SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2004
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
for the transition period from __________ to __________.
Commission File Number: 000-31451
---------
CALIFORNIA CLEAN AIR, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 75-3090496
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3790 VIA DE LA VALLE, SUITE 103, DEL MAR, CALIFORNIA 92014
------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(760) 494-6497
----------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
-------- --------
As of June 30, 2004 , the number of outstanding shares of the issuer's common
stock, $0.001 par value, was 1,000,000 shares.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes [ ] No [x]
-1-
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS ........................................... 3
Consolidated Unaudited Balance Sheet as of June 30, 2004
and Audited Balance Sheet as of December 31, 2003...... 3
Consolidated Unaudited Statements of Operations for the
Quarters ended June 30, 2004 and June 30, 2003
and for the First Half of 2004 and 2003................ 4
Consolidated Unaudited Statements of Cash Flows for the
First Half of 2004 and 2003.. ......................... 5
Notes to Consolidated Financial Statements...................... 6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .......................................... 11
Business Organization and Description .......................... 11
Results of Operations for the Quarter Ended June 30, 2004
and the First Half of 2004 Compared to the Quarter
Ended June 30, 2003 and the First Half of 2003......... 12
ITEM 3. CONTROLS AND PROCEDURES......................................... 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 14
INDEX TO EXHIBITS........................................................ 14
SIGNATURES............................................................... 14
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CALIFORNIA CLEAN AIR, INC.
CONSOLIDATED BALANCE SHEETS
AS OF AS OF
JUNE 30, 2004 DECEMBER 31, 2003
(Unaudited) (Audited)
------------ ------------
ASSETS
------
CURRENT ASSETS
Cash $ 4,320 $ 3,285
Prepaid expenses 3,611 1,417
------------ ------------
TOTAL CURRENT ASSETS 7,931 4,702
NET PROPERTY & EQUIPMENT 86,176 96,296
OTHER ASSETS
Deposits 6,798 6,649
------------ ------------
TOTAL OTHER ASSETS 6,798 6,649
------------ ------------
TOTAL ASSETS $ 100,905 $ 107,647
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 38,336 $ 39,903
Accrued payroll and payroll
related liabilities 39,042 25,860
Accrued state minimum franchise taxes 2,400 800
Capitalized lease obligation
- current portion 5,904 5,471
------------ ------------
TOTAL CURRENT LIABILITIES 85,682 72,034
------------ ------------
LONG-TERM LIABILITIES
Capitalized lease obligation 28,546 31,610
Notes payable to related party 406,382 265,134
------------ ------------
TOTAL LONG-TERM LIABILITIES 434,928 296,744
------------ ------------
TOTAL LIABILITIES 520,610 368,778
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock ($0.001 par value),
20,000,000 shares authorized;
4,000,000 shares issued & outstanding 4,000 4,000
Common stock ($0.001 par value),
100,000,000 shares authorized;
1,000,000 shares issued & outstanding 1,000 1,000
Retained earnings (deficit) (424,705) (266,131)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (419,705) (261,131)
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY (DEFICIT) $ 100,905 $ 107,647
============ ============
The accompanying notes are an integral part of these statements.
-3-
CALIFORNIA CLEAN AIR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SECOND QUARTER FIRST HALF
ENDING JUNE 30 ENDING JUNE 30
(Unaudited) (Unaudited)
------------------------ ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
SALES REVENUES $ 55,054 $ 0 $ 104,016 $ 0
----------- ----------- ----------- -----------
Total Revenues 55,054 0 104,016 0
----------- ----------- ----------- -----------
COST OF REVENUES 25,998 0 50,832 0
----------- ----------- ----------- -----------
GROSS PROFIT 29,056 0 53,184 0
----------- ----------- ----------- -----------
OPERATING COSTS
Operating expenses 99,854 24,460 204,706 41,430
Depreciation expense 5,060 0 10,121 0
----------- ----------- ----------- -----------
Total Operating Costs 104,914 24,460 214,826 41,430
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (75,858) (24,460) (161,641) (41,430)
OTHER INCOME (LOSS) 0 0 4,667 0
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES $ (75,858) $ (24,460) (156,974) (41,430)
----------- ----------- ----------- -----------
INCOME TAX PROVISION 0 0 1,600 10
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (75,858) $ (24,460) (158,574) (41,420)
----------- ----------- ----------- -----------
BASIC EARNINGS
(LOSS) PER SHARE $ (0.08) $ (0.005) $ (0.16) $ (0.008)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NO. OF
COMMON SHARES OUTSTANDING 1,000,000 5,000,000 1,000,000 5,000,000
----------- ----------- ----------- -----------
DILUTED EARNINGS
(LOSS) PER SHARE $ (0.01) $ (0.03)
----------- -----------
WEIGHTED AVERAGE OF
DILUTED COMMON
SHARES OUTSTANDING 5,000,000 5,000,000
----------- -----------
The accompanying notes are an integral part of these statements.
