UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
OR
[ ] 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 333-87696
EXOUSIA ADVANCED MATERIALS, INC.
Texas | 90-0347581 |
(State or Other Jurisdiction of incorporation or Organization) | (I.R.S. Employer Identification No.) |
350 Fifth Avenue, Suite 5720
New York, New York, 10118-5720
(Address of Principal Executive Offices, including zip code)
(212) 796-4333
(Registrant’s Telephone Number, Including Area Code)
Indicate by check 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 (X) No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 231.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer (Do not check if a smaller reporting company) | Smaller reporting company (X) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No (X)
SEC 1296 (02-08) | Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
Number of shares outstanding as of the close of business on May 24, 2010: 184,295,937 shares of common stock, $0.001 par value.
EXOUSIA ADVANCED MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
REPORT ON FORM 10-Q
For the Quarterly Period Ended March 31, 2010
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | Page |
Item 1.Unaudited Consolidated Financial Statements | 3 |
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations | 13 |
Item 3.Quantitative and Qualitative Analysis About Market Risks | 14 |
Item 4T.Controls and Procedures | 14 |
PART II - OTHER INFORMATION | |
Item 1.Legal Proceedings | 16 |
Item1A. Risk Factors | 16 |
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
Item 3.Default Upon Senior Securities | 16 |
Item 4.(Removed and Reserved) | 16 |
Item 5.Other Information | 16 |
Item 6.Exhibits | 16 |
SIGNATURES | 17 |
PART I – FINANCIAL STATEMENTS
EXOUSIA ADVANCED MATERIALS, INC. AND SUBSIDIARIES
BALANCE SHEETS
As of March 31, 2010 and December 31, 2009
March 31, 2010 | December 31, 2009 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 29,334 | $ | 3,015 | ||||
Accounts receivable trade, net | 2,300,413 | 45,066 | ||||||
Prepaid expenses | 4,060 | 4,060 | ||||||
TOTAL CURRENT ASSETS | 2,333,807 | 52,141 | ||||||
NON-CURRENT ASSETS Fixed assets, net of accumulated depreciation of $79,787 and $55,432 as of March 31, 2010 and December 31, 2009, respectively | 6,917,871 | 166,523 | ||||||
Goodwill | 7,877,766 | - | ||||||
Equity investment | 6,000,000 | - | ||||||
Other Assets | 852,889 | 8,889 | ||||||
TOTAL NON-CURRENT ASSETS | 21,648,526 | 175,412 | ||||||
TOTAL ASSETS | $ | 23,982,333 | $ | 227,553 |
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued liabilities | $ | 3,913,358 | $ | 1,677,704 | ||||
Debentures payable | 56,496 | 56,496 | ||||||
Notes and interest payable, net of discount | 5,038,380 | 1,674,390 | ||||||
TOTAL CURRENT LIABILITIES | 9,008,234 | 3,408,590 | ||||||
SHAREHOLDERS' EQUITY (DEFICIT) | ||||||||
Series A Preferred Stock, no par value,10,000,000 million shares authorized; 10,000,000 and 0 shares issued and outstanding March 31, 2010 and December 31, 2009, respectively | 16,781,784 | - | ||||||
Common stock $0.001 par value, 100 million shares authorized; 60,893,972 shares issued and outstanding March 31, 2010 and December 31, 2009, respectively | 60,893 | 60,893 | ||||||
Additional paid-in capital | 20,848,728 | 20,698,728 | ||||||
Minority Interest | 1,189,313 | - | ||||||
Accumulated earnings (deficit) | (23,906,619 | ) | (23,940,658 | ) | ||||
Total shareholders' equity (deficit) | 14,974,099 | (3,181,037 | ) | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $ | 23,982,333 | $ | 227,553 |
The accompanying notes are an integral part of these financial statements.
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EXOUSIA ADVANCED MATERIALS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2010 and 2009
The accompanying notes are an integral part of these financial statements.
