UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark one)
[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 28, 2014

OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________to

Commission File Number: 0-54236

JA ENERGY

(Exact name of registrant as specified in its charter)

Nevada		27-3349143
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)

 

7495 W. Azure Dr. Suite 110, Las Vegas, NV		89130
(Address of principal executive offices)		(Zip Code)

(702) 515-4036
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ] Not Applicable

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company [X]

 

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

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section S 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 21, 2014, the registrant’s outstanding common stock consisted of 43,402,385 shares, $0.001 par value.

 

Table of Contents

JA Energy

Index to Form 10-Q

For the Quarterly Period Ended February 28, 2014

 

PART I - FINANCIAL INFORMATION	3
Item I. Financial Statements	3
a. Statements of Operations (unaudited)	3
b. Balance Sheets (unaudited)	4
c. Statements of Cash Flows (unaudited)	5
d. Notes to Financial Statements	6
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations	12
a. Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures about Market Risk	17
Item 4T. Controls and Procedures	18
PART II. OTHER INFORMATION	21
Item 1 -- Legal Proceedings	21
Item 1A - Risk Factors	21
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3 -- Defaults Upon Senior Securities	21
Item 4 -- Submission of Matters to a Vote of Security Holders	21
Item 5 -- Other Information	21
Item 6 – Exhibits	22
SIGNATURES	23

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item I. Financial Statements.

 

a. JA Energy

(A Development Stage Company)

. Statements of Operations

(Unaudited)

 

			For the three months ended February 28, 2014		For the three months ended February 28, 2013		For the six months ended February 28, 2014		For the six months ended February 28, 2013		From August 26, 2010 (inception) to February 28, 2014
Revenue			-		-		-		-		5,000
Cost of goods sold			-		-		-		-		3,750
Gross profit			-		-		-		-		1,250
Expenses:
	General & administrative		94,563		41,101		183,742		87,238		1,068,237
	Consulting fees		15,700		7,500		31,700		15,500		146,167
		Total expense	110,263		48,601		215,442		102,738		1,214,404
Other Income:
	Interest income		-		-		-		-		23
	Interest expense		(7,626)		-		(13,484)		-		(28,961)
	Abandonment of Farming Operations		-		-		-		-		(503,533)
	Warrants for debt		-		-		-		-		(875,000)
		Total other income	(7,626)		-		(13,484)		-		(1,407,471)
Net (Loss)			(117,889)		(48,601)		(228,926)		(102,738)		(2,620,625)
Weighted average number of common
	shares outstanding- basic		38,402,385		37,256,703		38,402,385		37,256,703
Net loss per share			(0.00)		(0.00)		(0.01)		(0.00)

 

 

 

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

 

3

 

b. JA Energy

(A Development Stage Company)

Condensed Balance Sheets

(Unaudited)

 

			February 28, 2014		August 31, 2013
		ASSETS
Current assets:
	Cash and cash equivalents		5,797		2,677
	Deposits		3,555		3,555
		Total current assets	9,352		6,232
Fixed assets:
	MDU fixed asset		217,281		216,799
	Furniture, Fixtures, Equipment and Vehicle, net of		13,768		15,565
		accumulated depreciation of $10,385 February 2014,
		$8,587 August 2013
		Total fixed assets	231,049		232,364
TOTAL ASSETS			240,401		238,596
		LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities		89,754		30,902
	Accounts payable, related parties		9,550		9,550
	Bank overdraft		260		-
	Loan payable – current		3,943		3,822
	Loan payable - related party		612,326		438,826
		Total current liabilities	715,833		483,100
Long-term liabilities:
	Loan payable - long term		9,436		11,438
	Total long-term liabilities		9,436		11,438
		Total liabilities	725,269		494,538
Stockholders' equity:
	Preferred stock, $0.001 par value, 5,000,000 shares		-		-
		authorized, none issued
	Common stock, $0.001 par value, 70,000,000 shares		38,403		38,403
		authorized, 38,402,385 issued and outstanding
		as of 2/28/14 and 8/31/13
	Additional paid-in capital		2,006,833		2,006,833
	Stock subscription payable		90,521		90,521
	Deficit accumulated during development stage		(2,620,625)		(2,391,699)
		Total stockholders' equity	(484,868)		(255,942)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$240,401		$238,596