-4-
CALIFORNIA CLEAN AIR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST HALF FIRST HALF
2004 2003
(Unaudited) (Unaudited)
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $ (158,574) $ (41,440)
DEPRECIATION EXPENSE 10,121
(INCREASE) DECREASE IN PREPAID EXPENSES (2,195)
(INCREASE) DECREASE IN DEPOSITS (149)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (1,567) 7,100
INCREASE (DECREASE) IN ACCRUED PAYROLL
AND PAYROLL RELATED LIABILITIES 13,182
INCREASE (DECREASE) IN ACCRUED STATE
MINIMUM FRANCHISE TAXES 1,600 10
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (137,582) (34,330)
CASH FLOWS FROM INVESTING ACTIVITIES
NET SALE (PURCHASE) OF PROPERTY & EQUIPMENT 0 (10,000)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 0 0
CASH FLOWS FROM FINANCING ACTIVITIES
CHANGE IN CAPITALIZED LEASE OBLIGATIONS (2,631)
CHANGE IN NOTES PAYABLE TO RELATED PARTY 141,248 44,437
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 138,617 44,437
--------- ---------
NET INCREASE (DECREASE) IN CASH 1,035 107
CASH AT BEGINNING OF PERIOD 3,285 0
--------- ---------
CASH AT END OF PERIOD $ 4,320 $ 107
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID DURING YEAR FOR INTEREST $ 2,763 $ 0
CASH PAID DURING YEAR FOR TAXES $ 0 $ 0
The accompanying notes are an integral part of these statements.
-5-
CALIFORNIA CLEAN AIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
GENERAL
- -------
California Clean Air, Inc. (the "Company") incorporated under the laws of the
State of Nevada. From June 2, 2000, the date of original incorporation, until
August 21, 2003, the Company was seeking a merger, exchange of capital stock,
participation in an asset acquisition, or any other business combination with a
domestic or foreign private business and had not commenced any formal business
operations. The Company was considered to be in the development stage, and
accounted and reported its activities using Statement of Financial Accounting
Standards No. 7, "Accounting and Reporting by Development Stage Enterprises". On
November 21, 2002, the Company organized Smog Centers of California, LLC ("Smog
Centers"), an Oregon limited liability company. 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 Company is the
sole member of Smog Centers. On August 21, 2003, Smog Centers began operating a
test-only vehicle emissions inspection facility. Smog Centers currently operates
two test-only vehicle emissions inspection facilities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. ACCOUNTING METHOD
-----------------
The Company utilizes the accrual method of accounting to prepare and present
financial statements, which conform to generally accepted accounting principles
(GAAP). The Company has elected a December 31 year-end.
b. BASIS OF CONSOLIDATION
----------------------
Smog Centers is a wholly-owned subsidiary of the Company. The Company owns title
to all assets and liabilities of the consolidated financial statements.
c. CASH EQUIVALENTS
----------------
The Company considers pending credit card sales transactions to be cash
equivalents.
d. PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost less accumulated depreciation.