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EXOUSIA ADVANCED MATERIALS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)
For the Three Months Ended March 31, 2010
Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
No. of Shares | Preferred Stock | Additional | ||||||||||||||||||||||||||||||
No. of | Capital | Paid In | Accumulated | Minority | ||||||||||||||||||||||||||||
Shares | Stock | Capital | Deficit | Interest | Total | |||||||||||||||||||||||||||
Balance, December 31, 2009 | - | $ | - | 60,893,972 | $ | 60,893 | $ | 20,698,728 | $ | (23,940,658 | ) | $ | - | $ | (3,181,037 | ) | ||||||||||||||||
Warrants issued | - | - | - | - | 150,000 | - | - | 150,000 | ||||||||||||||||||||||||
Preferred stock issued for acquisition | 10,000,000 | 17,416,784 | - | - | - | - | - | 17,416,784 | ||||||||||||||||||||||||
Cost associated with issuance | - | (635,000 | ) | - | - | - | - | - | (635,000 | ) | ||||||||||||||||||||||
Non-controlling interest of acquisition | - | - | - | - | - | - | 1,099,620 | 1,099,620 | ||||||||||||||||||||||||
Net income | - | - | - | - | - | 34,039 | 89,693 | 123,732 | ||||||||||||||||||||||||
Balance, March 31, 2010 | 10,000,000 | $ | 16,781,784 | 60,893,972 | $ | 60,893 | $ | 20,848,728 | $ | (23,906,619 | ) | $ | 1,189,313 | 14,974,099 | ||||||||||||||||||
The accompanying notes are an integral part of these financial statements. |
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EXOUSIA ADVANCED MATERIALS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 2010 and 2009
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income (Loss) | $ | 123,732 | $ | (1,934,467 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Capital stock issued for services | - | 1,076,311 | ||||||
Depreciation and amortization | 24,290 | 54,193 | ||||||
Amortization of note discount | 344,700 | - | ||||||
Abandoned acquisition expense | - | 19,999 | ||||||
Change in operating assets and liabilities: | ||||||||
---Accounts receivable | (2,255,347 | ) | 46,699 | |||||
---Inventory | - | (3,534 | ) | |||||
---Prepaid expenses | - | 96,232 | ||||||
---Other assets | - | (15,998 | ) | |||||
---Interest payable to related parties | 60,973 | 6,113 | ||||||
---Accounts payable and accrued liabilities | 2,212,971 | 27,205 | ||||||
Net cash used in operating activities | 511,319 | (647,246 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Cost of Acquisition | (635,000 | ) | - | |||||
Net cash used in investing activities | (635,000 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments of insurance payable | - | (7,832 | ) | |||||
Payments on debt | - | (1,394 | ) | |||||
Stock payable | - | 1,250,000 | ||||||
Common stock issued for cash | - | 115,000 | ||||||
Proceeds from Notes payable | 150,000 | 610,000 | ||||||
Net cash provided by financing activities | 150,000 | 715,774 | ||||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 29,319 | 68,528 | ||||||
Cash and cash equivalents, beginning of period | 3,015 | 139,967 | ||||||
Cash and cash equivalents, end of period | $ | 29,334 | $ | 208,495 | ||||
NON CASH TRANSACTIONS |
Merger with Evergreen Global Investments Ltd. | $ | 17,416,784 | $ | - | ||||
SUPPLEMENTAL INFORMATION | ||||||||
Interest Paid | $ | - | $ | - | ||||
Taxes Paid | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements.
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EXOUSIA ADVANCED MATERIALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and Accounting Policies
Presentation of Interim Information
Basis of Presentation
The financial statements contained herein include the accounts of Exousia Advanced Materials, Inc. (formerly Cyber Law Reporter, Inc.), Exousia Corp., Agros Development I, LLC and Les Maisons du Lac, Ltd. All intercompany transactions and balances have been eliminated.
On December 31, 2006, Cyber Law Reporter, Inc. acquired Exousia Corp. and subsidiaries. Since the shareholders of Exousia Corp. control the acquiring entity, this transaction was accounted for as a reverse merger. Consequently, the operating history of Cyber Law Reporter, Inc. has been eliminated from the accounting records of Exousia Advanced Materials, Inc. (formerly Cyber Law Reporter, Inc.) by closing out the stockholders’ deficit of Cyber Law Reporter, Inc. of $473,470 to additional paid-in capital in the amount of $399,000, and the balance to accumulated deficit in the amount of $78,004 net of common stock of $3,534.