 

 

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

 

4

 

 

c. JA Energy

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

 

			For the six months ended February 28, 2014		For the six months ended February 28, 2013		From August 26, 2010 (inception) to February 28, 2014
OPERATING ACTIVITIES
Net loss			(228,926)		(102,738)		(2,620,624)
Adjustment to reconcile net loss from operations
	to net cash used in operating activities:
		Stock compensation			-		464,121
		Warrant expense			-		875,000
		Abandoned farming operations			-		432,000
		Depreciation expense	1,797		1,472		10,384
	Decrease (Increase) in
		Deposits			(3,000)		(3,555)
	Increase (Decrease) in
		Bank Over Draft	260		-		260
		Accounts payable and accrued expense	58,852		(17,386)		89,752
		Accounts payable related party			-		9,550
Net cash (used) by operating activities			(168,017)		(121,652)		(743,112)
INVESTING ACTIVITIES
	2011 Ford Taurus				-
	Purchase and development of MDU		(482)		(36,761)		(118,334)
	Purchase of fixed assets; vehicle and equipment		-		(1,380)		(24,152)
Net cash (used) by investing activities			(482)		(38,141)		(142,486)
FINANCING ACTIVITIES
Proceeds issuance of common stock and
	contributed capital		-		-		250,690
Proceeds from loan, related party			173,500		160,376		618,326
Payments on loan, related party			-		-		(6,000)
Proceeds from other loans			-		6,000		35,000
Payments on other loans			(1,881)		(1,500)		(6,621)
Net cash provided by financing activities			171,619		164,876		891,395
Net cash increase for period			3,120		5,083		5,797
Cash at beginning of period			2,677		399		-
Cash at end of period			5,797		5,482		5,797

 

 

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

 

5

 

 

d. Notes to Financial Statements

 

NOTE 1 - FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at February 28, 2014 and for all periods presented have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's August 31, 2013 audited financial statements filed therewith along with its Form 10-K annual report. Operating results for the six months ended February 28, 2014 are not necessarily indicative of the results that may be expected for the year ending August 31, 2013. The Company is a development stage company, as defined in FASB ASC 915 "Development Stage Entities."

 

NOTE 2 - GOING CONCERN

 

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has an accumulated deficit since inception of $2,620,625. The Company has not generated any revenues to date, and its ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. Management plans to raise equity capital to finance the operating and capital requirements of the Company. Amounts raised will be used for further development of the Company's products, to provide financing for marketing and promotion and for other working capital purposes. While the Company is putting forth its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations.

 

These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

 

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

 

The relevant accounting policies are listed below.

 

Basis of Accounting

The basis is United States generally accepted accounting principles.

 

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity of three months or less at the date of purchase to be cash and cash equivalents.

 

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

6

 

 

Advertising

Advertising costs are expensed when incurred. The Company has not incurred any advertising expenses since inception.

 

Income Taxes

The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.

 

Revenue recognition

The Company recognizes revenue from product sales once all of the following criteria for revenue recognition have been met: pervasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and not subject to refund or adjustment; and collection of the amount due is reasonably assured.

 

Cost of product sold

The types of costs included in cost of product sold are raw materials, packaging materials, manufacturing costs, plant administrative support and overheads, and freight and warehouse costs.

 

Year end

The Company's fiscal year-end is August 31.

 

Recent Accounting Pronouncements

The Company's management has evaluated all the recently issued accounting pronouncements through the filing date of these financial statements and does not believe that any of these pronouncements will have a material impact on the Company's financial position and results of operations.