Maintenance and repairs, as well as renewals for minor amounts are charged to
expenses. Renewals and betterments of substantial amounts are capitalized, and
any replaced or disposed units are written off.
e. PRE-PAID ASSETS
---------------
Prepaid assets are comprised of smog testing equipment warranty and smog
certificates. Equipment warranty is expensed using the straight-line method over
the remaining warranty term. Equipment warranty expense was $849 for the quarter
ending June 30, 2004, compared to $0 for the quarter ending June 30, 2003. Smog
certificates are reflected at cost for the number of certificates on hand as of
June 30, 2004.
-6-
f. ADVERTISING
-----------
The Company expenses the cost of advertising as it is incurred. Advertising
expense was $28,923 for the quarter ending June 30, 2004, and $0 for the quarter
ending June 30, 2003.
g. ESTIMATES
---------
The preparation of financial statements in conformity with 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. In accordance with FASB 16 all
adjustments are normal and recurring.
h. REVENUE RECOGNITION AND DEFERRED REVENUE
----------------------------------------
Smog Centers generates revenue through vehicle test-only emissions facilities in
the State of California under the Smog Check II program. Revenue is recognized
when a sale is made.
i. EARNINGS PER SHARE
------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for earnings
(loss) per share for entities with publicly held common stock. SFAS No. 128
supersedes the provisions of APB No. 15, and requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. The Company has
adopted the provisions of SFAS No. 128 effective June 2, 2000 (inception).
Basic net loss per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share are the
same as basic earnings per share due to the lack of dilutive items in the
Company.
j. INCOME TAXES
------------
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
k. REPORTING CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------
The Company reports and displays consolidated comprehensive income (loss) and
its components in the consolidated financial statements. Consolidated
comprehensive income (loss) includes all changes in equity during the reported
period that result from recognized transactions and other economic events other
than transactions with owners.
l. SEGMENT REPORTING
-----------------
The Company reports information about operating segments and related disclosures
about services and geographic areas using Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of An Enterprise and Related
-7-
Information". The Company views its operations and manages its business in
principally one segment, test-only vehicles emissions inspection facilities in
the State of California.
m. PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the Company (the
parent) and Smog Centers (the subsidiary). The subsidiary is a wholly-owned
subsidiary. All significant inter-company balances and transactions have been
eliminated in consolidation.
NEW ACCOUNTING PRONOUNCEMENTS:
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
Rescission of FASB Statement Nos. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections ("SFAS 145"). Among other things, SFAS 145
eliminates the requirement that gains and losses from the extinguishments of
debt be classified as extraordinary items. SFAS 145 is effective for fiscal
years beginning after May 15, 2002, with early adoption permitted. The adoption
of SFAS 145 did not have a material effect on the Company's consolidated
financial statements for the quarter ending June 30, 2004.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 amends SFAS No. 123 "Accounting for Stock-Based Compensation"
(SFAS 123), to provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS 148 is effective for
fiscal years beginning after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of SFAS 148
did not have an effect on the Company's consolidated financial statements for
the quarter ending June 30, 2004.
NOTE 3. PROPERTY & EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Additions, renovations, and improvements are capitalized. Maintenance and
repairs which do not extend asset lives are expensed as incurred. Depreciation
is provided on a straight-line basis over 5 years. Depreciation expense for the
quarter ending June 30, 2004 was $5,060, compared to $0 for the quarter ending
June 30, 2003.
June 30, 2004
-------------
Office Equipment $ 10,105
Smog Testing Equipment 89,500
Tools 1,603
-------------
$ 101,208
Less Accumulated Depreciation (15,032)
-------------
Net Property and Equipment $ 86,176
=============
-8-
NOTE 4. CAPITALIZED LEASE OBLIGATION
Smog Centers entered into a non-cancelable lease for the purchase of vehicle
emissions testing equipment at its Escondido, California facility in October,
2003. Under the terms of the lease, Smog Centers is obligated to pay $899 per
month through November, 2008. The lease obligation has been personally
guaranteed by the Company's President, Stephen D. Wilson. Lease payments for the
quarter ending June 30, 2004 totaled $2,697, compared to $0 the quarter ending
June 30, 2003. Interest expense on the lease obligation for the quarter ending
June 30, 2004 was $1,356, compared to $0 for the quarter ending June 30, 2003.