On January 13, 2010 the Company acquired 100% of the common stock of Evergreen Global Investments Ltd by issuing 10,000,000 shares of Series A Convertible Preferred Stock of the Company.
Principles of Consolidation
The accounts of all of our wholly-owned subsidiaries are included in the consolidation of these financial statements from the date of acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.
Company Information
Exousia Advanced Materials, Inc. (“Exousia” or the “Company”) was incorporated in Texas on March 2, 2000 as Cyber Law Reporter, Inc. The original business plan involved developing and delivering online legal information services to businesses and consumers. The Company registered as a reporting company under the Securities Act of 1933 by filing a report on form SB-2 that became effective August 6, 2002. That business plan was abandoned at the end of 2003.
On December 31, 2006, as described above, Exousia Advanced Materials, Inc. (formerly Cyber Law Reporter, Inc.) entered into a definitive Stock Exchange Agreement with Exousia Corp. The agreement provided for the acquisition of all of the issued and outstanding common stock of Exousia Corp., consisting of 24,899,245 shares, in exchange for an equal number of shares of Cyber Law Reporter, Inc. Prior to the closing of this transaction, Cyber Law Reporter, Inc. had 3,534,000 shares issued and outstanding and subsequent to the transaction it had 28,433,245 shares issued and outstanding.
Revenue Recognition
Exousia recognizes revenues when products have been shipped to a customer pursuant to a purchase order or other contractual arrangement, the sales price is fixed or determinable, and collectability is reasonable assured. Price Energy is an e-commerce based business selling energy products and services to its residential and commercial customers. Revenues are recognized when the order is placed by the customers.
Accounts Receivable
Price Energy is an e-commerce business and largely works on a cash basis. The Company’s other business lines have 30 day net terms. The Company has evaluated collectability and determined that all accounts receivable as of March 31, 2010 are considered fully collectible.
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated over the estimated useful lives using the straight line method. Useful lives range from 5 to 60 years.
Goodwill and Other Intangible Assets
The Company accounts for intangible assets with indefinite lives in accordance with FASB guidelines, Goodwill and Other Intangible Assets, which establishes financial accounting and reporting standards for acquired goodwill and other intangible assets. During the period, the Company recorded Goodwill and a value associated with the Trade Name “PriceEnergy.com”. Under the provisions of FASB guidelines, goodwill and indefinite-lived intangible assets are required to be tested for impairment annually, in lieu of being amortized, using a fair value approach at the reporting unit level. Furthermore, testing for impairment is required on an interim basis if an event or circumstance indicates that it is more likely than not an impairment loss has been incurred. An impairment loss shall be recognized to the extent that the carrying amount of goodwill or any indefinite-lived intangible asset exceeds its implied fair value. Impairment losses shall be recognized in operating results. The Company performed an interim test of its intangibles as of March 31, 2010 and determined there was no impairment of the carrying values as of that date.
Recently Adopted Accounting Pronouncements
Effective June 30, 2009, the Company adopted a new accounting standard issued by the FASB related to the disclosure requirements of the fair value of the financial instruments. This standard expands the disclosure requirements of fair value (including the methods and significant assumptions used to estimate fair value) of certain financial instruments to interim period financial statements that were previously only required to be disclosed in financial statements for annual periods. In accordance with this standard, the disclosure requirements have been applied on a prospective basis and did not have a material impact on the Company’s financial statements.
In June 2009, the Financial Accounting Standards Board ("FASB") established the FASB Accounting Standards Codification (the "Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The introduction of the Codification does not change GAAP and other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the our consolidated financial statements.
Recently Issued Accounting Standards
In August 2009, the FASB issued an amendment to the accounting standards related to the measurement of liabilities that are recognized or disclosed at fair value on a recurring basis. This standard clarifies how a company should measure the fair value of liabilities and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard is effective for the Company on October 1, 2009. The Company does not expect the impact of its adoption to be material to its financial statements.