 

 

NOTE 4 - STOCKHOLDERS’ EQUITY (DEFICIT)

 

The Company is authorized to issue 70,000,000 shares of its $0.001 par value common stock and 5,000,000 shares of its $0.001 par value preferred stock.

 

On September 1, 2010, a director of the Company contributed capital of $325 for incorporating fees.

 

On November 8, 2010, a director of the Company contributed capital of $2,500 for audit fees.

 

On January 14, 2011, a director of the Company contributed capital of $3,865 for transfer and audit fees.

 

The Company was a subsidiary of Reshoot Production Company. On January 31, 2011, the record shareholders of Reshoot Production Company received a spin off dividend of one point 4 (1.4) common shares, par value $0.001, of JA Energy common stock for every share of Reshoot Production Company common stock owned for a total 65,846,703 common shares issued.

 

In March 2011, an officer of the Company returned 31,600,000 shares to treasury.

 

On March 1, 2011, a director of the Company contributed capital of $5,000 for operating expenses.

 

On April 21, 2011, a director of the Company contributed capital of $2,000 for operating expenses.

 

 

7

 

 

On April 21, 2011, the Company issued 270,000 shares of its $0.001 par value common stock valued at $27,000 in exchange for Jerusalem Artichoke tubers. These tubers were essential in order for the Company to grow Jerusalem Artichokes for the subsequent conversion into ethanol.

 

On May 3, 2011, a former officer of the Company returned 3,400,000 shares to treasury as part of an initiative to restructure the Company’s capital stock. Accordingly, the return of these shares have been accounted for similar to a reverse stock split and have been applied on a retroactive basis.

 

On May 4, 2011, the Company issued 40,000 shares of its $0.001 par value common stock valued at $4,000 in exchange for bookkeeping and office support services.

 

On May 20, 2011, $20,000 was received for shares to be issued on April 10, 2012.

 

On September 23, 2011, the Company issued 3,000,000 shares of its $0.001 par value common stock for cash of $75,000.

 

On April 10, 2012, the Company issued 3,000,000 shares of its $0.001 par value common stock for cash of $75,000, of which $20,000 was received on May 20, 2011.

 

On June 21, 2012, the Company issued 100,000 shares of its $0.001 par value common stock for cash of $50,000.

 

On August 30, 2012 the Company sold 20,000 shares of its $0.001 par value common stock for cash for $10,000. The shares were issued after year end and the amount is included in the Common Stock Payable.

 

On April 23, 2012, the Company recorded a common stock payable of $3,750 for the shares due under contract to Rockey Farms, Owned by Director Sheldon Rockey, for farming costs. As of August 31, 2012 no shares have been issued.

 

On January 16, 2012, the Company executed a consulting contract with Desert Resources for an annual fee of $60,000 and 240,000 shares of common stock. The shares were valued according to the fair value of the common stock based on the agreement date. Desert Resources is compensated in bi-weekly installments. As of August 31, 2012, no shares have been issued and a total of $73,846 has been recorded to common stock payable.

 

On January 30, 2012, the Company recorded $2,500 common stock payable cash for services rendered. As of August 31, 2012, no shares have been issued.

 

On August 30, 2012, the Company received $10,000 from a director for shares to be issued.

 

On August 31, 2012, the Company recorded a common stock payable for 500 shares of common stock due to a consultant for services rendered. The shares were valued at $425 according to the fair value of the common stock based on the record date.

 

On October 2, 2012, the Company issued 20,000 shares of its $0.001 par value common stock for $0.50 per share.

 

On June 24, 2013, the Company issued 462,000 shares of common stock for compensation of $369,600

 

On June 24, 2013, the Company issued 87,682 shares of common stock for MDU cost of $70,145.

 

On June 28, 2013 the Company issued 36,000 shares of common stock for a MDU cost $28,800.

