UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
| x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2011
| ¨ | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 333-167147
GreenCell, Incorporated
(Exact name of small business issuer as specified in its charter)
| Florida | 27-1439209 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1 Keuka Business Park, Penn Yan, New York 14527
(Address of principal executive offices)
315-694-7134
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
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 ¨ 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ | 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 x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common shares as of 31,760,000 as of August 16, 2011.
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PART 1 - FINANCIAL INFORMATION
(A Development Stage Company)
Balance Sheets
| June 30, 2011 | March 31, 2011 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,022 | $ | 73,318 | ||||
| Total current assets | 4,022 | 73,318 | ||||||
| Equipment, net of accumulated depreciation | 19,125 | 20,400 | ||||||
| Total assets | $ | 23,147 | $ | 93,718 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Notes payable | $ | — | $ | 20,000 | ||||
| Notes payable - shareholders | 112,500 | 277,500 | ||||||
| Accounts payable and accrued expenses | 91,418 | 77,926 | ||||||
| Total current liabilities | 203,918 | 375,426 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.01 par value, authorized 100,000,000 shares; 31,760,00 and 29,710,000 issued and outstanding as of June 30, 2011 and March 31, 2011, respectively | 317,600 | 297,100 | ||||||
| Additional paid-in capital | 408,400 | 223,900 | ||||||
| Accumulated deficit during development stage | (906,771 | ) | (802,708 | ) | ||||
| (180,771 | ) | (281,708 | ) | |||||
| Total liabilities and stockholders’ equity | $ | 23,147 | $ | 93,718 | ||||
The accompanying notes are an integral part of these financial statements.
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ITEM 1. Financial Statements (continued)
(A Development Stage Company)
Statements of Operations
(Unaudited)
| For the Three Months Ended June 30, 2011 | For the Three Months Months Ended June 30, 2010 | For the Period December 7, 2009 (Inception) to June 30, 2011 | ||||||||||
| Revenue | $ | — | $ | — | $ | — | ||||||
| Operating expenses: | ||||||||||||
| General and administrative | 52,862 | 29,417 | 318,308 | |||||||||
| Consulting fees | — | 15,000 | 307,500 | |||||||||
| Professional fees | 11,010 | 4,000 | 83,800 | |||||||||
| Research and development | 45,821 | 42,268 | 192,945 | |||||||||
| Total operating expenses | 109,693 | 90,685 | 902,553 | |||||||||
| Net income (loss) from operations | $ | (109,693 | ) | $ | (90,685 | ) | $ | (902,553 | ) | |||
| Other income (expense): | ||||||||||||
| Interest income (expense) | 5,630 | — | (4,218 | ) | ||||||||
| Total other income (expense) | 5,630 | — | (4,218 | ) | ||||||||
| Net income (loss) | $ | (104,063 | ) | $ | (90,685 | ) | $ | (906,771 | ) | |||
| Weighted average number of common shares outstanding, basic and fully diluted | 29,872,198 | 29,681,311 | ||||||||||
| Net loss per weighted share basic and fully diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
The accompanying notes are an integral part of these financial statements.
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ITEM 1. Financial Statements (continued)
(A Development Stage Company)
Statement of Changes in Stockholders’ Equity
(Unaudited)
| Accumulated Deficit During Developmental Stage | Total Stockholder’s Equity | |||||||||||||||||||
| Additional Paid- in Capital | ||||||||||||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| December 7, 2009 | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Shares issued for cash | 1,960,000 | 19,600 | 176,400 | — | 196,000 | |||||||||||||||
| Shares issued for services | 6,000,000 | 60,000 | 240,000 | — | 300,000 | |||||||||||||||
| Shares issued for technology license | 21,500,000 | 215,000 | (215,000 | ) | — | — | ||||||||||||||
| Net income (loss) December 7, 2009 (Inception) to March 31, 2010 | — | — | — | (414,921 | ) | (414,921 | ) | |||||||||||||
| Balance, March 31, 2010 | 29,460,000 | 294,600 | 201,400 | (414,921 | ) | 81,079 | ||||||||||||||
| Shares issued for cash | 250,000 | 2,500 | 22,500 | — | 25,000 | |||||||||||||||
| Net income (loss) for the year ended March 31, 2011 | — | — | — | (387,787 | ) | (387,787 | ) | |||||||||||||
| Balance, March 31, 2011 | 29,710,000 | $ | 297,100 | $ | 223,900 | $ | (802,708 | ) | $ | (281,708 | ) | |||||||||
| Shares issued in connection with the conversion of notes payable | 2,050,000 | 20,500 | 184,500 | 205,000 | ||||||||||||||||
| Net income (loss) for the three months ended June 30, 2011 | (104,063 | ) | (104,063 | ) | ||||||||||||||||
| Balance, June 30, 2011 | 31,760,000 | $ | 317,600 | $ | 408,400 | $ | (906,771 | ) | $ | (180,771 | ) | |||||||||
The accompanying notes are an integral part of these financial statements.