In October 2009, the FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the dis closure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective for the Company on January 1, 2011.
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In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will become effective for the Company on January 1, 2011.
Note 2 - Notes Payable
On July 28, 2009 the Company received $1,000,000 in exchange for a Convertible Note Payable to PTV Investments and Fairbanks Investments (the “Lenders”). The Note was secured by the Company’s Intellectual Properties and Patents. The note provided for additional borrowing based upon agreement with the Lenders predicated upon certain events and agreement with the Lenders. At December 31, 2009 no additional amounts had been borrowed. The terms of the Note provide for minimum monthly payments at 12% per annum beginning on August 15, 2009. In October 2009, November 2009 and December 2009 the Company was unable to meet the minimum monthly payments and entered into a forbearance agreement with the Lenders. As a result of the acquisition with Evergreen, the Lenders have agreed to a delay in the monthly payments required in 20 10 until April 28, 2010 in exchange for 16,039,474 warrants to purchase common stock of the company at $0.01 per share.
On February 19, 2009_ the Company received $575,000 in exchange for a Note Payable bearing interest at a rate of 12% to Jay Powers (the “Lender”). The Note was secured by 3,250,000 shares of the company’s common stock currently being held in escrow. The Note was due on June 15, 2009. The company was not able to make payment on that date.
During 2009, the Company received $240,000 in exchange for various short term notes bearing interest at a rate of 12% with Lee Mann (the “Lender”). The notes were unsecured and the company was not able to make payments when those notes became due.
During 2009, the Company received $350,000 in exchange for various short term notes bearing interest at a rate of 12% with George Stapleton, a former director of the company. The notes were unsecured and the company was not able to make payments when those notes became due.
During 2009, the Company received $100,000 in exchange for a short term note bearing interest at a rate of 12% with Fay Durand. The note was unsecured and the company was not able to make payments when those notes became due
During 2009, the Company received $25,000 in exchange for a short term note bearing interest at a rate of 12% with Al Kau. The note was unsecured and the company was not able to make payments when those notes became due
During 2009, the Company received $5,000 in exchange for a short term note bearing interest at a rate of 12% with Elorian Landers. The note was unsecured and the company was not able to make payments when those notes became due
During 2009, the Company received $399,575 in exchange for a short term note bearing interest at a rate of 12% with Launch Pad Capital. The note was unsecured and the company was not able to make payments when those notes became due
On March 10, 2010, the Company acquired a short term loan in the amount of $50,000 for use of operations. The loan was to be paid back on or before April 15, 2010 bearing interest of 12% per annum. In addition, as consideration for the loan, the Company issued 450,000 warrants to purchase common stock shares of the company with an exercise price or $0.05 per share. The warrants are exercisable at any time over the next 36 months. The maturity date of this note has been extended to June 30, 2010 at an interest rate of 12%. The fair value of the warrants using the Black-Scholes pricing model exceeded the loan amount and as such the entire amount was recorded as a discount. The discount is being accreted up to the original amount through interest expense on a straight line basis which approximates the effective interest method due to the short term nature of the note. $29,167 was charged to interest expense for the period ended March 31, 2010.
On March 17, 2010, the Company acquired a short term loan in the amount of $50,000 for use of operations. The loan was to be paid back on or before April 15, 2010 bearing interest of 12% per annum. In addition, as consideration for the loan, the Company issued 450,000 warrants to purchase common stock shares of the company with an exercise price or $0.05 per share. The maturity date of this note has been extended to June 30, 2010 at an interest rate of 12%. The fair value of the warrants using the Black-Scholes pricing model exceeded the loan amount and as such the entire amount was recorded as a discount. The discount is being accreted up to the original amount through interest expense on a straight line basis which approximates the effective interest method due to the short term nature of the note. $24,138 was charged to interest exp ense for the period ended March 31, 2010.
