LEOPARD ENERGY, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended January 31, 2011
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Commission file number 000-50693
(Name of Registrant as Specified in Its Charter)
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Nevada
(State or Other Jurisdiction
of Incorporation or Organization)
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90-0314205
(I.R.S. Employer
Identification No.)
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420 N. Nellis Blvd., Suite A3-146, Las Vegas, Nevada
(Address of Principal Executive Offices)
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89110
(Zip Code)
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(702) 425-7376
(Issuer’s Telephone Number, Including Area Code)
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par value $0.001per share
Indicate by check mark whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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.
x
Yes
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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).
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Yes
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No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
x
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
x
No
On March 15, 2011, there were 345,000,000 shares of common stock outstanding.
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Page No.
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PART I. FINANCIAL INFORMATION
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ITEM I – Unaudited Financial Statements
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Balance Sheets as of January 31, 2011 and July 31, 2010 (Unaudited)
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2 | |||
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Statements of Operations for the Six and Three Months Ended January 31, 2011 and 2010 (Unaudited)
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3 | |||
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Statements of Cash Flows for the Six Months Ended January 31, 2011 and 2010 (Unaudited)
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4 | |||
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Statement of Stockholders Deficiency (Unaudited)
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5 | |||
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Notes to Unaudited Financial Statements
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6 | |||
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ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
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11 | |||
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ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk
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13 | |||
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ITEM 4T– Controls and Procedures.
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13 | |||
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PART II. OTHER INFORMATION
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ITEM 6 - Exhibits
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13 | |||
i
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following financial statements be read in conjunction with the year-end financial statements and notes thereto included in the Company's Annual Report on Form 10K for the year ended July 31, 2010. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
The results of operations for the three and six months ended January 31, 2011 and 2010, are not necessarily indicative of the results for the entire fiscal year or for any other period.
1
Superlattice Power, Inc.
(A Development Stage Company)
(Unaudited)
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January 31,
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July 31,
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2011
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2010
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 79 | $ | 158 | ||||
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Total current assets
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79 | 158 | ||||||
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Property and equipment, net
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66,374 | 72,719 | ||||||
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Total assets
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$ | 66,453 | $ | 72,877 | ||||
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Liabilities and Stockholders' Deficiency
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Current liabilities:
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Accounts payable and accrued expenses
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$ | 1,255,401 | $ | 1,076,413 | ||||
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Advances
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836,076 | 841,207 | ||||||
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Due to related parties
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4,395,358 | 4,321,358 | ||||||
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Total current liabilities
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6,486,835 | 6,238,978 | ||||||
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Commitments and contingencies
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- | |||||||
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Stockholders' deficiency:
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Preferred stock, $.001 par value, 10,000,000 shares authorized, 0 issued and outstanding
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- | - | ||||||
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Common stock, $.001 par value, 750,000,000 shares authorized, 345,000,000 issued and outstanding at January 31, 2011 and July 31, 2010, respectively
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345,000 | 345,000 | ||||||
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Additional paid-in capital
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(211,082 | ) | (211,082 | ) | ||||
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Accumulated deficit
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(4,604,623 | ) | (4,604,623 | ) | ||||
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Deficit accumulated during the development stage
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(1,949,677 | ) | (1,695,396 | ) | ||||
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Stockholders' deficiency
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(6,420,382 | ) | (6,166,101 | ) | ||||
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Total liabilities and stockholders' deficiency
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$ | 66,453 | $ | 72,877 | ||||
See accompanying notes to unaudited financial statements
2
Superlattice Power, Inc.
(A Development Stage Company)
(Unaudited)
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For the Six-Months Ended
January 31,
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For the Three Months Ended
January 31,
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For the Period August 1, 2008 - January 31,
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2011
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2010
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2011
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2010
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2011
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Net sales
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
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Operating expenses:
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General and administrative
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59,400 | 72,047 | 34,152 | 32,056 | 481,593 | |||||||||||||||
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Research and development
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17,447 | 93,125 | 8,302 | 48,871 | 426,194 | |||||||||||||||
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Loss from operations
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(76,847 | ) | (165,172 | ) | (42,454 | ) | (80,927 | ) | (907,787 | ) | ||||||||||
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Other (expenses)/income
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Interest expense
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(217,844 | ) | (233,680 | ) | (108,922 | ) | (119,348 | ) | (1,082,300 | ) | ||||||||||
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Other income
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40,410 | - | 40,410 | - | 40,410 | |||||||||||||||
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Net loss before provision for (benefit from) income taxes
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(254,281 | ) | (398,852 | ) | (110,966 | ) | (200,275 | ) | (1,949,677 | ) | ||||||||||
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Provision for (benefit from) income taxes
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- | - | - | - | - | |||||||||||||||
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Net loss
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$ | (254,281 | ) | $ | (398,852 | ) | $ | (110,966 | ) | $ | (200,275 | ) | $ | (1,949,677 | ) | |||||
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Net loss per common share - basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||
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Weighted average number of common shares outstanding -
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basic and diluted
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345,000,000 | 345,000,000 | 345,000,000 | 345,000,000 | ||||||||||||||||
See accompanying notes to unaudited financial statements
3
Superlattice Power, Inc.
