RiskOn International 10Q 2011 Q4 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER 333-151633

MAGNOLIA SOLAR CORPORATION

(Exact Name of small business issuer as specified in its charter)

Nevada		39-2075693
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

54 Cummings Park, Suite 316, Woburn, MA 01801

(Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (781) 497-2900

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 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 o No o

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 10, 2011, the issuer had 24,230,000 outstanding shares of Common Stock.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

	PART II
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	(Removed and Reserved)	23
Item 5.	Other Information	23
Item 6.	Exhibits	24

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010



ASSETS
		March 31,			December 31,
		2011			2010
CURRENT ASSETS		(unaudited)
Cash		$	329,933		$	430,585
Accounts receivable			236,296			118,150
Prepaid expenses			1,417			1,417
	Total current assets		567,646			550,152

Fixed assets, net			5,845			6,432

OTHER ASSETS
License, net of accumulated amortization			252,521			261,433
Deferred financing fees			273,552			351,548
	Total other assets		526,073			612,981


TOTAL ASSETS		$	1,099,564		$	1,169,565


	LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable and accrued expenses		$	143,632		$	159,227
Current portion of Original Issue Discount Senior Secured Convertible Promissory Note, net of discount			1,725,619			1,459,209

	Total current liabilities		1,869,251			1,618,436


TOTAL LIABILITIES			1,869,251			1,618,436

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value, 75,000,000 shares authorized,
23,980,000 and 23,930,000 shares issued and outstanding			23,980			23,930
Additional paid in capital			438,520			420,070
Additional paid in capital - warrants			867,806			867,806
Deficit accumulated during the development stage			(2,099,993	)		(1,760,677	) )
	Total stockholders' equity (deficit)		(769,687	)		(448,871	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	1,099,564		$	1,169,565

The accompanying notes are an integral part of these consolidated financial statements.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

AND FOR THE PERIOD JANAURY 8, 2008 (INCEPTION) THROUGH MARCH 31, 2011



							JANUARY 8, 2008
							(INCEPTION)
	THREE MONTHS ENDED			THREE MONTHS ENDED			THROUGH
	MARCH 31, 2011			MARCH 31, 2010			MARCH 31, 2011

REVENUE	$	201,356		$	140,769		$	941,059

COST OF REVENUES		79,013			138,259			572,277

GROSS PROFIT		122,343			2,510			368,782

OPERATING EXPENSES
Indirect and administrative labor		24,648			35,807			180,731
Professional fees		39,436			94,602			503,341
Amortization expense		87,495			66,373			442,647
General and administrative		43,865			32,895			191,830
Total operating expenses		195,444			229,677			1,318,549

NON-OPERATING EXPENSES
Interest expense including amortization of OID and debt discount, net		266,215			195,785			1.150,226
Total non-operating expenses		266,215			195,785			1,150,226

NET (LOSS)	$	(339,316	)	$	(422,952	)	$	(2,099,993	)


WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		23,957,778			21,433,560

NET (LOSS) PER SHARE	$	(0.01	)	$	(0.02	)

The accompanying notes are an integral part of these consolidated financial statements.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)(UNAUDITED)

FOR THE PERIOD JANUARY 8, 2008 (INCEPTION) THROUGH MARCH 31, 2011

(INCLUDING MOBILIS RELOCATION SERVICES – PRE-MERGER)

									Deficit
							Additional		Accumulated
					Additional		Paid-In		During the
	Common Stock				Paid-In		Capital -		Development
	Shares		Amount		Capital		Warrants		Stage			Total

Balance - November 19, 2007		-	$	-	$	-	$	-	$	-		$	-

Common shares issued to founders for cash		1,973,685		1,974		13, 026		-		-			15,000

Common shares issued for cash - others		2,500,001		2,500		35,500		-		-			38,000

Net loss for the period ended March 31, 2008		-		-		-		-		(4,477	)		(4,477	)

Balance - March 31, 2008		4,473,686		4,474		48,526		-		(4,477	)		48,523

Net loss for the year ended March 31, 2009		-		-		-		-		(31,115	)		(31,115	)