Aggregate minimum future lease payments under the capitalized lease as of June
30, 2004 are:
2004 (July through December) $ 5,394
2005 10,788
2006 10,788
2007 10,788
2008 (January through November) 9,889
------------------
Total minimum lease payments 47,647
Less amount representing interest 12,310
------------------
Present value of minimum lease payments $ 35,337
==================
NOTE 5. OPERATING LEASE COMMITMENTS
Smog Centers entered into a non-cancelable assignment of lease for the smog
station premises in Lemon Grove, California which requires monthly lease
payments of $1,500 through July 1, 2006. Smog Centers entered into a
non-cancelable lease for the smog station premises in Escondido, California,
which requires monthly payments of $1,500 through November 15, 2006; $1,700 from
November 15, 2006 through November 14, 2007; and $1,800 from November 15, 2007
through November 14, 2008. Smog Centers has options to extend the leases for
both locations for an additional five (5) years.
Aggregate minimum future lease payments for the smog stations as of June 30,
2004, are:
2004 (July through December) $ 18,000
2005 36,000
2006 27,200
2007 20,500
2008 19,800
-----------------
Total minimum lease payments $ 121,500
=================
Lease expense for the smog stations for the quarter ending June 30, 2004 was
$9,000 compared to $0 for the quarter ending June 30, 2003.
-9-
NOTE 6. TRANSACTIONS WITH RELATED PARTIES
Daniel M. Smith, husband of one of our controlling shareholders, and our
President, Stephen D. Wilson, have advanced $406,382 on behalf of the company
from inception through June 30, 2004. These advances were used for
administrative expenses such as legal and accounting fees, smog station
operating expenses, and to acquire the smog station assets at the Company's
Lemon Grove facility. The advances are reflected as "Notes Payable to Related
Party" in the Company's financial statements and are non-interest bearing and
due on demand. Mssrs. Smith and Wilson have agreed not to demand repayment until
July 1, 2005, and only from revenue derived from operations.
NOTE 7. BASIC & DILUTED INCOME (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share has been calculated based on the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings (loss) per common share has been calculated based on the weighted
average number of shares of common and preferred stock outstanding during the
period. The variance between basic and diluted weighted average is the addition
of preferred stock in the calculation of diluted weighted average per share.
JUNE 30 DECEMBER 31,
2004 2003
(Unaudited) (Audited)
------------ ------------
NET INCOME (LOSS) $ (158,574) $ (211,600)
BASIC EARNINGS (LOSS) PER SHARE $ (0.16) $ (0.08)
============ ============
WEIGHED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,000,000 2,621,918
============ ============
DILUTED EARNINGS (LOSS) PER SHARE $ (0.03) $ (0.03)
============ ============
WEIGHED AVERAGE NUMBER OF DILUTED
COMMON SHARES OUTSTANDING 5,000,000 7,378,082
============ ============
NOTE 8. INCOME TAXES
Deferred income taxes consist of the following:
AS OF AS OF
JUNE 30 DECEMBER 31,
2004 2003
(Unaudited) (Audited)
------------ ------------
Deferred tax asset:
Net operating loss carryover $ (424,705) $ (266,131)
------------ ------------
424,705 266,131
Valuation allowance (424,705) (266,131)
------------ ------------
Net deferred income taxes 0 0
============ ============
-10-
NOTE 9. RECLASSIFICATION OF GOODWILL TO EQUIPMENT
The audited financial statements for the fiscal year ending December 31, 2003,
were restated in the second quarter to reflect the reclassification of goodwill
to equipment. The impact on the financial statements was to decrease total
operating costs by $6,514 for the fiscal year ending December 31, 2003, since
the depreciation expense recognition period of 5 years for equipment is longer
than the amortization expense recognition period of 3 years for goodwill.
Because total operating costs decreased for the fiscal year ending December 31,
2003, assets reflected as of December 31, 2003, increased by $6,514.