 

 

8

 

 

On July 1, 2013 the Company issued 540,000 shares of common stock for farming cost $432,000

 

There have been no other issuances of preferred or common stock.

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

On September 1, 2010, a director of the Company contributed capital of $325 for incorporating fees.

 

On November 8, 2010, a director of the Company contributed capital of $2,500 for audit fees.

 

On May 31, 2012, the Company entered into a promissory note with the CEO and director for value loaned to the Company in the sum of $99,000 with terms of due upon demand with a simple interest of 5% due monthly.

 

On April 23, 2012 the Company recorded a Common Stock Payable of $3,750 for the shares due under contract to Rockey Farms, Owned by Director Sheldon Rockey for farming costs. As of August 31, 2012 no shares have been issued.

 

The Chief Executive Officer loaned to the Company $199,176 during the period ended November 31, 2012. The terms of the loan are due upon demand with an annual interest rate of 5%. The Company paid the balance on the prior officer loan of $1,500 which was non-interest bearing.

 

The Chief Executive Officer loaned to the Company $25,000 during the period ended February 28, 2013. The terms of the loan are due upon demand with an annual interest rate of 5%.

 

The Chief Executive Officer loaned to the Company $79,000 during the period ended May 31, 2013. The terms of the loan are due upon demand with an annual interest rate of 5%.

 

The Chief Executive Officer loaned to the Company $100,450 during the period ended August 31, 2013. The terms of the loan are due upon demand with an annual interest rate of 5%.

 

The Chief Executive Officer loaned to the Company $82,000 during the period ended November 30, 2013. The terms of the loan are due upon demand with an annual interest rate of 5%.

 

NOTE 6 - LOAN PAYABLE

 

The Company received a loan from US Bank in the amount of $20,000 secured by the 2011 Ford Taurus. The loan is a fully amortized loan with monthly payments of $389 for 60 months.

 

	Period Ended	Principle	Interest	Payments
	February 2015	$3,943	$725	$4,668
	February 2016	$4,197	$471	$4,668
	February 2017	$4,467	$201	$4,668
	February 2018	$772	$6	$778

 

At February 28, 2014, principal outstanding was $13,379.

 

 

 

9

 

 

 

NOTE 7 - INVENTORY

 

The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analyses and assumptions including, but not limited to, historical usage, future demand, and market requirements. Reductions to the carrying value of inventories are recorded in cost of product sold. If the future demand for the Company’s products is less favorable than the Company’s forecasts, then the value of the inventories may be required to be reduced, which could result in additional expense to the Company and affect its results of operations.

 

NOTE 8. Provision for Income Taxes

 

The Company accounts for income taxes under FASB Accounting Standard Codification ASC 740 “Income Taxes”. ASC 740 requires use of the liability method. ASC 740 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

 

As of February 28, 2014, the Company had net operating loss carry forwards of $2,620,625 that may be available to reduce future years’ taxable income through 2033. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. Net operation losses will begin to expire in 2030.

 

Components of net deferred tax assets, including a valuation allowance, are as follows at February 28, 2014 and 2013:

		2014		2013
Deferred tax assets:
Net operating loss carry forward		$  2,620,625		$        454,845
Total deferred tax assets		$     917,219		159,196
Less: valuation allowance		(917,219)		(159,196)
Net deferred tax assets		$                   -		$                   -

 

The valuation allowance for deferred tax assets as of February 28, 2014 was $917,219, as compared to $159,196 as of February 28, 2013. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of February 28, 2014 and February 28, 2013.

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:

 

U.S federal statutory rate (35.0%)

Valuation reserve 35.0%

Total -%

 

10

 

 

At February 28, 2014, we had an unused net operating loss carryover approximating $2,620,625 that is available to offset future taxable income which expires beginning 2030.

 

NOTE 9 ABANDONMENT OF FARMING OPERATIONS

 

During the year ended August 31, 2013, the Company substantially completed the modular distillation unit (MDU), and abandoned the farming operations. The loss from ceasing the farming operation is $503,533.