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On March 30, 2010, the Company acquired a short term loan in the amount of $50,000 for use of operations. The loan was to be paid back on or before April 15, 2010 bearing interest of 12% per annum. In addition, as consideration for the loan, the Company issued 450,000 warrants to purchase common stock shares of the company with an exercise price or $0.05 per share. The maturity date of this note has been extended to June 30, 2010 at an interest rate of 12%. The fair value of the warrants using the Black-Scholes pricing model exceeded the loan amount and as such the entire amount was recorded as a discount. The discount is being accreted up to the original amount through interest expense on a straight line basis which approximates the effective interest method due to the short term nature of the note. $3,125 was charged to interest expe nse for the period ended March 31, 2010.
The Company assumed mortgage of $2,971,000 against the Rockaway Terminal. The note calls for monthly payments at 6.75% and has approximately 20 years remaining.
Note 3 - Equity Transactions
As of March 31, 2010, the Company had common shares issued and outstanding of 60,893,972 of which 16,316,166 or 26.8% are owned directly or indirectly by officers and directors of the Company. Also on that date the Company had 10,000,000 shares of Series A Preferred Shares outstanding, none of which were owned directly or indirectly by officers and directors of the Company. The holders of the Series A Preferred Shares have the right to convert their shares into fully paid and non-assessable shares of common stock at a conversion rate of twenty and 475/1000 (20.475) shares of common stock for each share of Series A Preferred Stock.
Note 4 – Warrants
In conjunction with the issuance of $150,000 of notes payable in March 2010, the Company issued Series D warrants to purchase 1,350,000 shares of common stock at $.05 per share. Under the Black-Scholes method using an expected life of 2.5 years, volatility of approximately 206% and a risk-free interest rate of 1.16-1.31%, the Company determined the warrants associated with the notes had a fair value of $170,196 as of the date of the transaction. Since the value of the warrants is greater than the value of the notes, the note discount is limited to the value of the notes. Such amount was recorded as additional paid in capital with a corresponding amount recorded as a debt discount associated with the notes (see Note 2). The debt discount, which is valued at $150,000, will be amortized to interest expense over the life of the notes.
Note 5 – Going Concern
Prior to January 13, 2010 the Company was dependent upon external debt and cash flows which historically had been insufficient for the Company’s cash needs. Despite the acquisition of Evergreen, the Company will continue to require the raising of new debt and/or equity capital to recapitalize the existing debt and notes and to provide for working capital. Unless the Company is successful in recapitalizing the old debt the Company may not be able to continue its operations.
Note 6 – Business Combination
On January 13, 2010, the Company acquired a 100% ownership interest in Evergreen Global Investments Ltd. (“Evergreen”). The purchase price of the acquisition was $17,416,784 for which Exousia issued 10,000,000 shares of its Series A Convertible Preferred Stock (“Preferred Stock”) to the shareholders of Evergreen. In exchange Exousia acquired 100% of the stock of Evergreen.
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The following summary presents the estimated fair values of the assets acquired and liabilities assumed for as of the effective date of acquisition:
Fixed assets | $ | 175,638 | ||
Trade name | 844,000 | |||
Interest in biodiesel facility | 6,000,000 | |||
Oil terminal | 6,600,000 | |||
Total assets acquired | 13,619,638 | |||
Liabilities | 2,981,000 | |||
Minority interest | 1,099,620 | |||
Net assets acquired | $ | 9,539,018 | ||
Purchase price: | ||||
Preferred stock | $ | 17,416,784 | ||
Total purchase price | 17,416,784 | |||
Excess of purchase price over net assets acquired | 7,877,766 | |||
Goodwill | $ | 7,877,766 |
A further description of certain Evergreen assets follows:
· | Certain real estate and equipment that are leased to third parties. Evergreen acquired ownership from Able Energy, Inc. of the company that owns the real estate commonly known as the Rockaway Oil Terminal located in Rockaway, New Jersey consisting of 5.8 acres, two office buildings, fuel loading rack, and fuel tanks with a storage capacity of 3,150,000 gallons (75,000 barrels) (hereinafter referred to collectively as the “Rockaway Terminal”). The Rockaway Terminal is valued at $6.6 million, subject to an existing Mortgage Note Payable to a New Jersey bank secured by the Rockaway Terminal in the current amount of $2.981 million. The Rockaway Terminal was acquired by Evergreen on December 1, 2009 from Able Energy, Inc. (“Able”). At that time, Able entered into a 20-year triple net lease with Evergreen for the use of the Rockaway Terminal (the “Lease”). An addendum to the Lease was executed whereby Evergreen shall receive throughput and delivery fees in addition to its rent under the Lease. |
· | 82% of the outstanding common stock of PriceEnergy. PriceEnergy is an industry leading e-commerce based business selling energy products and services to its residential and commercial customers. Through the use of proprietary technology, customers can use the Internet to check their local current fuel oil price, place orders, arrange for payment, and manage deliveries of heating oil, diesel fuel, and other energy products 24 hours a day, 7 days a week. PriceEnergy is rapidly migrating its entire product base to include Green Energy attributes. |
· | An interest in a South Carolina biodiesel production facility (“Biodiesel Facility”). The Biodiesel Facility is a producer of soybean oil based biodiesel with its production by-product glycerin. The Facility has a 36-million gallon per year production capacity for biodiesel. The Biodiesel Facility produces to the ASTM / EN 14214 biodiesel specifications and is one of a handful of biodiesel facilities to produce to the European Union (“EU”) biodiesel specifications. The Biodiesel Facility has been a member of the National Biodiesel Board and has been BQ-9000 accredited by the National Biodiesel Board. |
The Company Capitalized $635,000 of Legal and Accounting Costs related to the Acquisition.
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The following unaudited pro-forma assumes the transactions occurred as of the beginning of the periods presented as if it would have been reported during the three month period below:
Unaudited Pro Forma
Three month period ended
March 31, 2009
Sales | $ | 6,753,900 | ||
Cost of Sales | 5,872,878 | |||
Gross Margin | 881,022 | |||
Operating Income | 442,427 | |||
Net Income | $ | 442,427 | ||
Basic Earnings per share | $ | 0.007 | ||
Fully Diluted Earnings per share | $ | 0.002 |
Note 7 - Property, Plant and Equipment
Property and equipment consisted of the following at March 31, 2010 and December 31, 2009 (in thousands):
2010 | 2009 | |||||||
Land | $ | 3,000,000 | $ | - | ||||
Buildings | 2,000,000 | - | ||||||
Oil terminal | 1,600,000 | - | ||||||
Computers and equipment | 211,000 | 71,000 | ||||||
Office furniture and equipment | 151,000 | 151,000 | ||||||
Vehicles | 36,000 | - | ||||||
6,998,000 | 222,000 | |||||||
Less: Accumulated depreciation | (80,000 | ) | (55,000 | ) | ||||
Property and equipment, net | $ | 6,918,000 | $ | 167,000 |
Depreciation and amortization expense was $23,290 and $10,532 for the periods ended March 31, 2010 and March 31, 2009, respectively.
Note 8 – Equity Investment
Evergreen, the Company’s wholly owned subsidiary acquired on January 13, 2010 owns a 30% interest in a Biodiesel Facility in South Carolina. For accounting purposes the Company treats this investment under the Equity Method. The Net Membership Interest in the South Carolina Production Facility as of March 31, 2010 was approximately $20,000,000 with the Company recording its 30% interest of $6,000,000. Under the Equity Method profits and losses are recorded as increases or decreases to the Investment recorded by the Company at the acquisition date. In the first quarter 2010, the Biodiesel Facility was not operational and no profit or loss was recorded. The value of the South Carolina Production Facility was based upon an independent asset appraisal performed in 2009 as well as an independent valuation by a certified financial anal yst in 2010.
Note 9 – Other Assets
The Company engaged an independent appraiser to value the components of the acquisition. The Company recognized based upon this independent appraisal a value related to the trade name “PriceEnergy.com” an asset of $844,000.
Note 10 – Segment Reporting
The Company does not have material segments. Its First Quarter operations were limited to sales of home heating oil.
Note 11– Inventory
In 2009, the Company wrote off all inventories as obsolete.
