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 May 31, 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.)

 

10800 Alta Drive, Suite 115		89145
(Address of principal executive offices)		(Zip Code)

(702) 629-5154
(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 July 20, 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 May 31, 2014

 

PART I - FINANCIAL INFORMATION	3
Item I. Financial Statements	3
Statements of Operations (unaudited)	3
Balance Sheets (unaudited)	4
Statements of Cash Flows (unaudited)	5
Notes to Financial Statements	6
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures about Market Risk	18
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	22
Item 6 – Exhibits	23
SIGNATURES	23

 

 

 

2

 

 

 

PART I - FINANCIAL INFORMATION

 

JA Energy

(A Development Stage Company)

Statements of Operations

(Unaudited)

 

				For the three months ended May 31, 2014		For the three months ended May 31, 2013		For the nine months ended May 31, 2014		For the nine months ended May 31, 2013		From August 26, 2010 (inception) to May 28, 2014
Revenue			$	-	$	-	$	-	$	-	$	5,000
Cost of goods sold				-		-		-		-		3,750
Gross profit				-		-		-		-		1,250
Expenses:
	General & administrative			64,458		64,925		248,200		145,084	$	1,132,694
	Consulting fees			5,500		11,000		37,200		28,500		151,667
		Total expense		69,958		75,925		285,400		173,584		1,284,361
	Interest income			-		-		-		-		23
	Interest expense			(5,966)		(3,262)		(19,450)		(8,341)		(34,927)
	Write-off of intangible assets			(2,250,000)		-		(2,250,000)		-		(2,250,000)
	Loss on abandonment of fixed assets			(219,312)		-		(219,312)		-		(219,312)
	Abandonment of farming operations			-		(125,533)		-		(125,533)		(503,533)
	Warrants issued for debt			-		(875,000)		-		(875,000)		(875,000)
		Total other income (expense)		(2,474,278)		(1,003,795)		(2,488,762)		(1,008,874)		(3,882,749)
Net loss			$	(2,545,236)	$	(1,079,720)	$	(2,774,162)	$	(1,182,458)	$	(5,165,860)
Weighted average number of common
	shares outstanding- basic			41,174,124		37,276,703		39,336,451		37,274,359
Net loss per share			$	(0.06)	$	(0.03)	$	(0.07)	$	(0.03)

 

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

 

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JA Energy

(A Development Stage Company)

Condensed Balance Sheets

(Unaudited)

 

				May 31, 2014		August 31, 2013
		ASSETS
Current assets:
	Cash and cash equivalents		$	-	$	2,677
	Deposits			-		3,555
		Total current assets		-		6,232
Fixed assets:
	MDU fixed asset			-		216,799
	Furniture, Fixtures, Equipment and Vehicle, net of			10,838		15,565
		accumulated depreciation of $11,284 May 2014,
		$8,587 August 2013
		Total fixed assets		10,838		232,364
TOTAL ASSETS			$	10,838	$	238,596
		LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities			108,228		30,902
	Accounts payable, related parties			9,550		9,550
	Bank overdraft			947		-
	Notes payable			70,000
	Loan payable – current			4,005		3,822
	Loan payable - related party			589,800		438,826
		Total current liabilities		782,531		483,100
Long-term liabilities:
	Loan payable - long term			8,411		11,438
	Total long-term liabilities			8,411		11,438
		Total liabilities		790,942		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			43,403		38,403
		authorized, 43,402,385 and 38,402,385 issued and outstanding as of 5/31/14 and 8/31/13, respectively
	Additional paid-in capital			4,251,833		2,006,833
	Stock subscription payable			90,521		90,521
	Deficit accumulated during development stage			(5,165,860)		(2,391,699)
		Total stockholders' equity		(780,104)		(255,942)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$	$10,838	$	$238,596

 

 

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

 