 

NOTE 10 – Contributed Capital

 

The Company has received $15,000 as a loan from a non - related third party. The loan is unsecured, payable on demand and non-interest bearing. The loan was received on 03/01/2011 in the amount of $15,000. Effective March 19, 2013, the debt was exchanged for warrants to purchase up to 1,200,000 shares of common $.001 par value stock at $1.00 per share after March 19, 2014 and before March 19, 2017. For Financial reporting, the exchange is recorded as a capital contribution of $890,000, and warrants expense of $875,000; common stock is not issued until the warrants are exercised, fully diluted earnings (loss) per share include those exercisable by warrant.

 

NOTE 11. Recent Accounting Pronouncements

 

The Company's management has evaluated all the recently issued accounting pronouncements through the filing date of these financial statements and does not believe that any of these pronouncements will have a material impact on the Company's financial position and results of operations.

 

NOTE 12. Subsequent Events

 

On April 10, 2014, pursuant to Section 4(2) of the Securities Act, the Company issued 5,000,000 unregistered restricted shares of common stock to James L. Lusk, CEO of the Company, for his work and knowledge in inventing the MEG (formally known as “Electrical Generation System, Method of Producing Electrical Energy, And Manufacturing An Electrical Generation System”). The 5,000,000 shares were issued in exchange for Patent Application No. 61/909,919, Ref. No. 0348730-PROV3 for the MEG, and such patent was filed on November 27, 2013. The inventors of this Patent have agreed to assign their rights and ownership of this invention to the Company in exchange for these restricted common shares.

 

 

 

 

 

 

 

 

11

 

 

Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Information

 

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words "anticipate," "believe," "estimate," "will," "plan," "seeks," "intend," and "expect" and similar expressions identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions, or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied, by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that could cause actual results to differ materially from our forward-looking statements are set forth in this Quarterly Report on Form 10-Q. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q. Except as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

 

Critical Accounting Policies

 

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2013.

 

Corporate History

 

The Company was organized August 26, 2010 (Date of Inception) under the laws of the State of Nevada, as JA Energy. The Company was incorporated as a subsidiary of Reshoot Production Company, a Nevada corporation. Reshoot Production Company was incorporated October 31, 2007, and, at the time of spin off was listed on the Over the Counter Bulletin Board. The Company is an operating entity.

 

Business Overview

 

The Company designs, manufactures, and markets a suite of modular, self-contained, fully automated, climate controlled units for distributed production of energy. All of our products originate in our Las Vegas manufacturing facility.

 

The patented Modular Distillation Unit (MDU) processes blackstrap molasses or a similar sugar product into fuel-grade ethanol. The first MDU has been installed and tested and is waiting on ATF licensing before becoming fully functional. The Company is now marketing the MDU for placement in both domestic and foreign markets. Our unique approach to localized, distributed energy production was presented at the Energy for the Future international conference on renewable energy held October 24 & 25, 2013 in Yerevan, Armenia. We are currently working to place units in Armenia, the Philippines, and the Dominican Republic as well as several US sites. We will increase staffing and manufacturing capacity early in 2014. Management expects to sell and ship approximately 40 installations by the end of FY2014.

 

 

12

 

 

 

The Modular Electric Generator (MEG) uses proven technologies to generate base load electricity to supply local energy needs. Patent Application No. 61/909,919, Ref. No. 0348730-PROV3 for the MEG, formally known as “Electrical Generation System, Method of Producing Electrical Energy, And Manufacturing An Electrical Generation System” was filed on November 27, 2013. We expect to begin manufacturing and shipping units in 2014. Like the MDU, our MEG can be dropped anywhere in the world. Stated simply, the MEG consists of a single heating unit that fires a bank of five heat differential engines, each capable of driving a 10kW generator. Each unit is housed in a standard 20’ shipping container that includes an onboard chiller to increase efficiency. MEGs can be deployed singly to produce 50kW of power or in series where more capacity is needed, producing energy in multiples of 50kW. The MEG is quiet enough to place next to a hotel, and environmentally clean enough to operate even inside a building. It can be powered by a wide variety of fuels, making it usable in both developed and developing countries.