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ITEM 1. Financial Statements (continued)
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
| For the Three Months Ended June 30, 2011 | For the Three Months Ended June 30, 2010 | For the Period December 7, 2009 (Inception) to June 30, 2011 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | (104,063 | ) | $ | (90,685 | ) | $ | (906,771 | ) | |||
| Adjustments to reconcile net loss to net cash: | ||||||||||||
| Depreciation expense | 1,275 | 1250 | 6,375 | |||||||||
| Stock-based compensation | — | — | 300,000 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts payable and accrued expenses | 13,492 | 1 | 91,418 | |||||||||
| Net cash used in operating activities | (89,296 | ) | (89,434 | ) | (508,979 | ) | ||||||
| Cash flows from investing activities | ||||||||||||
| Purchase of equipment | — | — | (25,500 | ) | ||||||||
| Net cash used in investing activities | — | — | (25,500 | ) | ||||||||
| Net cash from financing activities | ||||||||||||
| Issuance of common stock | — | 25,000 | 221,000 | |||||||||
| Proceeds from borrowings | 20,000 | — | 317,500 | |||||||||
| Net cash provided by financing activities | 20,000 | 25,000 | 538,500 | |||||||||
| Net increase (decrease) in cash | (69,296 | ) | (64,434 | ) | 4,022 | |||||||
| Cash, beginning of period | 73,318 | �� | 81,574 | — | ||||||||
| Cash, end of period | $ | 4,022 | $ | 17,140 | $ | 4,022 | ||||||
| Supplemental information: | ||||||||||||
| Issuance of 5,600,000 shares of common stock for consulting services | $ | — | $ | — | $ | 280,000 | ||||||
| Issuance of 400,000 shares of common stock in exchange for legal services | $ | — | $ | — | $ | 20,000 | ||||||
| Issuance of 21,500,000 shares of common stock in exchange for technology license | $ | — | $ | — | $ | 215,000 | ||||||
| Issuance of 2,050,000 shares of common stock in connection with conversion of notes payable | $ | 205,000 | $ | — | $ | 205,000 | ||||||
The accompanying notes are an integral part of these financial statements.
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ITEM 1. Financial Statements (continued)
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1—Organization and nature of operations
Organization
GreenCell, Incorporated (“the Company”) was organized December 7, 2009 under the laws of the State of Florida. The Company has not commenced significant operations, and in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entity,” the Company is considered a development stage company.
The Company is in the business of developing commercial and industrial applications for the SenCer, Inc. (“SenCer”) Ultra Temp Composite, including igniters, oxygen sensors, fuel cells, and brake pad products for the automotive, home appliance, heating and cooling and medical industries. SenCer is one of the founding shareholders of the Company.
As indicated above, the Company is an early development stage business, with no revenue generating operations and does not anticipate generating revenues before the fourth quarter of the fiscal year beginning April 1, 2011. In order to commence revenue generating operations, the Company needs to complete development of its igniter and then begin marketing and selling its future igniter product. The Company then needs to complete development of its O2 sensors, fuel cells, and brake pad future products and thereafter sell and market these products.
The accompanying unaudited June 30, 2011 interim financial statements of GreenCell, Incorporated have been prepared in accordance with accounting principles generally accepted in the United States of American pursuant to the rules of the Securities and Exchange Commission. In the opinion of management, the unaudited interim financial statements include all adjustments, consisting of normal recurring accruals, necessary in order to make the financial statements not misleading. Operating results for the three month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended March 31, 2012.
Accounting period
The Company has adopted a fiscal year accounting period that begins on April 1, and ends on March 31 of a given year.
Note 2—Summary of significant accounting principles
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, as well as their related disclosures. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could significantly differ from those estimates.
Cash and cash equivalents
The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, free credit on investment accounts and money market accounts.
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Revenue recognition
In accordance with the FASB ASC Topic 605, “Revenue Recognition,” the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.
Furniture and equipment
Furniture and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance are expensed as incurred while betterments and improvements are capitalized. When items are sold or retired, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is included in operations.
The Company provides for depreciation and amortization over the following estimated useful lives:
| Furniture and fixtures | 5-7 years | |||
| Office equipment | 5-7 years | |||
| Vehicles | 5 years | |||
| Machinery and equipment | 5 years | |||
Long-Lived Assets
In accordance with FASB ASC Topic 360 “Property, Plant, and Equipment,” the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.
Fair Value of Financial Instruments
The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying balance sheet at June 30, 2011.
Inventories
Inventory is valued at the lower of cost or market, cost being determined by the first-in, first-out (FIFO) method. Obsolete items are carried at estimated net realizable value.
Loss Per Common Share
The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share incorporates the dilutive effect of common stock equivalents on an average basis during the period.
Research and development
The Company accounts for research and development costs in accordance with FASB ASC subtopic 730-10, “Research and Development.” Under FASB ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred, and includes payroll, employee benefits, stock based compensation, and other head-count related expenses associated with product development, material and supplies, and outside engineering and development expenses, purchase of technology, and certain expense incurred in connection with the operation of facilities that are dedicated to current and future research and development projects. The Company incurred research and development expenses of approximately of $45,821 and $42,268 for the three month periods ended June 30, 2011 and 2010, respectively.
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Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes,” which requires accounting for deferred income taxes under the asset and liability method. Deferred income tax asset and liabilities are computed for difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.