(A Development Stage Company)
(Unaudited)
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Six Months Ended
January 31,
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For the Period
August 1, 2008 - January 31,
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2011
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2010
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2011
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (254,281 | ) | $ | (398,852 | ) | $ | (1,949,677 | ) | |||
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Adjustments to reconcile net loss to net cash utilized by operating activities
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Depreciation
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6,345 | 6,020 | 87,269 | |||||||||
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Increase (decrease) in cash flows from changes in operating assets and liabilities
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Accounts payable and accrued expenses
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178,988 | 231,650 | 1,091,141 | |||||||||
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Net cash used in operating activities
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(68,948 | ) | (161,182 | ) | (771,266 | ) | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Additions to property and equipment
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- | - | (17,015 | ) | ||||||||
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Net cash used in investing activities
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- | - | (17,015 | ) | ||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from advances
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109,279 | 49,871 | 1,392,267 | |||||||||
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Advances from related parties
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74,000 | 503,203 | 1,051,143 | |||||||||
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Payments on advances
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(114,410 | ) | (290,172 | ) | (556,191 | ) | ||||||
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Payments to related parties
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- | (101,900 | ) | (1,114,553 | ) | |||||||
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Net cash provided by financing activities
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68,869 | 161,002 | 772,666 | |||||||||
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CHANGE IN CASH AND CASH EQUIVALENTS
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Net increase (decrease) in cash and cash equivalents
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(79 | ) | (180 | ) | (15,616 | ) | ||||||
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Cash and cash equivalents at beginning of period
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158 | 191 | 15,695 | |||||||||
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Cash and cash equivalents at end of period
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$ | 79 | $ | 11 | $ | 79 | ||||||
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SUPPLEMENTAL CASH FLOW DISCLOSURES
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Cash paid during the period for:
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Interest
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$ | - | $ | - | $ | - | ||||||
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Income taxes
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$ | - | $ | - | $ | - | ||||||
See accompanying notes to unaudited financial statements
4
Superlattice Power, Inc.
(A Development Stage Company)
Statement of Stockholders' Deficiency For the Periods Ended As Noted
(Unaudited)
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Number of Common Shares
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Common Shares $0.001 Par Value
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Additional paid in capital
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Accumulated Deficit
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Total
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Balance - August 1, 2009
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115,000,000 | $ | 115,000 | $ | 18,918 | $ | (5,503,070 | ) | $ | (5,369,152 | ) | |||||||||
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Three-for-one stock split
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230,000,000 | 230,000 | (230,000 | ) | - | - | ||||||||||||||
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Net Loss
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- | - | - | (796,949 | ) | (796,949 | ) | |||||||||||||
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Balance - July 31, 2010
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345,000,000 | $ | 345,000 | $ | (211,082 | ) | $ | (6,300,019 | ) | $ | (6,166,101 | ) | ||||||||
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Net Loss
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- | - | - | (254,281 | ) | (254,281 | ) | |||||||||||||
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Balance - January 31, 2011
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345,000,000 | $ | 345,000 | $ | (211,082 | ) | $ | (6,554,300 | ) | $ | (6,420,382 | ) | ||||||||
See accompanying notes to unaudited financial statements
5
SUPERLATICE POWER, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
January 31, 2011
Superlattice Power, Inc. (the “Company” or “Superlattice Power”) (formerly Zingo, Inc.), following the sale as of May 15, 2008, of its VoIP telecommunications business, intends to concentrate its efforts on further development of the lithium batteries technology licensed from Li-ion Motors Corp. (“Li-ion Motors”), the Company’s former parent.
As of August 1, 2008, the Company is considered a development stage enterprise as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities” (“ASC 915”). The Company has limited revenue to date, continues to raise capital and there is no assurance that ultimately the Company will achieve a profitable level of operations.