 

We are developing other energy systems to complement the MDU and the MEG, such as concentrated solar power (CSP) and biodiesel production. Multiple products are now in development and will be systematically brought online as each is ready.

 

One of the concepts now in development is that of energy farms using MDUs, MEGs, and other Company products. As conceived, an energy farm is a small-scale farming operation designed to produce ethanol and electricity as well as foodstuffs. The ethanol and electricity could be sold at market or used by a community or cooperative. This has far-reaching implications for developing nations. Energy farms could help to provide urban levels of benefits and amenities such as electricity, communication, and clean water to far-flung communities, thereby reducing the migration of rural populations to already-crowded urban centers. The energy farm concept would help make domestic family farms more economically viable, as well.

 

To insure supply chains, the Company has developed relationships with multiple, reliable vendors capable of fabricating the various proprietary components and sub-assemblies needed for manufacture. Sale units will be made to order and can be customized as each particular installation requires. We anticipate multiple sales per customer, but do not expect any single customer to comprise more than 10% of annual output. The Company expects more than one quarter of all FY2014 sales to derive from domestic demand, though the long-range projections show a much larger demand internationally.

 

While the manufacture of our products has no extraordinary government regulation, the operation of the MDU requires approval from the US Dept. of Alcohol, Tobacco, and Firearms. This needs to be considered as we market the units, and we will notify potential customers. Ethanol production is regulated in nearly every country worldwide. However, the same governments that regulate ethanol have policies in place that encourage its use as a non-fossil fuel. This makes for a positive regulatory environment overall. Many governments, both at home and abroad, have subsidies and other enticements for renewable energy sources which will help the profitability of our customers, and therefore make our products more desirable. The costs of complying with environmental laws applicable to our manufacturing are negligible and should have little or no effect on profitability.

 

The majority of expenses incurred over the last two years involved costs related to research and development, and improving the efficiencies of the MDU. Now that we are an operating entity rather then a development entity we anticipate the percentage of R&D expense as a portion of total expense to fall as the expense of materials for manufacture rises with production.

 

The Company has no intention at this time to add employees until orders for MDU are placed.

 

 

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Results of Operations

 

Revenues

 

We earned $5,000 in revenues since our inception through February 28, 2014. These revenues represent the sale of 5,000 pounds of Jerusalem Artichoke Seeds at $1.00 per pound. These seeds came from a Jerusalem Artichoke planting that took place in Colorado last growing season. This sale represents the entire crop available for sale, as the balance of the crop was lost due to an early season heat wave.

 

Expenses

 

For the three months ending February 28, 2014, we experienced a net loss of $(117,889) as compared to a net loss of $(48,601) for the same period last year. The net loss for the three months ending February 28, 2014 consisted of general and administrative expenses of $94,563, interest expense of 7,626, and consulting fees of $15,700, compared to general and administrative expenses of $41,101, no interest expense and consulting fees of $7,500 for the same period last year.

 

For the six months ending February 28, 2014, we experienced a net loss of $(228,926) as compared to a net loss of $(102,738) for the same period last year. The net loss for the six months ending February 28, 2014 consisted of general and administrative expenses of $183,742, interest expense of 13,484, and consulting fees of $31,700, as compared to general and administrative expenses of $87,238, no interest and consulting fees of $15,500 for the same period last year.

 

These expenses represented increased start-up costs as the Company begins its business operations. We anticipate our operating expenses will increase as we build our operations. Our auditor issued an opinion that our financial condition raises substantial doubt about the Company's ability to continue as a going concern.

 

Since the Company's inception, on August 26, 2010, the Company had a net loss of $(2,620,625).