In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. state and local jurisdictions. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities. It must be applied to all existing tax positions upon initial adoption and the cumulative effect, if any, is to be reported as an adjustment to stockholder’s equity as of April 1, 2010.
Based on its analysis, the Company has determined that the adoption of this policy did not have a material impact on the Company’s financial statements upon adoption. However, management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.
Interest and Penalty Recognition on Unrecognized Tax Benefits
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Comprehensive Income
The Company complies with FASB ASC Topic 220, “Comprehensive Income,” which establishes rules for the reporting and display of comprehensive income (loss) and its components. FASB ASC Topic 220 requires the Company’ to reflect as a separate component of stockholders’ equity items of comprehensive income.
Stock-Based Compensation
The Company complies with FASB ASC Topic 718, “Compensation – Stock Compensation,” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. FASB ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period (usually the vesting period). No compensation costs are recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. For the period December 7, 2009 (Inception) to March 31, 2010, the Company issued 6.0 million shares of its $.01 par value common stock to consultants for consulting services, and in connection with issuance of these shares, the Company recorded additional compensation expense of $300,000 under FASB ASC 718; no shares were issued to consultants for consulting services during the fiscal year ended March 31, 2011.
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Valuation of Investments in Securities at Fair Value—Definition and Hierarchy
FASB ASC Topic 820, “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles in the United States and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations, as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.
Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
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Valuation Techniques
The Company values investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the year.
Government Bonds
The fair value of sovereign government bonds is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs that include interest-rate yield curves, cross-currency-basis index spreads, and country credit spreads similar to the bond in terms of issuer, maturity and seniority.
Certificate of Deposits
The fair values of the bank certificate of deposits are based on the face value of the certificate of deposits.
Recently Adopted Accounting Pronouncements
In December 2010, FASB issued ASC ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) — Intangibles — Goodwill and Other.” ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2, if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The amendments to this update are effective for us in the first quarter of 2011. Any impairment to be recorded upon adoption will be recognized as an adjustment to our beginning retained earnings. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s consolidated financial statements.
In April 2010, the FASB issued ASU No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” which addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU No. 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of operations. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements” (ASU 2010-06), to require new disclosures related to transfers into and out of Levels 1 and 2 of the fair value hierarchy and additional disclosure requirements related to Level 3 measurements. The guidance also clarifies existing fair value measurement disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The additional disclosure requirements are effective for the first reporting period beginning after December 15, 2009, except for the additional disclosure requirements related to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s financial statement
11
In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, “Consolidations (FASB ASC Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). ASU 2009-17 represents a revision to former FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or the Company’s fiscal year beginning January 1, 2010. Early application is not permitted. We have not yet determined the impact, if any, which the provisions of ASU 2009-15 may have on the Company’s financial statements
In December 2009, the Company adopted FASB ASC Topic 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures,” for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of ASC 820-10 did not have a material impact on the Company’s financial statements.
In August 2009, the FASB issued Accounting Standards Update 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value,” to amend FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” to provide guidance on the measurement of liabilities at fair value. The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted the guidance in December 2009, and there was no material impact on the Company’s financial statements or related footnotes.
In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”) and a new Hierarchy of Generally Accepted Accounting Principles which establishes only two levels of GAAP: authoritative and non-authoritative. The Codification is now the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, except for rules and interpretive releases of the SEC, which are additional sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. The Codification is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company adopted the new guidelines and numbering system prescribed by the Codification when referring to GAAP on December 9, 2009. The application of the Codification did not have an impact on the Company’s financial statements; however, all references to authoritative accounting literature will now be references in accordance with the Codification.
In May 2009, the FASB issued authoritative guidance for subsequent events, now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The guidance sets forth the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. The guidance also requires the disclosure of the date through which an entity has evaluated subsequent events and whether this date represents the date the financial statements were issued or were available to be issued. The Company adopted this guidance effective December 7, 2009 with no significant impact on the Company’s financial statements or related footnotes.
In April 2009, the FASB provided additional guidance for estimating fair value in accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” when the volume and level of activity for the asset or liability have significantly decreased. This additional guidance re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept and clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability. This guidance also provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. The scope of this guidance does not include assets and liabilities measured under quoted prices in active markets. This guidance is applied prospectively to all fair value measurements where appropriate and will be effective for interim and annual periods ending after June 15, 2009. The Company adopted this guidance in December 2009, and the adoption of the provisions of this guidance did not have any material impact on the Company’s financial statements.
12
In April 2009, FASB issued FSP FAS 107-1 and APB 28-1, now codified in FASB ASC Topic 825-10-65, “Interim Disclosures about Fair Value of Financial Instruments,” which amends U.S. GAAP to require entities to disclose the fair value of financial instruments in all interim financial statements. The additional requirements of this guidance also require disclosure of the method(s) and significant assumptions used to estimate the fair value of those financial instruments. Previously, these disclosures were required only in annual financial statements. The additional requirements of this guidance are effective for interim reporting periods ending after June 15, 2009. The Company adopted this guidance in December 2009, and the adoption of the provisions of this guidance did not have any material impact on the Company’s financial statements.