Balance - March 31, 2009		4,473,686		4,474		48,526		-		(35,592	)		17,408

Net loss for the period April 1, 2009 through
December 30, 2009		-		-		-		-		(5,719	)		(5,719	)

To reflect the issuance of shares in the merger of
Magnolia Solar Corp., net of the cancellation of
founders shares		19,356,314		19,356		289,144		-		(126,151	)		182,349

To reflect the issuance of warrants in the issuance
of the Original Issue Discount Promissory Notes		-		-		-		412,830		-			412,830

To reflect the issuance of warrants to the Placement Agent		-		-		-		454,976		-			454,976

Net loss for the period December 30, 2009 through
December 31, 2009		-		-		-		-		(49,440	)		(49,440	)

Balance - December 31, 2009		23,830,000		23,830		337,670		867,806		(216,902	)		1,012,404

Common shares issued for services rendered		100,000		100		82,400		-		-			82,500

Net loss for the year ended December 31, 2010		-		-		-		-		(1,543,775	)		(1,543,775	)

Balance - December 31, 2010		23,930,000		23,930		420,070		867,806		(1,760,677	)		(448,871	)
Common shares issued for services rendered		50,000		50		18,450		-		-			18,500

Net loss for the period ended March 31, 2011		-		-		-		-		(339,316	)		(339,316	)

Balance - March 31, 2011		23,980,000	$	23,980	$	438,520	$	867,806	$	(2,099,993	)	$	(769,687	)

The accompanying notes are an integral part of these consolidated financial statements.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

FOR THE PERIOD JANUARY 8, 2008 (INCEPTION) THROUGH MARCH 31, 2011



							JANUARY 8, 2008
	THREE MONTHS ENDED			THREE MONTHS ENDED			(INCEPTION) THROUGH
	MARCH 31, 2011			MARCH 31, 2010			MARCH 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(339,316	)	$	(422,952	)	$	(2,099,993	)

Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation and amortization expense		9,498			66,373			364,650
Common stock issued for services rendered		18,500			67,500			101,000
Amortization of original issue discount and debt discount		344,406			195,691			1,226,445

Change in assets and liabilities
(Increase) in accounts receivable		(118,146	)		(121,909	)		(236,296	)
(Increase) in prepaid expenses		-			-			(1,417	)
Increase (decrease) in accounts payable and accrued expenses		(15,594	)		107,971			143,632
Total adjustments		238,664			315,626			1,598,014
Net cash (used in) operating activities		(100,652	)		(107,326	)		(501,979	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets		-			(6,974	)		(8,288	)
Deferred financing fees paid in connection with funding		-			-			(154,800	)
Net cash (used in) investing activities		-			(6,974	)		(163,088	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock for cash		-			-			5,000
Proceeds received from loan payable - related party		-			-			70,000
Repayment of loan payable – related party		-			(70,000	)		(70,000	)
Net proceeds received from Original Issue Discount Promissory Notes		-			-			990,000
Net cash provided by (used in) financing activities		-			(70,000	)		995,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(100,652	)		(184,300	)		329,933

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		430,585			744,402			-

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	329,933		$	560,102		$	329,933

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	-		$	1,371		$	1,371

NON-CASH SUPPLEMENTAL INFORMATION:
Stock issued for services rendered	$	18,500		$	-		$	101,000
Amortization of original issue discount and debt discount	$	344,406		$	-		$	1,226,445

The accompanying notes are an integral part of these consolidated financial statements.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 1 – Organization and Nature of Business

The unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the December 31, 2010 Form 10-K filed with the SEC, including the audited financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.

These unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

On November 19, 2007, Mobilis Relocation Services, Inc. (“Mobilis”) was organized under the laws of the State of Nevada. Mobilis was formed for the purpose of engaging in all lawful businesses. Mobilis had no material business operations from inception through December 31, 2009. Mobilis formed plans to offer a resource for individual or family relocation/ moving needs.