The summary of significant accounting policies is presented to assist in the understanding of the financial statements. The financial statements and notes are the representations of management. These accounting policies conform to accounting policies generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
On July 1, 2009, FASB established ASC as the primary source of authoritative Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.
History and Nature of Business
On April 15, 2008, Li-ion Motors sold its controlling interest of the Company’s outstanding common stock to Blue Diamond Investments, Inc. With the sale of our VoIP telecommunications business, named Zingo Telecom, Inc., on May 15, 2008, the Company intends to concentrate efforts on further development of the lithium batteries technology licensed from Li-ion Motors, the Company’s former parent.
Effective April 15, 2008, the Company entered into a License Agreement (“License Agreement”) with Li-ion Motors providing for Li-ion Motors' license to the Company of Li-ion Motors patent applications and technologies for rechargeable lithium-ion batteries for hybrid vehicles and other applications (“Licensed Products”).
Under the License Agreement, Li-ion Motors has the right to purchase its requirements of lithium ion batteries from the Company, and its requirements of lithium ion batteries shall be supplied in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for our other customers. Li-ion Motors' cost for lithium ion batteries purchased from the Company is the actual manufacturing costs for such batteries for our fiscal quarter in which Li-ion Motors purchase takes place.
On May 25, 2010, the agreement was amended to grant the Company the exclusive license rights for the United States and Li-ion Motors may grant other companies rights elsewhere around the world.
The Company agreed to invest a minimum of $1,500,000 in each of the first two years under the License Agreement in development of the technology for the Licensed Products. In the initial year under the License Agreement, the Company invested approximately $264,043 in the development of technology, and therefore is not in compliance with its obligations under this covenant of the license agreement. Li-ion Motors has advised the Company that it will not give notice of default against the Company for its failure to comply with this covenant over the term of the License Agreement.
Effective April 16, 2008, the Company agreed to lease approximately 5,000 square feet of space in Li-ion Motors’ North Carolina facility. The leased space is suitable, and utilized by the Company, for developmental and manufacturing operations for licensed products pursuant to the license agreement. The leased space is on a month-to-month basis with a monthly rental of $2,756, the monthly rental to be escalated five (5%) percent annually. Also effective April 16, 2008, the Company purchased certain equipment and supplies related to the license agreement from Li-ion Motors for the purchase price of $29,005.
6
Basis of Presentation
The Company’s financial statements for the six months ended January 31, 2011 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company does not have any revenue and as of January 31, 2011, there was a working capital deficit of approximately $6.4 million. Management recognized that the Company’s continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses as the Company continues to incur losses.
Since its incorporation, the Company financed its operations almost exclusively through advances from its controlling shareholders. The Company expects to finance operations through the sale of equity or other investments for the foreseeable future, as the Company does not receive significant revenue from its new business operations. There is no guarantee that the Company will be successful in arranging financing on acceptable terms.
The Company's ability to raise additional capital is affected by trends and uncertainties beyond its control. The Company does not currently have any arrangements for financing and it may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to it. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.
On September 17, 2009, the Company’s Board of Directors declared a three-for-one forward stock split that was effected in the form of a stock dividend. All share and per share amounts have been restated to reflect the three-for-one forward stock split except for stockholders’ deficiency. See Note 6, “Common Stock,” for further discussion.
The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2010. There were no significant changes to these accounting policies during the six months ended January 31, 2011, and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform with current period presentations.
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1
- Observable inputs such as quoted market prices in active markets
Level 2
- Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3
- Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions
7
As of January 31, 2011, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended January 31, 2011 and 2010.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of January 31, 2011 and July 31, 2010.
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Assets at Fair Value as of January 31, 2011
and July 31, 2010 Using
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Total
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Quoted Prices in Active Markets for Identical Asssets
(Level 1)
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Significant Other Observable Inputs
(Level 2)
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Significant Observable Inputs
(Level 2)
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January 31, 2011
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Cash and cash equivalents
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$ | 79 | $ | 79 | $ | - | $ | - | ||||||||
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July 31, 2010
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Cash and cash equivalents
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$ | 158 | $ | 158 | $ | - | $ | - | ||||||||
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial instruments with the scope of the fair value disclosure requirements as of January 31, 2011.
Non-financial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. The Company's annual test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date.