In April, 2009, the FASB issued ASC Topic 320-10 (ASC 320-10), “Recognition and Presentation of Other-Than-Temporary Impairments,” which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. ASC Topic 320-10 provides greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains fair value. This statement also requires more timely disclosures and an increase in disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The adoption of the additional requirements did not have any financial impact on the Company’s financial statements.
On December 7, 2009, The Company adopted FASB ASC Topic 805 (ASC 805), “Business Combinations,” which generally requires an acquirer to recognize the identifiable assets acquired, liabilities assumed, contingent purchase consideration and any non-controlling interest in the acquiree at fair value on the date of acquisition. It also requires an acquirer to recognize as expense most transaction and restructuring costs as incurred, rather than include such items in the cost of the acquired entity. For the Company, ASC 805 applies prospectively to business combinations for which the acquisition date is on or after October 1, 2009. The adoption of ASC 805 did not have a material impact on the Company’s financial statements.
In June 2009, the FASB issued the FASB Accounting Standards Codification (the “Codification”) and a new Hierarchy of Generally Accepted Accounting Principles which establishes only two levels of GAAP: authoritative and non-authoritative. The Codification is now the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, except for rules and interpretive releases of the SEC, which are additional sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC
Concentration of Credit Risk
The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes the Company is not exposed to any significant credit risk related to cash and cash equivalents.
Note 3—Going concern
The accompanying financial statements have been prepared assuming that the company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the company is in the development stage and, accordingly, has not yet generated any revenues from operations. Currently, the Company does not have sufficient cash to sustain itself for the next twelve months. We expect to raise additional capital through one or more of the following plans, none of which are in place at the present time: (i) a private placement of our securities; (ii) the procurement of bank lines of credit or other debt facilities; and/or (iii) the procurement of governmental grants that may be available for development of alternative energy technologies such as fuel cell technologies. In the event that this financing does not materialize, the Company may be unable to implement its current plans for expansion, pay its obligations as they become due, or continue as a going concern, any of which circumstances would have a material adverse effect on the business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the company be unable to recover the value of its assets or satisfy its liabilities.
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Note 4—Equipment
At June 30, 2011, equipment consisted of one piece of analytical equipment, valued at $25,500. The Company recorded $1,275 in depreciation expense for the three months ended June 30, 2011.
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Note 5—Notes Payable – Shareholders
Notes payable – shareholders consist of the following at June 30, 2011:
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on July 15, 2011. | $ | 25,000 | ||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on September 13, 2011. | 10,000 | |||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on October 5, 2011 | 5,000 | |||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on October 22, 2011 | 10,000 | |||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on October 26, 2011 | 10,000 | |||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on November 16, 2011. | $ | 5,000 | ||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on November 23, 2011. | 10,000 | |||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on December 7, 2011. | 5,000 | |||
| Note payable—shareholder, unsecured; interest accrues at 10% per annum. The note and accrued interest is due on December 29, 2011 | 10,000 | |||
| Advances received from co-founding shareholder, unsecured, non-interest bearing, and due on demand. | 22,500 | |||
| $ | 112,500 | |||
Note 6—Income taxes
At June 30, 2011, the Company had approximately $907,000 of net operating losses (“NOL”) carry-forwards for federal and state income purposes. These losses are available for future years and expire through 2032. Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.
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The deferred tax asset is summarized as follows:
| June 30, | ||||||||
| 2011 | 2010 | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss carryforwards | $ | 340,000 | $ | 190,000 | ||||
| Deferred tax asset | 340,000 | 190,000 | ||||||
| Less: valuation allowance | (340,000 | ) | (190,000 | ) | ||||
| Net deferred asset | $ | — | $ | — | ||||
A reconciliation of income tax expense computed at the U.S. federal, state, and local statutory rates and the Company’s effective tax rate is as follows:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Statutory federal income tax expense | (34 | )% | (34 | )% | ||||
State and local income tax (net of federal benefits) | (4 | ) | (4 | ) | ||||
| Valuation allowance | 38 | 38 | ||||||
| — | % | — | % | |||||
The Company has taken a 100% valuation allowance against the deferred tax asset attributable to the NOL carryforward of $340,000 at June 30, 2011, due to the uncertainty of realizing the future tax benefits. The increase in valuation allowance of $146,000 is primarily attributable to the Company’s net operating loss reported for the year ended June 30, 2011.
Note 7—Stockholders’ Equity
In December 2009, the Company issued 21,500,000 shares of its $0.01 par value common stock at an agreed value of $.01 as founders’ shares for licensing rights and services. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration “transactions by an issuer not involving any public offering.”
On December 9, 2009, the Company issued 2,800,000 shares of its $.01 par value common stock at an agreed value of $.05 for consulting services. In connection with issuance of these shares, the Company recorded compensation expense in the amount of $140,000; this amount is included in consulting fees on the statement of operations. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration “transactions by an issuer not involving any public offering.”
On February 1, 2010, the Company issued 2,800,000 shares of its $.01 par value common stock at an agreed value of $.05 for consulting services. In connection with issuance of these shares, the Company recorded compensation expense in the amount of $140,000; this amount is included in consulting fees on the statement of operations. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration “transactions by an issuer not involving any public offering.”