Mobilis formed Magnolia Solar Acquisition Corp., a wholly-owned subsidiary incorporated in the State of Delaware. Mobilis filed a Certificate of Change to its Articles of Incorporation in order to affect a forward split of the number of authorized shares of common stock which they were authorized to issue, and of the then issued and outstanding shares in a ratio of 1.3157895:1. The forward split occurred in February 2010. All share and per share amounts have been reflected herein post-split.

On December 31, 2009, Mobilis entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Magnolia Solar, Inc., a privately held Delaware corporation (the “Magnolia Solar”) and Magnolia Solar Acquisition Corp. (“Acquisition Sub”). Upon closing of the transaction, under the Merger Agreement, Acquisition Sub merged with and into Magnolia Solar, and Magnolia Solar, as the surviving corporation, became a wholly-owned subsidiary of Mobilis. Thereafter, Mobilis changed its name to Magnolia Solar Corporation (the “Company”). The transaction was accounted for as a reverse merger, and the historical financial information is that of Magnolia Solar, Inc.

On January 8, 2008, Magnolia Solar, Inc. was incorporated in the State of Delaware.

The Company was formed to be a provider of terrestrial photovoltaic cells for both civilian and military applications. The Company is pioneering the development of thin film, high efficiency solar cells for applications such as power generation for electrical grids as well as for local applications, including lighting, heating, traffic control, irrigation, water distillation, and other residential, agricultural and commercial uses.

The Company’s technology takes multiple approaches to bringing cell efficiencies close to those realized in silicon based solar cells while also lowering manufacturing costs. The technology uses a different composition of materials than those used by competing thin film cell manufacturers; incorporates additional layers of material to absorb a wider spectrum of light; uses inexpensive substrate materials, such as glass and polymers lowering the cost of the completed cell compared to silicon based solar cells; and is based on non-toxic materials that do not have adverse environmental effects.

Pursuant to the terms of the Merger Agreement:

Each share of Magnolia Solar’s common stock issued and outstanding immediately prior to the Merger was exchanged for the right to receive 0.76 shares of Mobilis common stock. Fractional shares were rounded to the nearest whole share. Accordingly, an aggregate of 16,210,000 shares of common stock were issued to the holders of Magnolia Solar’s common stock.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 1 – Organization and Nature of Business (continued)

Following the closing of the Merger, the Company issued 26.6 units in a private placement (the “Private Placement”), consisting of an aggregate of $2,660,000 of Original Issue Discount Senior Secured Convertible Notes and five-year callable warrants to purchase an aggregate of 2,660,000 shares of common stock exercisable at $1.25 per share, for $50,000 per unit for aggregate proceeds to the Company of $990,000. The notes were issued at an original issue discount of 50%. In the transaction, Midtown Partners & Co., LLC, (the “Placement Agent”) who represented the investors received seven-year warrants to purchase a number of shares of common stock equal to 10% of the purchase price of the Units that were purchased through the Placement Agent exercisable at $1.05 per share. The notes are secured by a first-priority security interest in the assets of the Company. Holders of the notes and warrants issued in the Private Placement also have the right to seek “piggyback” registration of the shares underlying the notes and warrants.

Upon the closing of the Merger, the sole officer of Mobilis resigned and was replaced with a new director and new officers that were formerly from Magnolia Solar.

Immediately following the closing of the Merger and the Private Placement, under an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Conveyance Agreement”), Mobilis transferred all of their pre-merger assets and liabilities to their wholly-owned subsidiary, Mobilis Relocation Services Holding, Inc. (“SplitCo”).

Thereafter pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”), the Company transferred all of the outstanding common stock of SplitCo to certain of the Company’s stockholders in exchange for the cancellation of 1,500,000 shares of the Company’s common stock (the “Split-Off”), with 1,900,000 shares of common stock held by persons who were stockholders of the Company prior to the Merger remaining outstanding.

Following (i) the closing of the Merger, (ii) the closing of the Private Placement, and (iii) the cancellation of the 1,500,000 shares of common stock in the Split-Off, there were 18,110,800 shares of common stock issued and outstanding.