Property and equipment consists of:
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January 31,
2011
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July 31,
2010
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Equipment
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$ | 131,455 | $ | 131,455 | ||||
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Leasehold improvements
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26,360 | 26,360 | ||||||
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Property and equipment, gross
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157,815 | 157,815 | ||||||
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Less: Accumulated depreciation
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(91,441 | ) | (85,096 | ) | ||||
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Property and equipment, net
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$ | 66,374 | $ | 72,719 | ||||
Depreciation expense for the six months ended January 31, 2011 and 2010, was $6,345 and $6,020, respectively. For the three months ended January 31, 2011, depreciation expense was $3,478 and $3,010, respectively and is included in selling, general and administrative expenses on the Company’s statement of operations.
8
Accounts payable and accrued expenses consisted of:
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January 31,
2011
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July 31,
2010
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Accounts payable
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$ | 43,297 | $ | 36,690 | ||||
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Wages, paid leave and payroll related taxes
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1,533 | 23,196 | ||||||
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Other accrued expenses
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1,200 | 25,000 | ||||||
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Accrued interest
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1,209,371 | 991,527 | ||||||
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Total
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$ | 1,255,401 | $ | 1,076,413 | ||||
On September 17, 2009, the Company’s Board of Directors declared a three-for-one forward stock split of the Company’s common stock that was effected in the form of a stock dividend. A three-for-one forward split in our common stock was effective October 19, 2009. The Certificate of Change filed with the Nevada Secretary of State on September 18, 2009, providing for the forward split, changed the number of shares of our outstanding common stock from 115,000,000 to 345,000,000, and the number of shares of our authorized common stock increased in the same ratio, from 250,000,000 to 750,000,000. All share and per share amounts have been restated to reflect the three-for-one forward stock split except for stockholders’ deficiency.
See Note 7 “Net Loss Per Common Share,” for the impact on the Company’s earnings per share amounts as a result of the stock split. This stock split resulted in the issuance of 230 million additional shares of common stock.
Loss per share is computed based on the weighted average number of shares outstanding during the year. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares and potential common shares during the specified periods. The Company has no outstanding options, warrants or other convertible instruments that could affect the calculated number of shares.
The following table sets forth the reconciliation of the basic and diluted net loss per common share computations for the six months ended January 31, 2011 and 2010.
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Six Months Ended
January 31, 2011
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Six Months Ended
January 31, 2010
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Income
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Shares
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Per-Share
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Income
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Shares
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Per-Share
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(Numerator)
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(Denominator)
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Amount
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(Numerator)
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(Denominator)
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Amount
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Net Income (Loss)
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$ | (254,281 | ) | $ | (398,852 | ) | ||||||||||||||||||
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Basic EPS
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(254,281 | ) | 345,000,000 | (0.00 | ) | (398,852 | ) | 345,000,000 | (0.00 | ) | ||||||||||||||
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Effect of dilutive securities
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- | - | ||||||||||||||||||||||
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Diluted EPS
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$ | (254,281 | ) | 345,000,000 | (0.00 | ) | $ | (398,852 | ) | 345,000,000 | (0.00 | ) | ||||||||||||
On April 15, 2008, Blue Diamond assumed Li-ion Motors’ debt due from Superlattice. At January 31, 2011 and July 31, 2010, Blue Diamond was owed $4,321,358 and $4,321,358, respectively. During the three and six months ended January 31, 2011 and 2010, the Company did not receive or make any payments to Blue Diamond. Interest for the six months ended January 31, 2011 and 2010, was $217,844 and $217,844, respectively. Interest for the three months ended January 31, 2011 and 2010, was $108,922 and $108,922, respectively. The related party transaction amounts are reported as current due to the relationship and bear an interest rate of 10 % per annum.
9
On December 15, 2010, the Company issued a non-interest bearing, due on demand, promissory note to Meboob Charnia, (chief executive and principal financial officer) for which it received an advance of $74,000 and repaid $0. The related party transaction amounts are reported as current due to the relationship.
The Company's principal financing source in the last two fiscal years has been from its former parent, Li-ion Motors. At January 31, 2011 and July 31, 2010, the Company owed Li-ion Motors $836,076 and $841,207, respectively. During the six months ended January 31, 2011 and 2010, the Company received advances totaling $109,279 and $49,871, respectively; and made payments totaling $114,410 ($74,000 in cash and $40,410 in reimbursement for one leased employee) and $290,172, respectively. During the three months ended January 31, 2011 and 2010, the Company received advances totaling $38,215 and $113,346, respectively; and made payments totaling $114,410 ($74,000 in cash and $40,410 in reimbursement for one leased employee) and $10,800,
respectively. The advances are interest free. No term has been set for repayment and no payment is expected until the Company has begun to produce battery cells and has become a profitable venture.