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In the period between December 26, 2009 and March 31, 2010, the Company issued 1,960,000 shares of its $0.01 par value common stock for $196,000 cash. Subsequent to March 31, 2010, the Company issued an additional 250,000 shares of its $0.01 par value common stock for 25,000 cash. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration “transactions by an issuer not involving any public offering.”
On December 8, 2009, the Company issued 400,000 shares of its $.01 par value common stock for legal services. In connection with the issuance of these shares, the Company recorded compensation expense in the amount of $20,000; this amount is included in professional fees on the statement of operations. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration “transactions by an issuer not involving any public offering.”
On May 25, 2011, the Company issued 2,050,000 shares of its $0.01 par value common stock to note holders of $205,000 of the Company’s outstanding debt, in accordance with a mutual agreement to convert the outstanding principal owed on the $205,000 worth of promissory notes into restricted common stock of the corporation at a conversion price of $0.10 per share. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration “transactions by an issuer not involving any public offering.”
Note 8—Warrants and options
There are no warrants or options outstanding to acquire any additional shares of common stock.
Note 9—Related Party
On May 4, 2010, the Company entered into a one year Lease Agreement (“Agreement”), expiring April 30, 2011, for 9,900 square feet of production space and 4,100 square feet of office space to be shared with SenCer, Inc, a founding shareholder of the Company. The Agreement provides for a monthly rental payment of $4,450, plus a monthly utility allowance of $450. Under terms of an earlier lease arrangement, which was replaced with the current Agreement, rental expense for the period December 7, 2009 (inception) to March 31, 2010 totaled $14,850.
On December 8, 2009, the Company entered into a twelve month operating lease for temporary office space with Byrd and Company, LLC, which is controlled by James Byrd, our shareholder and consultant. The lease originally provided for a monthly payment of $2,500 plus sales, tax, but was later canceled and replaced with a one-time payment of $10,000 for initial services provided in connection with coordinating initial audit and filings with the Commission, use of Byrd and Company, LLC’s office located in Orlando, Florida through April 2010, and initial use of Mr. Byrd’s administrative staff during the first 120 days of our operations. Mr. Byrd made the office space available to us free of charge for May 2010, at which time we changed our offices to SenCer’s offices in New York.
On July 15, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $25,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on July 15, 2011 (See Note 5—Notes Payable – Shareholders).
On August 9, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Byrd, Jr., a related party shareholder, wherein Mr. Byrd loaned the Company $25,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on August 9, 2011 (See Note 5—Notes Payable – Shareholders). On May 25, 2011, the Note was converted into 250,000 restricted shares of the Company’s $.01 par value common stock. In June 2011, Mr. Byrd entered in a Waiver of Interest agreement with the Company, wherein he waived and forgave all accrued interest due him by the Company
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On September 21, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $10,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on September 21, 2011 (See Note 5—Notes Payable – Shareholders).
On October 5, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $5,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on October 5, 2011 (See Note 5—Notes Payable – Shareholders).
On October 22, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $10,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on October 22, 2011 (See Note 5—Notes Payable – Shareholders).
On October 26, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $10,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on October 26, 2011 (See Note 5—Notes Payable – Shareholders).
On November 16, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $5,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on November 16, 2011 (See Note 5—Notes Payable – Shareholders).
On November 23, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $10,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on November 23, 2011 (See Note 5—Notes Payable – Shareholders).
On December 7, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $5,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on November 23, 2011 (See Note 5—Notes Payable – Shareholders).
On December 29, 2010, the Company entered into a Promissory Note (“Note”) agreement with James Painter, III, a related party shareholder, wherein Mr. Painter loaned the Company $10,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on December 29, 2011 (See Note 5—Notes Payable – Shareholders).
During the quarters ended June 30, 2011 and December 31, 2010, the Company received a series of advances from its co-founding shareholder, General Automotive Company, Inc. These advances are unsecured, non-interest bearing, and due on demand.