The Company changed its fiscal year from March 31 to December 31 as the operating subsidiary Magnolia Solar, Inc. maintained a December 31 year end.

In February 2011, the Company completed the first phase of its intellectual property protection initiative. In the past year, the Company has filed a series of U.S. utility patent and international Patent Cooperation Treaty (PCT) applications. This initial series of patent application claims the benefit of an earlier provisional application filed by the Company in January 2010.

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 1 – Organization and Nature of Business (continued)

Going Concern

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has been generating revenues from various development contracts with governmental units, however has generated losses totaling $339,316 and $422,952 for the three months ended March 31, 2011 and 2010, respectively, and $2,009,993 since January 8, 2008 (Inception). The Company did raise funds in the Private Placement, and may need to raise additional funds to carry out their business plan.

The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations, despite totaling $329,933 and $430,585 in cash as of March 31, 2011 and December 31, 2010, respectively. The Company has had very little operating history to date. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors raise substantial doubt regarding the ability of the Company to continue as a going concern.

The Company may need to raise additional capital to expand operations to the point at which the Company can achieve profitability. The terms of equity that may be raised may not be on terms acceptable by the Company. If adequate funds cannot be raised outside of the Company, the Company’s officers and directors may need to contribute funds to sustain operations.

Note 2 - Summary of Significant Accounting Policies

Development Stage Company

The Company is considered to be in the development stage as defined in ASC 915, “Accounting and Reporting by Development Stage Enterprises.” The Company has devoted substantially all of its efforts to the development of their thin film solar cell technology in the development contracts with governmental agencies they have entered into, corporate formation and the raising of capital. The Company has generated revenues from agreements entered into in 2010 and 2011 that are for the development of their products and not the sales of their products. These contracts are one-time contracts that support the Company's development. The Company anticipates emerging from the development stage in 2012 upon completion of the development of their products.

Basis of Accounting

The financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles.

Use of Estimates

The preparation of 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 and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 2 - Summary of Significant Accounting Policies (continued)

Accounts Receivable

For financial reporting, current earnings are charged and an allowance is credited with a provision for doubtful accounts based on experience. Accounts deemed uncollectible are charged against this allowance. Receivables are reported on the balance sheet net of such allowance. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company believes no allowance for doubtful accounts is necessary at March 31, 2011. The Company does not charge interest on past due accounts.

Property and Equipment

Property and equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives. Additions, renewals, and betterments, unless of a minor amount, are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Deferred Financing Fees

The costs incurred in connection with obtaining debt financing will be capitalized as deferred financing costs and amortized using the effective interest method over the term of the debt.

Impairment of Long-Lived Assets

The Company reviews their recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment will be based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell. The Company’s management has determined that the fair value of long-lived assets exceeds the book value and thus no impairment charge is necessary as of March 31, 2011.

Fair Value of Financial Instruments

The carrying amount reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.

Income Taxes

The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents.

Revenue Recognition

Revenue is recognized from private and public sector contracts that are time and material type contracts. These revenues are recognized in accordance with ASC 605, "Revenue Recognition.” The Company recognizes revenue when; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable and (4) collectability is reasonably assured.

The Company assesses whether fees are fixed or determinable at the time of sale and recognizes revenue if all other revenue recognition requirements are met. The Company's standard payment terms are net 30. Payments that extend beyond 30 days from the contract date but that are due within twelve months are generally deemed to be fixed or determinable based on the Company's successful collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 2 - Summary of Significant Accounting Policies (continued)

Loss Per Share of Common Stock

Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented. The following is a reconciliation of the computation for basic and diluted EPS:

	March 31			March 31
	2011			2010
Net loss	$	( 339,316	)	$	(422,952	)
Weighted-average common shares
outstanding (Basic)		23,957,778			21,433,560
Weighted-average common stock
Equivalents
Stock options		-			-
Warrants		3,216,428			3,216,428
Weighted-average common shares
outstanding (Diluted)		27,174,206			24,649,988

Uncertainty in Income Taxes

The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2008, and they evaluate their tax positions on an annual basis, and has determined that as of March 31, 2011, no additional accrual for income taxes is necessary.