NOTE 10. STOCKHOLDERS' EQUITY
Stockholders' equity as of June 30, 2004 consists of the following classes of
capital stock:
(A) Preferred stock, $0.001 par value; 20,000,000 shares authorized; 4,000,000
shares issued and outstanding;
(B) Common stock, $ 0.001 par value; 100,000,000 shares authorized; 1,000,000
shares issued and outstanding.
NOTE 11. ISSUANCE OF SHARES FOR SERVICES - STOCK OPTIONS
The Company has a non-qualified stock option plan, which provides for the
granting of options to key employees, consultants, and non-employee directors of
the Company. These issuances shall be accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more readily determinable. The Company has elected to account for
the stock option plan in accordance with paragraph 30 of SFAS 123 where the
compensation to employees should be recognized over the period(s) in which the
related employee services are rendered. In accordance with paragraph 19 of SFAS
123 the fair value of a stock option granted is estimated using an
option-pricing model. As of June 30, 2004 there were no stock options issued or
outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BUSINESS ORGANIZATION & DESCRIPTION
We are in the business of owning and operating "test-only" vehicle emissions
inspection facilities in California. As a result of the federal Clean Air Act of
1990, California adopted the Smog Check II program, which was designed to reduce
vehicle emissions pollution through the establishment of emissions inspection
facilities and mandating periodic emissions testing by all vehicle owners.
"Test-Only" vehicle emissions inspection facilities are privately-owned and
operated stations authorized to conduct vehicle emissions testing and are not
permitted to make any vehicle repairs. We currently have two inspection
facilities, which are located in Lemon Grove, California and Escondido,
California. The stations are owned and operated by our wholly owned subsidiary,
Smog Centers of California, LLC.
Our principal executive and administrative offices and those of Smog Centers of
California, LLC are located at 3790 Via de la Valle, Suite 103, Del Mar,
California 92014.
-11-
RESULTS OF OPERATIONS FOR THE SECOND QUARTER AND FIRST HALF OF 2004 AS
COMPARED TO THE SECOND QUARTER AND FIRST HALF OF 2003:
Sales Revenues: For the second quarter of 2004, the Company had sales revenues
of $55,054, compared to $0 in sales revenues for the second quarter of 2003. For
the first half of 2004, the Company had sales revenues of $104,016, compared to
$0 in sales revenues for the first half of 2003. The Company attributes the
comparative increases in revenues to the operations of its two smog test-only
stations, which were not operated by the Company until the third quarter of
2003.
Cost of Revenues: Cost of revenues is comprised of smog technician expenses,
Vehicle Information Database transmission fees, and smog certificates. Cost of
revenues for the second quarter of 2004 totaled $25,998 (47% of sales revenue),
compared to $0 for the second quarter of 2003. Cost of revenues for the first
half of 2004 totaled $50,832 (49% of sales revenue), compared to $0 for the
first half of 2003. The cost of revenues increased because the Company operated
two smog stations in the second quarter and first half of 2004, and had no
operating stations in the second quarter or first half of 2003.
Gross Profit: Gross profit is comprised of sales revenues less cost of revenues.
Gross profit for the second quarter of 2004 totaled $29,056 (53% of sales
revenue), compared to $0 for the second quarter of 2003. Gross profit for the
first half of 2004 totaled $53,184 (51% of sales revenue), compared to $0 for
the first half of 2003. The comparative increases in gross profit are due to the
fact that the Company had no sales revenues or cost of revenues during the first
half of 2003 or the first quarter of 2003.
Operating Costs: Operating costs consist of the Company's administrative
expenses, and smog station operating expenses including depreciation. Operating
costs for the second quarter of 2004 totaled $104,914, compared to $24,460 for
the second quarter of 2003. Operating costs for the first half of 2004 totaled
$214,826, compared to $41,430 for the first half of 2003. The comparative
increases in operating costs are attributable to station operations and
administrative expenses which were not incurred prior to August 21, 2003, when
the Company was in the developmental stage.
Operating Loss: Operating loss is comprised of gross profit less operating
costs. The Company's operating loss for the second quarter of 2004 totaled
$75,858, compared to $24,460 for the second quarter of 2003. The Company's
operating loss for the first half of 2004 totaled $161,641, compared to $41,430
for the first half of 2003. The comparative increases in operating loss are
attributable station operating costs and administrative expenses which were not
incurred prior to August 21, 2003, when the Company was in the development
stage.