At January 31, 2011 and July 31, 2010, the Company has deferred tax assets as a result of the net operating losses incurred from inception. The resulting deferred tax assets are reduced by a valuation allowance as discussed in Note 1, equal to the deferred tax asset as it is unlikely, based on current circumstances, that the Company will ever realize a tax benefit. Deferred tax assets and the corresponding valuation allowances amounted to approximately $1.6 million and $1.6 million at January 31, 2011 and July 31, 2010, respectively. The statutory tax rate is 35% and the effective tax rate is zero.
Under current tax laws, the cumulative operating losses incurred amounting to approximately $6.6 million and $6.3 million at January 31, 2011 and July 31,2010 respectively, will begin to expire in 2022.
Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on loss carry-forwards to offset taxable income when an ownership change occurs. The Company meets the definition of an ownership change and some of the net operating loss carry-forwards will be limited.
The Company entered into a month to month lease agreement with Li-ion Motors Corp. for 5,000 square feet within Li-ion Motors’ Mooresville facility on April 16, 2008 at the rate of $2,756. Approximately 80% of this space has been converted into offices and a battery development workshop including a dry room.
Total rent expense for the three months ended January 31, 2011 and 2010, was $10,519 and $10,125, respectively. Rental expense for the six months ended January 31, 2011 and 2010, was $21,038 and $20,250, respectively.
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Forward Looking Statements
This quarterly report contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. You should not place too much reliance on these forward-looking statements. Our actual results are likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this section.
Introduction
We were incorporated on July 15, 2002 under the laws of the State of Nevada. We changed our business in 2008, entering into a license agreement with Li-ion Motors on April 15, 2008, for the license of the development of their lithium battery technology, and we sold our Zingo Telecom, Inc. and M/S Zingo Bpo Services Pvt. Ltd. subsidiaries that offered telecommunications services to business and residential customers utilizing VoIP technology on May 15, 2008. To reflect our new business, we changed our name from Zingo, Inc. to Superlattice Power, Inc. on April 25, 2008.
A three-for-one forward split in our common stock was effective October 19, 2009. The Certificate of Change filed with the Nevada Secretary of State on September 18, 2009, for the forward split changed the number of shares of our outstanding common stock from 115,000,000 to 345,000,000, and the number of shares of our authorized common stock in the same ratio, from 250,000,000 to 750,000,000.
Results Of Operations for the Three and Six months Ended January 31, 2011
We incurred a net loss of $110,966 during the three months ended January 31, 2011, which included: general and administrative (G&A) costs of $34,152; research and development (R&D) expenses of $8,302; and other income of $40,410. During the six months ended January 31, 2011, the Company incurred a net loss of $254,281 which included: G&A costs of $59,400, R&D expenses of $17,447 and other income of $40,410.
2011 Compared to 2010
Our net loss for the three months ended January 31, 2011 decreased to $110,966 from $200,275 for the same period ending January 31, 2010. The decrease was primarily due to: a staff reduction in R&D amounting to $40,569 less in expenditures and the recognition of additional other income for a leased employee to our former parent, Li-ion Motors of $40,410.
For the six months ended January 31, 2011 our net loss decreased to $254,281 from $398,852 for the same period ending January 31, 2010. The decrease was primarily due to: a staff reduction in R&D amounting to $75,678 less in expenditures; and the recognition of additional other income for a leased employee to our former parent, Li-ion Motors of $40,410.
Plan of Operations
Commercial Initiatives
We are developing rechargeable lithium ion batteries for power production for a variety of uses. We plan to pioneer a superlattice cathode material for the use in lithium ion rechargeable batteries.
License Agreement with Li-Ion Motors
Effective April 15, 2008, we entered into a License Agreement with Li-ion Motors, our former controlling stockholder, providing for Li-ion Motors’ license to us of their patent applications and technologies for rechargeable lithium-ion batteries for hybrid vehicles and other applications.
Under the License Agreement, Li-ion Motors has the right to purchase its requirements of lithium ion batteries from us, and its requirements of lithium ion batteries shall be supplied in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for our other customers. Li-ion Motors cost for lithium ion batteries purchased from us will be our actual manufacturing costs for such batteries for our fiscal quarter in which Li-ion Motors’ purchase takes place. On May 25, 2010 the Agreement was amended limiting us to only the United States with Li-ion Motors able to grant other licenses to companies in other parts of the world.