Recently Issued Accounting Standards

In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.

In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 2 - Summary of Significant Accounting Policies (continued)

Recently Issued Accounting Standards (continued)

In December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements. ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.

ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of ASC 810-10-65 will have on the Company’s financial position, results of operations or cash flows.

In December 2007, the Company adopted ASC 805, Business Combinations (“ASC 805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.

ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted and the ASC is to be applied prospectively only. Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of ASC 805 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.

Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial condition.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 2 - Summary of Significant Accounting Policies (continued)

Recently Issued Accounting Standards (continued)

In April 2008, the FASB issued ASC 350, “Determination of the Useful Life of Intangible Assets”. The Company adopted ASC 350 on October 1, 2008. The guidance in ASC 350 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350 will materially impact their financial position, results of operations or cash flows.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the rollforward of information in Level 3 are required for the Company with its first interim filing in 2011. The Company does not believe this standard will impact their financial statements.

In February 2010 the FASB issued ASU 2010-09, "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements". This update addresses both the interaction of the requirements of Topic 855. "Subsequent Events", with the SEC's reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. Adoption of ASU 2010-09 did not have a material impact on the Company's results of operations or financial condition.

In April 2010, the FASB issued ASU 2010-17, "Revenue Recognition - Milestone Method (Topic 605) - Milestone Method of Revenue Recognition. The objective of this update is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. The Company has already employed this method of revenue recognition of their funded development contracts. The Company does not believe this amendment will have a material impact on their financial statements.

Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 3 - Stockholders’ Equity

Mobilis was organized with 75,000,000 shares of common stock with a par value of $0.001. On December 31, 2009, Mobilis filed a Certificate of Change to its Articles of Incorporation in order to effect a forward split of the number of shares of common stock which it is authorized to issue and of its issued and outstanding shares in a ratio of 1.3157895:1 which occurred in February 2010. Accordingly, the Company currently is authorized to issue 75,000,000 shares of common stock.

Prior to the Merger as discussed herein, Mobilis issued 4,473,686 shares of common stock between January and March 2008 at prices ranging from $0.01 to $0.02 per share for a total of $53,000 cash.

In accordance with the Merger, the Company cancelled 1,973,684 shares of common stock in the Split-Off, and issued 21,330,000 shares to the former shareholders of Magnolia Solar, Inc. As a result of these transactions, as of December 31, 2009, there were 23,830,000 shares of common stock issued and outstanding. The Company effectuated a 1.3157895:1 forward stock split in February 2010, in accordance with the merger agreement which resulted in 23,830,000 shares of common stock issued and outstanding. On March 10, 2010, the Company issued 75,000 shares of common stock at its fair value price ($0.90 per share) for legal services resulting in a value of $67,500. On November 22, 2010 the Company issued 25,000 shares of common stock in at its fair value price ($0.60 per share) for consulting services in the value of $15,000. On February 10, 2011 the Company issued 50,000 shares of common stock in at its fair value price ($0.37 per share) for consulting services in the value of $18,500. As of March 31, 2011, the Company had 23,980,000 shares issued and outstanding.

Warrants

As of March 31, 2011, the following warrants are outstanding:

Balance – December 31, 2008	-
Issued – in the 26.6 units	2,660,000	$	1.25
Issued – to Placement Agent	556,428	$	1.05
Balance – December 31, 2009	3,216,428	$	1.22
Balance – December 31, 2010	3,216,428	$	1.22

Balance March 31, 2011	3,216,428	$	1.22

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 4 - Property and Equipment

Property and equipment consisted of the following at March 31, 2011 (unaudited) and December 31, 2010:

	March 31,			December 31,
	2011			2010
Office equipment and computers	$	6,106		$	6,106
Furniture and fixtures		2,182			2,182
		8,288			8,288
Accumulated depreciation		( 2,443	)		( 1,856	)
	$	5,845		$	6,432

The Company incurred $587 and $169 in depreciation expense for the three months ended March 31, 2011 and 2010, respectively.