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Note 12 – Subsequent Events
In April, 2010, the Company acquired short term loans in the amount of $100,000 for use in operations. These loans bear interest at the rate of 1% per month and are due and payable on June 30, 2010
On April 26, 2010, the Company held a Special Meeting of its Shareholders. At that meeting the Shareholders approved the expansion of the number of authorized shares of its common stock from 100,000,000 shares to 450,000,000 shares. The Shareholders also approved at that meeting an amendment to the Company's Certificate of Formation that eliminated personal liability, to the extent permitted by law, of our directors and officers and provided for the indemnification of our directors, officers, employees, fiduciaries or agents.
On May 6, 2010, certain holders of the Company’s Series A Preferred Stock exercised their right to convert their Preferred Shares into shares of the Company’s Common Stock. As of May 22, 2010, 6,026,958 Shares of Preferred Stock had been converted into 123,401,965 Shares of Common Stock.
Item 2 – Management’s Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
As of March 31, 2010, total assets were $23,982,333 consisting primarily of the assets of Evergreen. Current liabilities totaled $9,008,234, which consists of $3,913,358 of accounts payable and accrued expenses and $5,094,876 of notes payable. As of December 31, 2009, total assets were $227,553 and $1,129,905 in current liabilities. Our revenues for the three months ended March 31, 2010 and 2009 were $4,483,457 and $398,234, respectively. For the first time in Company history the Company reported a profit for the Three Months Ended March 31, 2010 of $123,732 versus a loss of $1,934,467 for the three months ended March 31, 2009. The profit was directly related to the acquisition of Evergreen.
Our financial statements are prepared using principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. From January 13, 2010 with the acquisition completed, the Company’s operations have provided positive earnings and cash flow. Prior to the acquisition, the Company had significantly reduced overhead and operating costs. As a result of the merger with Evergreen and acquisition of assets and the positive cash flow being generated by the Company, the Company expects to be able to fund current operations and is evaluating options for recapitalization of its existing debt.
Price Energy
Price Energy represented the primary contributor of Revenue and Cash Flow for the Company for the Three Months ended March 31, 2010. Evergreen owns 82% of the outstanding common stock of PriceEnergy. PriceEnergy is an industry leading e-commerce based business selling energy products and services to its residential and commercial customers. Through its proprietary internet platform, sales of energy through Price Energy in the First Quarter 2010 were $4,343,885. Sales through Price Energy in the first quarter were primarily of home heating oil. However management of Price Energy is expanding the scope and breadth of its offerings through an aggressive marketing program to include other energy related products throughout the United States.
Rental and Throughput Revenues
Evergreen’s subsidiary owns the company that owns certain real estate commonly known as the Rockaway Oil Terminal located in Rockaway, New Jersey consisting of 5.8 acres, two office buildings, fuel loading rack, and fuel tanks with a storage capacity of 3,150,000 gallons (75,000 barrels). The Rockaway Terminal was acquired by Evergreen from Able Energy, Inc. on December 1, 2009. At that time, Able entered into a 20-year triple net lease with Evergreen for the use of the Rockaway Terminal (the “Lease”). An addendum to the Lease was executed whereby Evergreen shall receive throughput and delivery fees in addition to its rent under the Lease.
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Biodiesel Facility
Evergreen owns an interest in a South Carolina Biodiesel Facility (“Biodiesel Facility”). The Biodiesel Facility is a producer of soybean oil based biodiesel, its production by-product glycerin, and has a 36-million gallon per year production capacity for biodiesel. In 2009 the US House of Representatives passed an incentive package providing for a $1.00 per gallon credit to provide incentives to produce renewable energy resources such as biodiesel. In early 2010, the Senate passed a similar piece of legislation that is currently in the reconciliation process with the House bill. The facility’s production is on hold until the $1.00 per gallon tax credit is renewed by Congress. However, management expects the Biodiesel Facility to begin operations in the Second Quarter and to increase production throughout t he year.