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Under Section 2.2 of the License Agreement, we have agreed to invest a minimum of $1,500,000 in each of the first two years of the term of the License Agreement in development of the technology for the Licensed Products. In the initial year under the License Agreement, we invested approximately $264,043 in the development of our technology, and therefore are not in compliance with our obligations under this covenant of the License Agreement. Li-ion Motors has advised us that it will not give notice of default against us for our failure to comply with this covenant over the term of the License Agreement.
Effective April 16, 2008, we agreed to lease approximately 5,000 square feet of space in Li-ion Motors’ North Carolina facility, such Leased Space to be suitable for, and utilized by us for, our developmental and manufacturing operations for Licensed Products pursuant to the License Agreement. The Leased Space is leased by Li-ion Motors to us on a month-to-month basis at a monthly rental of $2,756, the monthly rental to be escalated five (5%) percent annually. Effective April 16, 2008, Li-ion Motors also sold us for the purchase price of $29,005, specified equipment and supplies related to the licensed intellectual property.
Liquidity and Capital Resources
As of January 31, 2011, we had cash on hand of $79 and liabilities of $6,486,835 as compared with $6,238,978 at July 31, 2010, and our property plant and equipment decreased to $66,374 at January 31, 2011, as compared with $72,719 at July 31, 2010. Accounts payable and accrued expenses increased at January 31, 2011, to $1,255,401 as compared with $1,076,413 at July 31, 2010, and notes payable decreased to $836,076 at January 31, 2011, as compared to $841,207 at July 31, 2010.
At January 31, 2011, we had a working capital deficiency of $6,486,756 and a stockholders' deficit of $6,420,382.
We used net cash in operating activities of $68,948 in the six months ended January 31, 2011, as compared with $161,182 in the comparable period in 2010, and cash flows used in investing activities for the purchase of property, plant and equipment was $0 during 2011 and $0 in 2010.
During the six months ended January 31, 2011, we received $74,000 and repaid $0 to a related party as compared with advances from related parties of $503,203 and repayments of $101,900 in 2010.
For the six months ended January 31, 2011, we received $109,279 from the proceeds of issuing a promissory note to Li-ion Motors Corp. and repaid $114,410, with a net credit effect of $5,131. During the six months ended January 31, 2010, we received $49,871 from the proceeds of issuing a promissory note to Li-ion Motors Corp. and repaid $290,172, with a net credit effect of $240,301.
Since our incorporation, we have financed our operations almost exclusively through advances from our controlling shareholders. We expect to finance operations through the sale of equity or other investments for the foreseeable future, as we do not receive significant revenue from our new business operations. There is no guarantee that we will be successful in arranging financing on acceptable terms.
Our ability to raise additional capital is affected by trends and uncertainties beyond our control. We do not currently have any arrangements for financing and we may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
Our continuation as a going concern is in dependent upon continued financial support from our shareholders and other related parties.
Critical Accounting Issues
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical
experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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Commodity Price Risk – The raw materials for manufacturing our batteries could be affected by changes in the commodities markets, and if we commence manufacturing our own lithium ion batteries, we could be subject to this risk.
The Company's Chief Executive Officer and Principal Financial Officer is primarily responsible for the accuracy of the financial information that is presented in this Quarterly Report. This officer has, as of the close of the period covered by this Quarterly Report, evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-14c and 15d-14c promulgated under the Securities Exchange Act of 1934) and determined that such controls and procedures were effective in ensuring that material information relating to the Company was made known to him during the period covered by this Quarterly Report. In such officer’s evaluation, no changes were made to the Company's internal controls in this period that have materially
affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.
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Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, filed herewith.
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Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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By:
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/s/ Mehboob Charania
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Chief Executive Officer and
Principal Financial Officer
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Date: March 17, 2011
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Unaudited Financial StatementsNote 1. Financial Statement PresentationNote 2. Summary Of Significant Accounting PoliciesNote 3. Fair Value MeasurementsNote 4. Property and EquipmentNote 5. Accounts Payable and Accrued ExpensesNote 6. Common StockNote 7. Net Loss Per Common ShareNote 8. Related Party TransactionsNote 9. AdvancesNote 10. Income TaxesNote 11. Commitments and ContingenciesItem 2. Management's Discussion and Analysis Or Of Financial Conditions and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4T. Controls and ProceduresPart II. Other InformationItem 6. Exhibits