Note 5 - Deferred Financing Costs

The Company incurred financing costs of $609,776 in connection with the debt financing agreement executed in December 2009. These costs were capitalized and are being charged to amortization expense over the life of the promissory notes. Amortization expense for the three months ended March 31, 2011 and 2010 was $86,908 and $57,291, respectively. As of March 31, 2011, $273,552 remains unamortized of the deferred financing fees.

Note 6 - License Agreement

The Company has entered into a 10-year, renewable, exclusive license with Optical on April 30, 2008 for the exclusive rights of the patented technology related to the application of Optical’s solar cell technology.

The Company is amortizing the license fee of $356,500 over the 120 month term of the Agreement. Accumulated amortization as of March 31, 2011 was $103,979. Amortization expense for the three months ended March 31, 2011 and 2010 was $8,913 and $8,913, respectively. The Company anticipates amortizing $35,650 per year. The Company’s management has determined that the fair value of the license exceeds the book value and thus no further impairment or amortization is necessary as of March 31, 2011.

Note 7 – Original Issue Discount Senior Secured Convertible Promissory Note

Following the closing of the Merger, the Company issued 26.6 units in a private placement (the “Private Placement”), consisting of an aggregate of $2,660,000 of Original Issue Discount Senior Secured Convertible Notes (the “notes”) and five-year callable warrants to purchase an aggregate of 2,660,000 shares of common stock exercisable at $1.25 per share, for $50,000 per unit for aggregate proceeds to the Company of $990,000. The notes were issued at an original issue discount of 50%. In the transaction, Midtown Partners & Co., LLC, (the “Placement Agent”) who represented the investors received seven-year warrants to purchase a number of shares of common stock equal to 10% of the purchase price of the Units that were purchased through the Placement Agent exercisable at $1.05 per share. The notes are secured by a first-priority security interest in the assets of the Company. Holders of the notes and warrants issued in the Private Placement also have the right to seek “piggyback” registration of the shares underlying the notes and warrants.

The principal amount of the notes shall be due within 24 months from the date of issuance (December 31, 2011), unless the notes are converted to shares of the Company’s common stock prior to the maturity date. The notes are convertible at the option of the Holder, into shares of the Company’s common stock at the initial conversion rate of $1.00 per share.

As of March 31, 2011, the entire $2,660,000 remains outstanding, and none of the notes have been converted. In the transaction, the Company recognized a discount of $1,670,000 which is being amortized over the life of the notes. The discount represents the original issue discount. In addition, the Company determined that the value of the warrants in the transaction of $412,830 as a discount to the notes. This discount is being amortized as well over the life of the notes. The net value of the notes of $1,725,619 is included in the consolidated balance sheets at March 31, 2011. As of March 31, 2011, the entire amount is classified as a current liability.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 8 – Provision for Income Taxes

Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

As of March 31, 2011, there is no provision for income taxes, current or deferred.


Net operating losses	$	765,585
Valuation allowance		( 706,585	)

	$	-

At March 31, 2011, the Company had a net operating loss carry forward in the amount of $2,078,190, available to offset future taxable income through 2031. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.

A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the three months ended March 31, 2011 and 2010 is summarized below.



Federal statutory rate	(34.0	)%
State income taxes, net of federal benefits	0.0
Valuation allowance	34.0
	0	%

Note 9 – Commitments and Contingencies

The Company leases office space at two locations that expire between August 30, 2012 and January 31, 2013. Rent expense for the Company’s facilities for the three months ended March 31, 2011 and 2010 totaled $4,341 and $4,635, respectively.