Fuel Contract
In addition to the interest in the Biodiesel Facility, Evergreen owns a Fuel Contract. The Fuel Contract acquired is a five year 100,000,000 gallon per year agreement to provide diesel fuel to Green Energy Cooperative. For the period January 1, 2010 to March 31, 2010, there were no sales under this contract pending reconciliation of legislation passed in December 2009 by the US House of Representatives and in March 2010 by the US Senate whereby the incentive package providing for a $1.00 per gallon credit to provide incentives to produce renewable energy resources such as biodiesel is renewed. However, management expects this legislation to pass and sales to begin in the Second Quarter.
Industrial Coatings – The Company shut down its operating plant in the United States and curtailed its staff in China. Management plans to evaluate Industrial Coating opportunities on a case by case basis. In the United States it will toll out any production needs until it is able to obtain enough sales to warrant re-opening a manufacturing facility. In China, management has reduced staff and has maintained sales contacts with certain customers, but has not had the working capital necessary to pursue certain opportunities. The Company anticipates that it will enter into sales contracts in the latter part of the Second Quarter of 2010.
RPA/Plastics Division - The Company shut down operations in this Division in the First Quarter of 2010.
Exousia has made great strides in its efforts to transform its product offerings from Industrial Coatings and Plastics to a broad provider of green energy fuel products. The Company was profitable in the First Quarter of 2010 for the first time in Company history. With the opening of the Biodiesel Facility, the implementation of the Fuel Contracts and the strategic pursuit of Industrial Coatings and Plastic opportunities, management expects revenue and profitability to continue to grow in 2010.
Item 3 – Quantitative and Qualitative Analysis about Market Risks
There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 4T– Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2010, the Company's management carried out an evaluation, under the supervision of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company's system of disclosure controls and procedures pursuant to the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective, as of the date of their evaluation, for the purposes of recording, processing, summarizing and timely reporting material information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934.
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As of March 31, 2010, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
1. | As of March 31, 2010, effective controls over the control environment were not maintained. Specifically, a formally adopted a written code of business conduct and ethics that governs to the Company’s employees, officers and directors was not in place. Additionally, management has not developed and effectively communicated to its employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d) (5) (ii) of Regulation S-X. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakn ess. | |
2. | As of March 31, 2010, effective controls over financial statement disclosure were not maintained. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. |
3. | As of March 31, 2010, effective controls over equity transactions were not maintained. Specifically, controls were not designed and in place to ensure that equity transactions were properly reflected. Accordingly, management has determined that this control deficiency constitutes a material weakness. | |
4. | The Company has retained outside securities counsel to assist management in developing procedures and guidelines to rectify the above deficiencies and develop safeguards to prevent such deficiencies to reoccur in the future. The Company with the assistance of its outside securities counsel is also developing procedures to insure that disclosure controls are in effect to provide for timely reporting and disclosure of material information and events. |
Changes in Internal Control over Financial Reporting
The Company anticipates that when the procedures referred to above are in place, that it will be in compliance with all disclosure requirements of the Exchange Act and its rules and regulations.
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PART II – OTHER INFORMATION
Item 1 Legal Proceeding.
None.
Item 1A Risk Factors.
Not applicable.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3Defaults Upon Senior Securities.
None.
Item 4 (Removed and Reserved)
None.
Item 5 Other Information.
None.
Item 6 Exhibits.
Exhibit No. | Description of Exhibit |
3.1 | Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s SB-2 Registration Statement declared effective August 6, 2002.) |
3.2 | By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s SB-2 Registration Statement declared effective August 6, 2002.) |
31.1 * | Certification of the Chief Executive Officer pursuant to Exchange Act Rule, Rule 13a-14a/15d-14a. |
31.2 * | Certification of the Chief Financial Officer pursuant to Exchange Act Rule, Rule 13a-14a/15d-14a. |
32.1 * | Certification of Chief Executive Officer pursuant to U.S.C. Section1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 * | Certification of Chief Executive Officer pursuant to U.S.C. Section1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Exhibits are submitted herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Exousia Advanced Materials, Inc. (Registrant) | |
By: /s/ Wayne Rodrigue CEO/President/Chairman | |
Date: May 24, 2010 By: /s/ Robert Roddie CFO/COO Date: May 24, 2010 |
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