U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended September 30, 2003
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period from to
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CALIFORNIA CLEAN AIR, INC.
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(Exact name of registrant as specified in its charter)
Commission File No. 0-23111
Nevada 23-3048624
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(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification Number)
3790 Via de la Valle, Suite 103, Del Mar, CA 92014
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(Address of principal executive offices, including zip code)
(760)494-6497
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
The number of shares of the registrant's common stock, $0.0001 par value, as of
June 30, 2003: 5,000,000.
PART 1
FINANCIAL INFORMATION
CALIFORNIA CLEAN AIR, INC.
Consolidated Balance Sheets
See accompanying notes.
September 30, December 31,
2003 2002
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ASSETS
Current assets -
Cash $ 992 $ -
Equipment, net of accumulated depreciation of $1,546 43,592 -
Other assets:
Goodwill, net of accumulated amortization of $56 19,944 -
Deposits 566 -
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Total other assets 20,510 -
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$ 65,094 $ -
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LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable $ 15,353 $ -
Accrued payroll 6,000 -
Accrued state taxes payable 30 20
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Total current liabilities 21,383 20
Payable to related parties 221,271 49,531
Net capital deficiency:
Preferred stock; $.0001 par value; authorized 20,000,000
shares; issued and outstanding 4,000,000 shares 4,000 -
Common stock; $.0001 par value; authorized 100,000,000
shares; issued and outstanding 1,000,000 shares 1,000 5,000
Retained deficit (39,100) -
Deficit accumulated during the development stage (143,460) (54,551)
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Net capital deficiency (177,560) (49,551)
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$ 65,094 $ -
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See accompanying notes
CALIFORNIA CLEAN AIR, INC.
Consolidated Statements of Operations
Three months ended Nine months ended
September 30 September 30
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2003 2002 2003 2002
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Sales $ 3,334 $ - $ 3,334 $ -
Cost of goods sold 6,054 - 6,054 -
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Gross loss (2,720) - (2,720) -
Operating expenses 83,849 2,491 125,279 23,975
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Net loss from operations (86,569) (2,491) (127,999) (23,975)
Provision for income taxes - - 10 10
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Net loss $ (86,569) $ (2,491) $ (128,009) $ (23,975)
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Net loss per common share $ (.087) $ (.002) $ (.128) $ (.024)
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See accompanying notes
CALIFORNIA CLEAN AIR, INC.
Consolidated Statements of Cash Flows
Three months ended Nine months ended
September 30 September 30
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2003 2002 2003 2002
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Cash flows from operating activities:
Net loss $ (86,569) $ (2,491) $ (128,009) $ (13,119)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 1,546 - 1,546 -
Amortization of goodwill 56 - 56 -
Changes in liabilities:
Accounts payable 8,253 1,775 15,353 1,775
Accrued payroll 6,000 - 6,000 -
Accrued state income taxes - - 10 10
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(70,714) (716) (105,044) (11,334)
Cash flows from investing activities:
Capital expenditures (5,138) - (5,138) -
Cash paid for acquisition (55,000) - (60,000) -
Deposits paid (566) - (566) -
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(60,704) - (65,704) -
Cash flows from financing activities:
Advances from, or expenses paid on behalf of the
Company directly by, related parties 132,303 716 171,740 11,334
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Net change in cash 885 - 992 -
Cash at beginning of period 107 - - -
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Cash at end of period $ 992 $ - $ 992 $ -
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See accompabying notes
CALIFORNIA CLEAN AIR, INC.
Notes to Consolidated Financial Statements
September 30, 2003
1. Summary of Significant Accounting Policies
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Company: California Clean Air, Inc. (the "Company") was originally
incorporated in the State of Delaware as Breakthrough Technology
Partners I, Inc. on June 2, 2000 to serve as a vehicle to affect a
merger, exchange capital stock, participate in an asset acquisition, or
any other business combination with a domestic or foreign private
business.
Effective December 20, 2002, the Company changed its state of
incorporation and legal domicile to the State of Nevada and
simultaneously changed its name to California Clean Air, Inc. The
change of legal domicile and change of name occurred pursuant to an
Agreement and Plan of Merger dated December 18, 2002 between the
Company and California Clean Air, Inc., a Nevada corporation.