The future minimum lease payments due under the above mentioned non-cancelable lease agreements are as follows:

Period ending December 31,
2011	$	13,033
2012		16,231
2013		1,105
	$	30,369

As part of the contract to develop its products, the Company has agreed to pay the contractor 1.5% of New York state manufactured sales, and 5% of non-New York state manufactured sales until the entire funds paid by the contractor have been received from the Company or 15 years whichever comes first. As of March 31, 2011 the Company has $841,059 of contract related expenses, all of which will be owed to the contractor, contingent upon the sale of the Company’s product.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 10 - Concentration of Credit Risk

The Company maintains its cash in one bank deposit account, which at times may exceed the federally insured limits of $250,000 that exist through December 31, 2013. At March 31, 2011 and the Company did not have any uninsured deposits.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit based on the customers’ financial conditions. The Company does not require collateral or other security to support customer receivables. Credit losses, when realized, have been within the range of management’s expectations. To further reduce credit risk associated with accounts receivable, the Company performs periodic credit evaluations of its customers.

Concentrations in Accounts Receivable	March 31, 2011			March 31, 2010
Customer A		69	%		89	%
Customer B		13	%		11	%

Concentrations in Revenue	March 31, 2011			March 31, 2010
Customer A		55	%		87	%
Customer B		15	%		13	%
Customer C		15	%		-0	%

Note 11 - Fair Value Measurements

The Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

Level 1

Quoted prices in active markets for identical assets or liabilities. The Company's Level 1 assets consist of cash and cash equivalents.

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 11 - Fair Value Measurements (continued)

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

March 31, 2011
	Level 1		Level 2		Level 3		Total

Cash		329,933		-		-		329,933

Total assets		329,933		-		-		329,933

Original Issue Discount
Senior Secured Convertible
Promissory Notes		-		-		1,725,619		1,725,619

Total liabilities		-		-		1,725,619		1,725,619

December 31, 2011
	Level 1		Level 2		Level 3		Total

Cash		430,585		-		-		430,585

Total assets		430,585		-		-		430,585

Original Issue Discount
Senior Secured Convertible
Promissory Notes		-		-		1,459,209		1,459,209

Total liabilities		-		-		1,459,209		1,459,209

MAGNOLIA SOLAR CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

Note 11 - Fair Value Measurements (continued)

	Original Issue Discount Senior Secured Convertible Promissory Notes

Balance, January 1, 2010	$	577,170
Realized gains/(losses)		-
Unrealized gains/(losses) relating to
instruments still held at the reporting date		-
Purchases, sales, issuances and settlements, net		-
Discount on notes		-
Amortization of discount on notes		882,039
Balance, December 31, 2010	$	1,459,209
Realized gains/(losses)		-
Unrealized gains/(losses) relating to
instruments still held at the reporting date		-
Purchases, sales, issuances and settlements, net		-
Discount on notes		-
Amortization of discount on notes		266,410
Balance, March 31, 2011	$	1,725,619

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Overview

Magnolia Solar, Inc. is a development-stage company that was formed in Delaware in January 2008. Since its inception, Magnolia has focused on the development of thin film, high efficiency solar cells. Magnolia’s technology is being developed to be utilized in power generation for electrical grids as well as local applications including lighting, heating, traffic control, irrigation, water distillation, and other residential, agricultural and commercial applications. Magnolia intends to become a highly competitive, low cost provider of terrestrial photovoltaic cells for both civilian and military applications. These cells will be based on low cost substrates such as glass and polymers. Magnolia’s primary goal is to introduce a product which offers significant cost savings per watt over traditional silicon based solar cells. To date, Magnolia Solar has not generated material revenues or earnings as a result of its activities. As a result of the Merger, Magnolia Solar became a wholly-owned subsidiary of the Company and the Company succeeded to the business of Magnolia Solar as its sole line of business.

Results of Operations

Our revenues are derived from research and development grants and contracts awarded to the Company by government and private sector.