 

Going Concern

 

The financial statements included with this quarterly report have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets business. As of February 28, 2014, the Company has recognized $5,000 in revenues and has accumulated operating losses of approximately $2,620,625 since inception. The Company's ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. Management plans to raise equity capital to finance the operating and capital requirements of the Company. Amounts raised will be used to further development of the Company's products, to provide financing for marketing and promotion, to secure additional property and equipment, and for other working capital purposes. While the Company is putting forth its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations.

 

These conditions raise substantial doubt about the Company's ability to continue as a going concern. Our financial statements do not include any adjustments that might arise from this uncertainty.

 

 

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Plan of Operation

 

Management believes, if it can begin selling its MDU in fiscal year 2013-2014, the Company will be able to generate profit during the coming year. Management believes that revenue from MDU sales will most likely exceed any anticipated expenses for the coming year.

 

The Company's need for capital may change dramatically if it can generate additional revenues from its operations. In the event the Company requires additional funds, the Company will have to seek loans or equity placements to cover such cash needs. There are no assurances additional capital will be available to the Company on acceptable terms.

 

 

Summary of any product research and development that we will perform for the term of our plan of operation.

 

JA Energy plans manufacture and sell the Modular Distillation Units (MDU) which will convert blackstrap molasses into ethanol. The Modular Distillation Unit has been designed and a prototype has been built. The Company does not anticipate performing any additional significant MDU research and development under our current plan of operation. The prototype MDU is recorded as an asset on the February 28, 2014 balance sheet, at $217,281.

 

On October 25, 2013 we filed Patent Application Docket No. 0348730-PROV2 for a second-generation Modular Distillation Unit, formally known as “Method of Producing Fuel and Modular Distillation Unit.” The newly designed MDU has significant modifications and additional accessories compared to the previous model.

 

Patent Application No. 61/909,919, Ref. No. 0348730-PROV3 for the MEG, formally known as “Electrical Generation System, Method of Producing Electrical Energy, And Manufacturing An Electrical Generation System” was filed on November 27, 2013. The Modular Electric Generator (MEG) uses proven technologies to generate base load electricity to supply local energy needs. We expect to begin manufacturing and shipping units in 2014. Like the MDU, our MEG can be dropped anywhere in the world. Stated simply, the MEG consists of a single heating unit that fires a bank of five heat differential engines, each capable of driving a 10kW generator. Each unit is housed in a standard 20’ shipping container that includes an onboard chiller to increase efficiency.

 

MEGs can be deployed singly to produce 50kW of power or in series where more capacity is needed, producing energy in multiples of 50kW. The MEG is quiet enough to place next to a hotel, and environmentally clean enough to operate even inside a building. It can be powered by a wide variety of fuels, making it usable in both developed and developing countries. Significant research and development will be performed as the MEG prototype is built this year and brought online.

 

 

Expected purchase or sale of plant and significant equipment

 

With the exception of Modular Distillation Units, we do not anticipate the purchase or sale of any plant or significant equipment; as such items are not required by us at this time.

 

 

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Significant changes in the number of employees

 

As of February 28, 2014, we have three employees total, all full-time. As we gear up for MDU production we will add approximately ten employees. When MEG production begins, that number will grow to as many as twenty.

 

 

Liquidity and Capital Resources

 

As of February 28, 2014 the Company has current assets of $9,352 and current liabilities of $715,833. As of February 28, 2014, the Company’s total assets were $240,401 and total liabilities of $725,269. The Company is authorized to issue 70,000,000 shares of its $0.001 par value common stock and 5,000,000 shares of its $0.001 par value preferred stock. As of February 28, 2014, the Company has 38,402,385 shares of common stock issued and outstanding.