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JA Energy

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

				For the nine months ended May 31, 2014		For the nine months ended May 31, 2013		From August 26, 2010 (inception) to May 31, 2014
OPERATING ACTIVITIES			$		$		$
Net loss				(2,774,162)		(1,182,458)		(5,165,860)
Adjustment to reconcile net loss from operations
	to net cash used in operating activities:
		Stock compensation		-		-		464,121
		Warrant expense		-		875,000		875,000
		Abandoned farming operations		-		54,000		432,000
		Write-off of fixed assets		219,311		-		219,311
		Write-off of intangible assets		2,250,000		-		2,250,000
		Depreciation expense		2,697		4,070		11,284
	Decrease (Increase) in
		Prepaid expense		-		7,210		-
		Inventory		-		63,323		-
		Deposits		3,555		(1,000)		-
	Increase (Decrease) in
		Bank Over Draft		947		-		947
		Accounts payable and accrued expense		77,326		(10,030)		108,228
		Accounts payable related party		-		(250)		9,550
Net cash (used) by operating activities				(220,326)		(191,135)		(795,419)
INVESTING ACTIVITIES
	Purchase and development of MDU			(482)		(41,953)		(118,334)
	Purchase of fixed assets; vehicle and equipment			-		(2,030		(24,152)
Net cash (used) by investing activities				(482)		(43,983)		(142,486)
FINANCING ACTIVITIES
Proceeds issuance of common stock and
	contributed capital			-		-		250,690
Proceeds from notes payable				70,000				70,000
Related party advances				203,952		239,376		655,380
Payments related party advances				(52,978)		-		(65,580)
Proceeds from other loans				-		-		35,000
Payments on other loans				(2,843)		(2,405)		(7,585)
Net cash provided by financing activities				218,131		236,971		937,905
Net cash increase (decrease)				(2,677)		1,853		-
Cash at beginning of period				2,677		399		-
Cash at end of period			$	-	$	2,252	$	-

 

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

 

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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 May 31, 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 as the interim disclosures generally do not repeat those in the annual statements. Operating results for the nine months ended May 31, 2014 are not necessarily indicative of the results that may be expected for the year ending August 31, 2014. 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 $5,165,860. 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.

 

 

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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.

 

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.

 

 

7

 

 

 

 

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.

 

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.

 

 

8

 

 

 

 

 

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 440,000 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.

 

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

 

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.

 

As described in Note 14 to these financial statements, subsequent to quarter end the Company issued 1,000,000 shares of preferred shares in exchange for Notes Payable totaling $70,000.

 

 

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.

 

 

 

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The Chief Executive Officer loaned to the Company $199,176, net of repayments, during the quarter 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 net of repayments, during the quarter 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 net of repayments, during the quarter 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 net of repayments, during the quarter 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 net of repayments, during the quarter ended November 30, 2013. The terms of the loan are due upon demand with an annual interest rate of 5%.

 

The Chief Executive Officer advance to the Company $91,500 net of repayments, during the quarter ended February 28, 2014.

 

The Chief Executive Officer advance to the Company $5,452 net of repayments, during the quarter ended May 31, 2014.

 

As of May 31, 2014, at total of $65,500 in repayment had been made against total loans and advances $655,380. Additionally, as of May 31, 2014, the Company was no longer making interest payments nor accruing interest on any of the loans described above.

 

 

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
	May 2015	$4,005	$663	$4,668
	May 2016	$4,263	$405	$4,668
	May 2017	$4,148	$131	$4,279

 

At May 31, 2014, the principal outstanding on this loan was $12,416.

 

 

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.

 

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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 May 31, 2014, the Company had net operating loss carry forwards of $1,576,739 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 May 31, 2014 and 2013:

		2014		2013
Deferred tax assets:
Net operating loss carry forward		$  1,576,739		$        195,535
Total deferred tax assets		551,859		68,437
Less: valuation allowance		(551,859)		(68,437)
Net deferred tax assets		$                   -		$                   -

 

The valuation allowance for deferred tax assets as of May 31, 2014 was $551,859, as compared to $68,437 as of May 31, 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 May 31, 2014 and May 31, 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 -%

  

At May 31, 2014, we had an unused net operating loss carryover approximating $1,576,739 that is available to offset future taxable income which expires beginning 2030.

 

 

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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 - WRITE-OFF OF INTANGIBLE ASSET

 

As described in Note 4 to these financial statements on April 10, 2014, the Company issued 5,000,000 unregistered restricted shares of common stock to James L. Lusk, the then 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. As a result of this transaction the Company booked Intangible Assets related to the patent applications at a value of $2,250,000 which was the fair market value of the stock issued ($0.45 per share). Subsequent to the issuance of these shares it management decided that the value of the patent applications was indeterminable and, as such wrote the value of the intangible assets to zero and booked a charge of $2,250,000 related to the write-off.