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Revenues

Currently the Company is in its development stage and has recorded $201,356 of revenue for the three months ended March 31, 2011 as compared to $140,769 for the three months ended March 31, 2010, representing an increase of $60,587, or 43%. This increase was due to the Company receiving additional research and development grants. The Company anticipates emerging from the development stage in 2012 upon completion of the development of their products. The revenue recorded is from research and development grants from the government to develop solar cells using Magnolia’s technology.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2011 were $79,013 as compared to $138,259 for the three months ended March 31, 2010, representing a decrease of $59,296, or 43%. This decrease was due to lower developmental costs. Cost of revenues for the three months ended March 31, 2011 were comprised of direct labor, direct travel, materials, and subcontracts for the solar cell development.

Operating Expenses

Indirect Labor, Benefits, and General and Administrative Expenses

Indirect labor and benefits expenses for the three months ended March 31, 2011 were $68,513 as compared to $68,702 for the three months ended March 31, 2010, representing a decrease of $189, or 0.2%. Indirect labor and benefits for the three months ended March 31, 2011 were comprised of wages for the administrative staff, payroll taxes, health insurance, indirect travel, other administrative expenses and provision for vacation time.

Professional Fees

Professional fees for the three months ended March 31, 2011 were $39,436 as compared to $94,602 for the three months ended March 31, 2010, representing a decrease of $55,166, or 58%. This decrease was due to lower costs for public relations and other services. Professional fees for the three months ended March 31, 2011 were comprised of accounting, business services, public relations, audit, and legal fees.

Depreciation and Amortization Expense

Amortization expense for the three months ended March 31, 2011 were $87,495 as compared to $66,373 for the three months ended March 31, 2010, representing an increase of $21,122 or 32%. This increase was due to increase in amortization expense. Amortization expense is comprised of amortization of the license fee paid for the technology license, amortization of the debt issuance costs, and depreciation on the property and equipment.

Interest Expense

Interest expense for the three months ended March 31, 2011 were $266,215 as compared to $195,785 for the three months ended March 31, 2010, representing an increase of $70,430, or 36%. This increase was due to interest expense on original issue discounted note. Interest expense for the three months ended March 31, 2011 is comprised of the amortization of the debt discount.

Net Loss

Our net loss for the three months ended March 31, 2011 was $339,316, as compared to $422,952 for the three months ended March 31, 2010, representing a decrease of $83,636, or 20%. This decrease was due to increases in our grant revenue.

Liquidity and Capital Resources

As of March 31, 2011, we had ($1,301,605) of working capital. The deficit in working capital was due primarily to our original issue discount senior secured convertible promissory note that matures in December, 2011.

Net cash used in operating activities was $100,652 for the three months ended March 31, 2011, as compared to $107,326 for the three months ended March 31, 2010. The Company is in the development stage and has generated no revenues from product sales.

Net cash used in investing activities was $0 for the three months ended March 31, 2011, as compared to $6,974 for the three months ended March 31, 2010. The decrease of cash used in investing activities was because the Company did not add to plant and equipment.

Net cash flows used in financing activities was $0 for the three months ended March 31, 2011, as compared to $70,000 for the three months ended March 31, 2010. There were no loans outstanding that required cash payments.

We require substantial working capital to fund our business. We cannot predict whether additional financing will be available to us on favorable terms when required, or at all. Since our inception, we have experienced negative cash flow from operations and expect to experience significant negative cash flow from operations in the future.

Off-Balance Sheet Arrangements

Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

N/A.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures . Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting. During the most recent quarter ended March 31, 2011, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS.

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

ITEM 1A. RISK FACTORS.

N/A.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (REMOVED AND RESERVED).

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit Number		Description of Exhibit

31.1		Section 302 Certification of Principal Executive Officer
31.2		Section 302 Certification of Principal Financial Officer
32.1		Section 906 Certification of Principal Executive Officer
32.2		Section 906 Certification of Principal Financial Officer

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	MAGNOLIA SOLAR CORPORATION

Date: May 12, 2011	By:	/s/ Dr. Ashok K. Sood
		Dr. Ashok K. Sood President, Chief Executive Officer and Director (Principal Executive Officer)




Date: May 12, 2011	By:	/s/ Dr. Yash R. Puri
		Dr. Yash R. Puri Executive Vice-President, Chief Financial Officer and Director (Principal Financial Officer)

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