Basis of consolidation: On November 21, 2002, the Company organized
Smog Centers of California, LLC ("Smog Centers"), an Oregon limited
liability company. California Clean Air, Inc. is the sole owner of Smog
Centers. Smog Centers was organized to acquire, own and operate
test-only vehicles emissions inspection facilities in the State of
California under their Smog Check II program.
The consolidated financial statements include the accounts of
California Clean Air, Inc. and Smog Centers. All intercompany accounts
and transactions have been eliminated.
Development stage enterprise: From inception through September 10,
2003, the Company had not commenced any formal business operations. The
Company was considered to be in the development stage and therefore
adopted the accounting and reporting standards of Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises". Effective September 11, 2003, Smog
Centers began operating a test-only vehicle emission inspection
facility and was no longer considered to be in the development stage.
Interim reporting: The Company's year end for accounting and tax
purpose is December 31. In the opinion of Management, the accompanying
consolidated financial statements as of September 30, 2003 and 2002 and
for the three and six months then ended contain all adjustments,
consisting of only normal recurring adjustments, except as noted
elsewhere in the notes to the consolidated financial statements,
necessary to present fairly its financial position, results of its
operations and cash flows. The results of operations for the three and
six months ended September 30, 2003 and 2002 are not necessarily
indicative of the results to be expected for the full year.
Equipment: Equipment consists of vehicle emission inspection equipment
and is carried at fair value or cost. Depreciation is computed using
the straight-line method over the estimated useful live of five years.
CALIFORNIA CLEAN AIR, INC.
Notes to Consolidated Financial Statements
September 30, 2003
1. Summary of Significant Accounting Policies (continued)
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Goodwill: Goodwill represents the excess purchase price over the
estimated fair value of the net assets of smog centers acquired.
Amortization is computed using the straight-line method over thirty
years.
Stock based compensation: The Company accounts for stock based
compensation under Statement of Financial Accounting Standards No. 123
("SFAS 123"). SFAS 123 defines a fair value based method of accounting
for stock based compensation. However, SFAS 123 allows an entity to
continue to measure compensation cost related to stock and stock
options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". Entities electing to remain
with the accounting method of APB 25 must make pro forma disclosures of
net income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied. The Company has
elected to account for its stock based compensation to employees under
APB 25.
Income taxes: The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, income taxes are provided on the
liability method whereby deferred tax assets and liabilities are
recognized for the expected tax consequences of temporary differences
between the tax bases and reported amounts of assets and liabilities.
Deferred tax assets and liabilities are computed using enacted tax
rates expected to apply to taxable income in the periods in which
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities from a change in tax
rates is recognized in income in the period that includes the enactment
date. The Company provides a valuation allowance for certain deferred
tax assets, if it is more likely than not that the Company will not
realize tax assets through future operations.
Reporting consolidated comprehensive income (loss): The Company reports
and displays consolidated comprehensive income (loss) and its
components as separate amounts in the consolidated financial statements
with the same prominence as other financial statements. Consolidated
comprehensive income (loss) includes all changes in equity during the
year that results from recognized transactions and other economic
events other than transactions with owners. There were no components of
consolidated comprehensive income (loss) to report for the three and
six months ended September 30, 2003 and 2002.
Net loss per share: Net loss per share is computed by dividing net loss
by the weighted average number of shares outstanding during the period.
The weighted average number of shares outstanding was 1,000,000 for the
three and six months.
CALIFORNIA CLEAN AIR, INC.
Notes to Consolidated Financial Statements
September 30, 2003
1. Summary of Significant Accounting Policies (continued)
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Net loss per share (continued): ended September 30, 2003 and 2002. The
Company's Series A Convertible Preferred Stock is not considered to be
a common stock equivalent as the effect on net loss per share would be
anti-dilutive.
Use of estimates: The preparation of consolidated financial statements
in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Business combination
On August 21, 2003, Smog Centers acquire all of the assets used in a
business operating under the name Broadway Smog Check. The acquisition
was accounted for as a purchase. Broadway Smog Check was a test-only
vehicles emissions inspection facility in the State of California under
their Smog Check II program. Smog Centers paid $60,000 for the assets
of Broadway Smog Check.