On January 6, 2011, the Company entered into a Promissory Note (“Note”) agreement with Douglass James Nagel, a related party shareholder, wherein Mr. Nagel loaned the Company $150,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on January 6, 2012. (See Note 5—Notes Payable – Shareholders). On May 25, 2011, the Note was converted into 1,500,000 restricted shares of the Company’s $.01 par value common stock. In June 2011, Mr. Nagel entered in a Waiver of Interest agreement with the Company, wherein he waived and forgave all accrued interest due him by the Company
On January 13, 2011, the Company entered into a Promissory Note (“Note”) agreement with Sinopoli Investment, LLC (“Sinopoli”), an outside investor, wherein Sinopoli loaned the Company $20,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on January 13, 2012. On May 25, 2011, the Note was converted into 200,000 restricted shares of the Company’s $.01 par value common stock. In June 2011, Sinopoli entered in a Waiver of Interest agreement with the Company, wherein Sinopoli waived and forgave all accrued interest due it by the Company
On May 7, 2011, the Company entered into a Promissory Note (“Note”) agreement with Tyler Teynor, a related party shareholder, wherein Mr. Teynor loaned the Company $10,000. The Note is unsecured and accrues interest at 10% per annum. The Note and accrued interest is due on May 17, 2012. (See Note 5—Notes Payable – Shareholders). On May 25, 2011, the Note was converted into 100,000 restricted shares of the Company’s $.01 par value common stock. In June 2011, Mr. Tynor entered in a Waiver of Interest agreement with the Company, wherein he waived and forgave all accrued interest due him by the Company
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Note 10—Commitments
On January 1, 2010, the Company entered into a twenty-four (24) month Executive Agreement (the “Agreement”) with its Chief Technology Officer (“CTO”) David Burt. The Agreement provides that the CTE will be paid $2,500 per month, plus performance bonus to be awarded by the board of directors (“Board”). The Company may terminate the Agreement for (a) cause, including material breaches of the Agreement that are not cured within five (5) days, a criminal conviction punishable by imprisonment of more than one year involving a crime that includes gross dishonesty or bad morals, engaging in conduct that is detrimental to the Company’s reputation, character or standing or that of the shareholders, or filing by an arbitration panel that the employee breached the non-compete or non-disclosure agreement with the Company, and (b) without cause by a majority vote of the Board. The Agreement provides that the employee my terminate his employment for a variety of good reasons: (a) change of duties and responsibilities, (b) reduction in salary, (c) relocation of corporate offices from Central Florida, (c) refusal to permit the CTO to engage in activities not directly related to the Company’s business, which the employee is permitted to do prior to the Agreement, (d) the Company fails to provide indemnification provided for in the by-laws, (f) the Company fails to obtain the assumption agreement from any successor giving rise to a change of control, or (g) there is any other material breach of this Agreement. With respect to (c) above, “relocating our principal executive offices away from Central Florida,” as a termination right with “good reason,” David Burt was actively involved in the decision to consolidate the Company’s offices and operations to New York and in negotiating the lease for the New York facility, and has waived his rights to termination with good cause due to the relocation of our office and operations to new York (See Exhibit 10.1). The Company’s Board of Directors unanimously approved of David B. Burt’s waiver in this regard.
On December 14, 2009, the Company entered into a twelve (12) month agreement (“Agreement”) with Emerging Markets Consulting, LLC, a Florida limited liability company, controlled by James S. Painter. The Agreement provides that Emerging Markets Consulting, LLC will provide the Company with various advertising and marketing services in exchange for 2,800,000 shares of the Company’s $.01 par value common stock, which shares were vested and earned upon the execution of the Agreement. The Company has indemnified Emerging Markets Consulting, LLC and its officers in the Agreement against liabilities arising as a result of the relationship between the Company and Emerging Markets Consulting, LLC.
On February 1, 2010, the Company entered into a twelve (12) month agreement (“Agreement”) with Byrd & Company, LLC, a Florida limited liability company, owned and controlled by James Byrd, Jr. The Agreement provides that Byrd & Company, LLC will provide the Company business consulting services, including to consult and advise about (a) corporate structure and strategic advice in connection with going public, (b) engaging appropriate SEC counsel, auditors, transfer agents and other professionals for the purpose of going public as a registered fully reporting public company in exchange for 2,800,000 restricted shares of the Company’s $.01 par value common stock, which shares were vested and earned upon the execution of the Agreement.
Note 11—Subsequent Events
On July 1, 2011, July 14, and July 21, 2011, the Company entered into three Promissory Notes (“Notes”) with James Painter, wherein Mr. Painter loaned the Company $12,500, $6,000, and $10,000, respectively, or a total of $28,500. The Notes are unsecured and accrue interest at 10% per annum. The Notes and accrued interest are due July 1, 2012, July 14, 2012, and July 21, 2012, respectively.
In July 2011, the Company received advances totaling $6,000 from one of its co-founding shareholders. These advances are unsecured, non-interest bearing, and due on demand.
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Management has evaluated subsequent events through August 10, 2011, the date of which the financial statements were available to be issued.
Forward-looking Statements:
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Results of Operations
For the Three Months ended June 30, 2011 Compared with Three Months Ended June 30, 2010 and from Inception on December 7, 2009 through June 30, 2011
We generated no revenue for the period from December 7, 2009 (Inceptions) through June 30, 2011.
We incurred operating expenses in the amount of $109,693 for the quarter ended June 30, 2011 compared to $90,685 during the three months ended June 30, 2010. Our operating expenses for the quarter ended June 30, 2011 consisted primarily of general and administrative expenses of $52,862 and research and development costs of $45,821. Comparatively, general and administrative expenses of $29,417, consulting expenses of $15,000 research and development expenses of $42,268 were the primary components of our operating expenses for the quarter ended June 30, 2010.
We incurred operating expenses in the amount of $902,553 from December 7, 2009 (Inception) through June 30, 2011. Our operating expenses for the period from December 7, 2009 (Inception) until March 31, 2011 consisted of consulting fees of $307,500, general and administrative expenses of $318,500, research and development fees of $192,945 and professional fees of $83,800. We had additional expense in the form of interest expense of $4,218. We had no income for that period. Thus we had a net loss of $906,771 for the year ended June 30, 2011.