 

The Company has limited financial resources available, which has had an adverse impact on the Company's liquidity, activities and operations. These limitations have adversely affected the Company's ability to obtain certain projects and pursue additional business. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. In order for the Company to remain a Going Concern it will need to find additional capital. Additional working capital may be sought through additional debt or equity private placements, additional notes payable to banks or related parties (officers, directors or stockholders), or from other available funding sources at market rates of interest, or a combination of these. The ability to raise necessary financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing is sought. No assurances can be given that any necessary financing can be obtained on terms favorable to the Company, or at all.

 

 

JA Energy Funding Requirements

 

JA Energy needs funding to fully execute its business plan. JA Energy will require at least $1.5 million to acquire other business opportunities, market its services, and build a client base. Future funding could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets. This could materially adversely affect the Company's business, results of operations and financial condition. Any future acquisitions of other businesses, technologies, services or products might require the Company to obtain additional equity or debt financing, which might not be available on terms favorable to the Company, or at all, and such financing, if available, might be dilutive.

 

 

 

 

 

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

 

 

Critical Accounting Policies and Estimates

 

Revenue Recognition: We recognize revenue from product sales once all of the following criteria for revenue recognition have been met: pervasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and not subject to refund or adjustment; and collection of the amount due is reasonable assured.

 

 

New Accounting Standards

 

Management has evaluated recently issued accounting pronouncements through February 28, 2014 and concluded that they will not have a material effect on the financial statements as of February 28, 2014.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not required for smaller reporting companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Item 4T. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

 

Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, our disclosure controls and procedures were not effective. Our disclosure controls and procedures were not effective because of the "material weaknesses" described below under "Management's report on internal control over financial reporting," which are in the process of being remediated as described below under "Management Plan to Remediate Material Weaknesses."

 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:

 

·         pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

·         provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and

 

·         provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

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Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Further, over time control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of August 31, 2013. In making its assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its assessment, management has concluded that we had certain control deficiencies described below that constituted material weaknesses in our internal controls over financial reporting. As a result, our internal control over financial reporting was not effective as of August 31, 2013.

 

A "material weakness" is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. As a result of management's review of the investigation issues and results, and other internal reviews and evaluations that were completed after the end of quarter related to the preparation of management's report on internal controls over financial reporting required for this quarterly report on Form 10-Q, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:

 

1)      lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and

 

2)      insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

We do not believe the material weaknesses described above caused any meaningful or significant misreporting of our financial condition and results of operations for the fiscal year ended August 31, 2013. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

 

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Management Plan to Remediate Material Weaknesses

 

Management is pursuing the implementation of corrective measures to address the material weaknesses described below. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

 

We believe the remediation measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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PART II. OTHER INFORMATION

 

Item 1 -- Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

 

Item 1A - Risk Factors

 

See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report on 10-K for the fiscal year ended August 31, 2013 and the discussion in Item 1, above, under "Liquidity and Capital Resources."

 

Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds

 

No shares were issued in the quarter ended February 28, 2014.

 

Item 3 -- Defaults Upon Senior Securities

 

None.

 

Item 4 -- Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5 -- Other Information

 

None.

 

 

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Item 6 -- Exhibits

 

 

Exhibit Number		Ref		Description of Document
31.1				Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1				Certification of Principal 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.
101		*		The following materials from this Quarterly Report on Form 10-Q for the quarter ended February 28, 2014, formatted in XBRL (eXtensible Business Reporting Language):
				(1) Balance Sheets at February 28, 2014 (unaudited), and August 31, 2013 (audited)
				(2) Unaudited Statements of Operations for the three and six month periods ended February 28, 2014 and 2012, and the period from August 26, 2010 (inception) to February 28, 2014
				(3) Unaudited Statements of Cash Flows for the six-month periods ended February 28, 2014 and 2013, and the period from August 26, 2010 (inception) to February 28, 2014.
				(4)    Notes to the financial statements.

 

• Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

 

 

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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.

 

 

 

	JA Energy Registrant
Date:  April 21, 2014	/s/ James Lusk_______________________
	Name: James Lusk
	Its: Principal Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

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