The acquisition can be summarized as follows:
Fair vale of vehicle emission inspection equipment $ 40,000
Goodwill 20,000
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Cash paid $ 60,000
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The results of operations of Broadway Smog Check are included in the
accompanying consolidated financial statements as of September 1, 2003.
The following pro forma summary presents consolidated financial
position and results of operations as if Broadway Smog Check had been
acquired as of the beginning of the reporting periods:
September 30, December 31,
2002 2002
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Current assets $ - $ 9,800
Tangible net assets 44,200 56,000
Total assets 64,200 85,800
Current liabilities - -
Total liabilities 126,800 40,000
Total stockholders' equity (62,600) 45,800
CALIFORNIA CLEAN AIR, INC.
Notes to Consolidated Financial Statements
September 30, 2003
2. Business combination (continued)
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Nine months
ended Year ended
September 30, December 31,
2003 2002
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Net sales $ 50,500 $ 90,900
Cost of goods sold 14,700 18,200
Operating expenses 144,200 49,400
Net income (loss) (108,400) 31,400
Earnings (loss) per common share (.108) .006
The above amounts are based upon certain assumptions and estimates,
which the Company believes are reasonable. The pro forma financial
position and results of operations do not purport to be indicative of
the results which would have been obtained had the business combination
occurred as of January 1, 2002 or which may be obtained in the future.
3. Transactions with related parties
The Company's operating expenses since inception, consisting
principally of professional services, has been paid for by individuals
considered to be related parties. The advances are non-interest bearing
and due on demand; however, the individuals have agreed not to demand
repayment until cash is available from a merger, capital stock
exchange, asset acquisition, or other business combination, or from
operations.
4. Preferred Stock
On May 29, 2003, shareholders who owned 4,000,000 shares of the
Company's common stock agreed to exchange their shares for 4,000,000
shares of the Company's Series A Convertible Preferred Stock.
The Company's preferred stock may be voting or have other rights and
preferences as determined from time to time by the Board of Directors.
ITEM 2. PLAN OF OPERATION
The Company is in the business of owning and operating "test-only"
vehicle emissions inspection facilities under the Smog Check II program adopted
by the state of California. The Company conducts its business through its
affiliate, Smog Centers of California, LLC, of which the Company is the sole
member. The President of the Company, Stephen D. Wilson, is the manager of Smog
Centers of California, LLC.
"Test-only" emissions inspection facilities are privately-owned and
operated stations which are authorized and licensed by the State of California
Bureau of Automotive Repair to conducts emissions test only and are not
authorized to make any vehicle repairs.
ITEM 3. CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer is satisfied with
the effectiveness of the Company's internal controls and procedures, as defined
in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934 based on
an evaluation of said controls and procedures.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not the subject of any legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
There have been no changes or modifications in the Company's
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There has been no default upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders
during the quarterly period covered by this report.
ITEM 5. OTHER INFORMATION.
The Company, through its wholly-owned subsidiary, Smog Centers of
California LLC, purchased the Smog Check station located at 7319 Broadway, Lemon
Grove, California. The purchase price was $60,000. The purchase was closed on
August 21, 2003, with payment in full made at the closing. As part of the
purchase of the business, Smog Centers of California LLC assumed the obligations
under an existing real estate ground lease. The ground lease has a remaining
term until July 1, 2006, with an option to renew for an additional five year
term. The ground lease payments are $1,500 per month, which are subject to an
annual increase of 5% for each year during the remaining initial term of the
lease.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Asset Acquisition Agreement dated August 21, 2003 is
incorporated by reference.
32 Certification required by Rule 13a-14(a).
32.1 Certification required by Rule 13a-14(b)
(b) 8-K Reports
A report was filed August 28, 2003 describing the acquisition
of the Broadway Smog Check station under Item 2 of Form 8-K.
SIGNATURES
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.
CALIFORNIA CLEAN AIR, INC.
By: /s/ STEPHEN D. WILSON
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Stephen D. Wilson
President
Date: Novemer 14, 2003
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signature Title Date
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/s/ STEPHEN D. WILSON November 14, 2003
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Stephen D. Wilson, President