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Plan of Operations
Our Plan of Operations detailed below generally involves the development, testing, patent filings, and marketing of the following future products:
| Future Product | Product Categories | |
| Igniter | UltraTemp-C (Base Composite) “CERIS” (Technology and to be branded abbreviation for “Ceramic Igniter System”) | |
| Oxygen Sensor | UltraTemp-C (Base Composite) “CEROS” (Technology and to be branded abbreviation for “Ceramic Oxygen Sensor”) | |
| Fuel Cell | UltraTemp-C (Base Composite) (CEROFC) (Technology and to be branded abbreviation for “Ceramic Oxide Fuel Cell”) | |
| Brake Pads | UltraTemp-C CEROB (Technology and to be branded abbreviation for “Ceramic Oxide Brake”) | |
These products will be geared towards the home heating and cooling system, automobile heater, automotive sensor, and brake pads industries, respectively.
Our Plan of Operations is contingent upon receiving adequate financing totaling at least $1,050,000. We have no commitments or assurances that we will ever be successful in obtaining adequate financing.
| Future Product | Development Time Period* | Estimated cost | ||||
| Completed Igniter Design/Prototype | Completed | $ | 150,000 | |||
| Igniter Production Scale-up | 12 Months after adequate financing is received, if ever, and OEM tests and certification are complete | $ | 750,000 | * | ||
| Early stage prototypes for oxygen sensor, fuel cell and brake pads** | 18 months after adequate financing is received, if ever | $ | 150,000 | * | ||
| Two patents to be filed with United States Patent and Trademark Office pertaining to processing and device patents | Time period inestimable | $ | 150,000 | * | ||
| Total | $ | 1,200,000 | ||||
| * | Pending adequate financing of $1,050,000, which is the total amount of estimated costs minus the $150,000 we have already spent on completed igniter design/prototype. |
| ** | An early stage prototype is a scaled down prototype that is made at less cost than full scale prototypes. We believe that through this strategy: (a) we will potentially be able to accomplish our proof of concept at less cost; and (b) should an early stage prototype be successful in proving proof of concept, we will potentially be in a better position to interest potential co-developers to completing the prototype and future product or combining the prototype with the co-developers’ technologies. |
Our costs incurred to date of $150,000 have been used to complete the igniter design and igniter prototype. The $750,000 estimated cost for the igniter scale up refers to our planned production scale up of the ignition once OEM tests and certification are complete and is contingent upon our receiving adequate financing. We have not incurred any costs to date pertaining to oxygen sensor prototype, fuel cell prototype or brake pads.
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Our projected cost estimates for each succeeding stage of product development have been and will continue to be evaluated and changed as we receive feedback from potential OEM customers prior to finalization of a design. For example, if UltraTemp-C proves to be a viable solution to aging and lower cost of a fuel cell, it does not matter how large the capacity of the prototype fuel cell is, only that the aging and cost performance of the fuel cell is demonstrated to the OEM customer, in large part based upon the feedback that we have received from that potential partner or customer. In addition, these products are building blocks to more complex products wherein as we develop more of the core materials development we remove those cost elements from the next product development requirements, such as because the initial layers of the fuel cell are identical to the initial layers of the igniter, we do not have to re-develop the first 2 layers. This foregoing continual evaluation process has occurred since our inception and will continue throughout our development of our future products. Since the chemistry of all the future products is similar, our objective is to set up manufacturing lines for each process with common equipment for the variety of future products consistent with our attempt to lower costs.
Other than the igniter, costs associated with scale up of future prototypes are inestimable until the prototype phase is completed and potential partner negotiations are completed.
Plan of Operation Steps:
| • | Complete development of our future products as working prototypes; |
| • | Complete internal and external testing of our future products; |
| • | Demonstrate the advantages of our products to targeted industry users or applications; |
| • | Market our future products by demonstrating their effectiveness at OEMs within a simulated environment; |
| • | Fabricate an initial design; |
| • | Further develop and perfect a conductive ink system that will provide high life cycle; |
| • | Develop and perfect our Ceris based technology; |
| • | Interface our marketing efforts to end user OEMs and end users; |
| • | Provide a written evaluation and input to OEMs for final design; |
| • | Fabricate our final shape and refine our design process for our OEM customers to develop: (a) standard shapes based upon the OEMs input and specifications; and (b) develop additional shapes on an as needed basis to fulfill an OEMs individual specifications; |
| • | Develop the testing software, otherwise referred to as a Cycling and Gas Ignition Bench Software, which simulates the OEMs environment to conduct testing that reveals the usage time of our future products; |
| • | In conjunction with the above step, write a standard set of software based test programs that will conform to CSA requirements and test: (a) igniter timing; (b) aging; (c) voltage; (d) calculated resistance; (d) temperature; and (e) oxygen level performance; |
| • | CSA Testing will be conducted upon our final product design at CSA authorized facilities for final certification of the finished product to the OEM; |
| • | Our Chief Technology Officer will conduct a final assessment of the manufacturing process in conjunction with: (a) manufacturing an initial lot of our individual future products; and (b) the patent design for the Ceris technology based patent for each of our future products and ancillary process patents; |
| • | We and SenCer will jointly file patents with the United States Patent and Trademark Office; |
| • | Once suitable OEM candidates are ready to adopt our technologies and conduct testing, we will complete a portable prototype station to present our produce and technologies at the OEMs place of business for their evaluation; |
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| • | If increased demand for our products occur, we will scale up our manufacturing process to purchase additional capital equipment, such as computerized numerically controlled equipment, which are machining centers to fabricate the igniter, automated inking equipment, and high temperature furnaces for the hardening process; and |
| • | Seek co-development partners for the development of our fuel cell and brake pads. |
Our Plan of Operations is subject to a number assumptions and factors, including whether or not we have adequate financing to proceed with our Plan of Operations.
