or $10,053,335.
On February 9, 2011, the Company acquired Clean Power, Inc. in exchange for 5,459,501 restricted shares of common stock. Shares were valued at fair market at the date of the transaction, resulting in a purchase price of $26,205,605. The shares have been recorded per the agreement; however, the shares remain unissued from the stock transfer agent. See Note 4.
On March 16, 2011, the Company issued 2,000,000 shares of restricted common shares in connection with an acquisition of various assets. Shares were valued at fair market at the date of the transaction, resulting in a purchase price of $10,000,000. The shares have been recorded per the agreement; however, the shares remain unissued from the stock transfer agent. See Note 4.
On March 25, 2011 the Company contracted to issue an additional 1,500,000 of restricted common shares in connection with the acquisition of various assets. Shares were valued at fair market at the date of the transaction, resulting in a purchase price of $7,575,000. The shares have been recorded per the agreement; however, the shares remain unissued from the stock transfer agent. See Note 4.
NOTE 8 INCOME TAXES
The components of income tax (benefit) expense for the three months ended March 31, 2012 and March 31, 2011 respectively, are as follows:
The Company has a net operating loss carry forward to offset future taxable income of approximately $4,426,000. Subject to current regulations, this carry forward will begin to expire in 2022. The amount and availability of the net operating loss carry forwards may be subject to limitations set forth by the Internal
Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carry forwards.
Results of Operations
Three months ended March 31, 2012 vs. March 31, 2011
There was no revenue for the three months ended March 31, 2012 and no revenue for the Three months ended March 31, 2011 and no revenue since inception June 3, 2006.
Selling, general and administrative expenses for the three months ended March 31, 2012 were $166,904. As compared to $0 for the same period in 2011.
interest expense or financing costs for the three months ended March 31, 2012 was 123,750 and $0the t hree months ended March 31, 2011 and $564,503 since inception June 3, 2006.
Liquidity and Capital Resources
The Company has little cash. The investigation of prospective financing candidates involves the expenditure of capital. The Company will likely have to look to Mr. Klamka or to third parties for additional capital. There can be no assurance that the Company will be able to secure additional financing or that the amount of any additional financing will be sufficient to conclude its business objectives or to pay ongoing operating expenses.
Off-balance sheet arrangements
There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Controls and Procedures
As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities & Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOLAR ACQUISITION CORP.
May 9, 2012
/s/ Peter Klamka
Peter Klamka, Chief Executive and
Principal Accounting Officer