Other Income: The Company recognized other income of $0 in the second quarter of
2004, compared with $0 in the second quarter of 2003. The Company recognized
other income of $4,667 in the first half of 2004, compared with $0 for the first
half of 2003. The recognition of other income of $4,667 in the first half of
2004 resulted from the write-off of accounts payable and adjustments to income
to accurately reflect asset balances.
Net Loss Before Income Taxes: Net loss before income taxes represents operating
loss plus ordinary (non-operating) income. The Company's net loss before income
taxes for the second quarter of 2004 totaled $75,858, compared to a net loss
before income taxes of $24,460 for the second quarter of 2003. The Company's net
loss before income taxes for the first half of 2004 totaled $156,974, compared
to a net loss before income taxes of $41,430 for the first half of 2003. The
-12-
comparative increases in the Company's net loss before income taxes from 2004 to
2003 are attributable to the commencement of smog station operations for the
Lemon Grove and Escondido facilities, and administrative activity for the
Company, since it was no longer in the development stage during the second
quarter and first half of 2004 as it was during the second half and first
quarter of 2003.
Income Tax Provision: The Company's income tax provision is $0 for the second
quarter of 2004, as compared to $0 for the second quarter of 2003. The Company's
income tax provision was $1,600 for the first half of 2004, compared to $10 for
the first half of 2003. The comparative increase in the income tax provision
from the first half of 2003 to the first half of 2004 is attributable to the
accrual of California minimum franchise tax fees because the Company has
commenced operations in California.
Net Loss: Net loss represents net income before income taxes less the income tax
provision. The Company's net loss for the second quarter of 2004 totaled
$75,858, compared to a net loss of $24,460 for the second quarter of 2003. The
Company's net loss before income taxes for the first half of 2004 totaled
$158,574, compared to a net loss before income taxes of $41,420 for the first
half of 2003. The comparative increases in the Company's net loss from 2004 to
2003 are attributable to the commencement of smog station operations for the
Lemon Grove and Escondido facilities, and administrative activity for the
Company, since it was no longer in the development stage during the second
quarter and first half of 2004 as it was during the second half and first
quarter of 2003.
Liquidity And Capital Resources: During the first half of 2004, the Company used
cash in operations of $137,582, compared to $34,330 for the first half of 2003.
The comparative increase of $103,252 in cash used in operations during these
periods is primarily attributable to the Company's commencement of business
operations in the third quarter of 2003, and subsequently incurring
administrative and smog station operating expenses relating thereto. Until
August 21, 2003, the Company was in its development stage and had no active
operations, and incurred expenses primarily related to compliance. During the
first half of 2004, cash provided by financing activities totaled $138,617,
compared to $44,437 for the first half of 2003. The comparative increase in cash
provided by financing activities from 2003 to 2004 of $94,180 is attributable to
a decrease of $2,631 in capitalized lease obligations and an increase in notes
payable to related party of $96,811.
ITEM 3. CONTROLS AND PROCEDURES.
Based on an evaluation of our disclosure controls and procedures as of June 30,
2004, we are satisfied as to the effectiveness of our disclosure controls and
procedures, as Stephen D. Wilson, our President, is responsible for the
day-to-day operations of our two smog check stations and also serves as our
Chief Financial Officer.
There was no significant change in the Company's internal controls over
financial reporting that occurred during the fiscal quarter ending June 30, 2004
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
-13-
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following documents are filed as part of this report:
Exhibits.
INDEX TO EXHIBITS:
EXHIBIT
NO. DESCRIPTION
- --- -----------
31 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Rules 13a-14 and 15d-14 of the Exchange Act)
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. ss. 1350)
There were no reports on Form 8-K for the quarter ending June 30, 2004.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 13, 2004 CALIFORNIA CLEAN AIR, INC.
By: /s/ STEPHEN D. WILSON
----------------------
Stephen D. Wilson
President, Chief Executive Officer,
Chief Financial Officer, Secretary
-14-