We expect further net losses in the near future as a result of increased operating expenses until we are able to increase the sale of our products and achieve higher revenues.
Liquidity and Capital Resources
As of June 30, 2011, we had total current assets of $4,022 consisting entirely of cash. Our total current liabilities as of June 30, 2011 were $203,918 consisting of $112,500 of notes payable and $91,418 of accounts payable and accrued expenses. Thus as of June 30, 2011 we had a working capital deficit of $199,896. Subsequent to the year ended March 31, 2011, $205,000 worth of the notes payable were extinguished when the holders of the notes converted the notes to 2,050,000 shares of our common stock.
Operating and financing activities used $69,296 and $64,434 in cash for the quarters ended June 30, 2011 and June 30, 2010, respectively.
Our net loss of $104,063 offset by accounts payable and accrued expenses of $13,492 and depreciation expense of $1,275 were the primary components of our negative operating cash flow for the quarter ended June 30, 2011. Our net loss of $90,685 offset by depreciation expense of $1,275 was the primary components of our negative operating cash flow for the quarter ended June 30, 2010.
Contractual Obligations
Our technology license agreement provides for our having a long term obligation to pay SenCer on a quarterly basis, 2% of the gross sales or further licensing of the igniter technology, or the sale of the products which include the igniter technology. We believe that this royalty provision will have a limited impact on operations once we commercialize products because of the reduced material costs of our igniter compared to competitors; however, we are limited in making any claims at our stage of development about claims regarding cost when considering the following factors:
| • | Possible increased costs of materials used in our future products; |
| • | Competitive factors that permit our competitors that have greater financial resources and established product distribution, to obtain favorable payment and cost terms for their materials; |
| • | Because we have not earned any revenues and we have not brought any products to market , we may have insufficient data to determine whether we can lower costs in the future; and |
| • | We have not specifically determined our manufacturing costs since we have not entered the manufacturing phase of our development. |
We have no other material long term debt or capital lease or purchase obligations or long term liabilities. We do have operating lease obligations as detailed in Item 2, Properties, of this report.
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Going Concern
Our financial statements were prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The Company incurred losses in the current quarter of $104,063 and has an accumulated deficit during development stage of $906,771 at June 30, 2011. The Company’s current liabilities exceeded its current assets by $199,896 as of June 30, 2011. Additionally the Company is reporting an accumulated deficit during development stage of $906,771 as of June 30, 2011 as compared to an accumulated deficit during development stage of $802,708 at June 30, 2010. Management expects to raise additional capital through one or more of the following plans, none of which are in place at the present time: (i) a private placement of our securities; (ii) the procurement of bank lines of credit or other debt facilities; and/or (iii) the procurement of governmental grants that may be available for development of alternative energy technologies such as fuel cell technologies. However there can be no assurances that we will be able to obtain additional financing to further implement our Plan of Operation order to be able to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result if the Company was forced to discontinue its entire operations.
Recent Accounting Pronouncements
The Company does not believe that any recently issued accounting pronouncements will have a material impact on its financial statements
Off Balance Sheet Arrangements
As June 30, 2011, there were no off balance sheet arrangements.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
This item is not applicable to the Company because we are a smaller reporting company.
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Management’s Report On Internal Control Over Financial Reporting
Under the supervision and with the participation of our management, including our Chief Executive Officer and our 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) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2011, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2011 in reporting on a timely basis information required to be disclosed by us in the reports we file or submit under the Exchange Act because of material weaknesses relating to internal controls as described in Item 9A (T) of the Company’s Form 10-K for the year ended March 31, 2011.
During the fiscal quarter ended June 30, 2011, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management has concluded that the material weaknesses in internal control as described in Item 9A(T) of the Company’s Form 10-K for the year ended March 31, 2011, have not been fully remediated. We are committed to finalizing our remediation action plan and implementing the necessary enhancements to our policies and procedures to fully remediate the material weaknesses discussed above.
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
None.
| Item 1A. | Risk Factors |
This item is not applicable to the Company because we are a smaller reporting company.
| 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 |
Not applicable.
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| ITEM 6. | Exhibits |
| Exhibit Numbers | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Document | |
| 101.LAB | XBRL Label Linkbase Document | |
| 101.PRE | XBRL Presentation Linkbase Document | |
| 101.DEF | XBRL Definition Linkbase Document | |
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In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GreenCell, Incorporated | ||
| By: | /s/ Dan Valladao | |
| Title: President, Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | ||
| Date: September 15, 2011 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Dan Valladao | |
| Title: President, Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | ||
| Date:September 15, 2011 | ||
| By: | /s/ David Burt | |
| Title: Chief Technology Officer and Director | ||
| Date: September 15, 2011 | ||
| By: | /s/ Sam Reeder | |
| Title: Director | ||
| Date: September 15, 2011 | ||
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