 

 

NOTE 11 - WRITE-OFF OF MDU FIXED ASSET

 

During the quarter ended May 31, 2014, the Company wrote off it MDU demonstration unit resulting in a charge to other expense of $217,281.

 

NOTE 12 - NOTES PAYABLE

 

On April 4, 2014, the Company issued a One-year Promissory Note (“the Note”) in the amount of $50,000 to a stockholder. The Note bears interest at 12% percent per annum with interest due each month. In the event that interest is not paid within three days from the time it is due the Note would be considered in default and would be fully due and payable. Additional consideration for the Note included the Chief Executive Officer of the Company giving the note holder his voting proxy for all of the shares he held with the exception of voting on a tender offer or a sale of the Company’s assets. As of May 31, 2014, the Note was in default.

 

On May 5, 2014, the Company issued a second One-Year Promissory Note (“Second Note) in the amount of $20,000 to the same stockholder noted above. The Second Note was issued with the restriction that the funds be used specifically to pay the Company’s Patent Counsel for fee to finalize certain patent filings and was secured by all patents, and patent applications held by the Company. The Second Note bears interest at 12% percent per annum with interest due each month. In the event that interest in not paid within three days from the time it is due the Second Note would be considered in default and would be fully due and payable.

 

 

 

 

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NOTE 13 - LOANS PAYABLE.

 

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 14 - RECENT ACCOUNTING PRONOUCEMENTS

 

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 15 - SUBSEQUENT EVENTS

 

On June 6, 2014, the Company received notices that it was in default of the two Promissory Notes described in Note 11 to these financial statements. Rather than default on the Notes the Company issued 1,000,000 shares of $0.001 par value Voting Preferred Stock in exchange for Notes Payable totaling $70,000. Additionally, the Company agreed to designate with the State of Nevada Secretary of State that each share of preferred carries the voting power of 50 common shares. Finally, the shareholder has agreed to cancel the shares upon full payment of the $50,000 Note, without accrued interest and the sale of five units of the MDU.

 

 

 

 

 

 

 

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 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 engage in product development and development of intellectual property.

 

Business Overview

 

The Company is designing a suite of modular, self-contained, fully automated, climate controlled units for distributed production of energy.

 

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.

 

 

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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 and Electrical Generation System” was filed on November 27, 2013. 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.

Management is currently seeking new business opportunities referred by various sources, including its officer/director, professional advisors, venture capitalists, members of the financial community, and others who may present unsolicited proposals.

 

We will seek businesses from all known sources, but will rely principally on personal contacts of the officer/director and his affiliates, as well as indirect associations between him and other business and professional people.

 

We will not restrict our search to any particular business, industry, or geographical location, and management reserves the right to evaluate and enter into any type of business in any location. It may participate in a newly organized business venture. On the other hand, we may select a more established company entering a new phase of growth or in need of additional capital to overcome existing financial problems.

 

In seeking a business venture, the decision of management will not be controlled by an attempt to take advantage of any anticipated or perceived appeal of a specific industry, management group, product, or industry, but will be based on the business objective of seeking long-term capital appreciation in the real value for JA Energy.

 

The period within which we may participate in a business on completion of this offering cannot be predicted and will depend on circumstances beyond our control, including the availability of businesses, the time required to complete our investigation and analysis of prospective businesses, the time required to prepare appropriate documents and agreements providing for our participation, and other circumstances. It is anticipated that the analysis of specific proposals and the selection of a business will take several months.

 

It is possible that we may propose to acquire a business in the development stage. A business is in the development stage if it is devoting most of its efforts to establishing a new business, and planned principal operations have either not commenced or not yet resulted in significant revenues.

 

As of the date of this report all further development of product has ceased while the Company files for patents to protect its inventions. 

 

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Results of Operations

 

Revenues

 

We earned $5,000 in revenues since our inception through May 31, 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 May 31, 2014, we experienced a net loss of $2,545,363. The net loss consisted of general and administrative expenses of $64,458, interest expense of $5,966, and consulting fees of $5,500. Additionally the Company wrote off $2,250,000 of intangible assets and $219,312 of fixed asset. This compares to a net loss of $1,079,720 for the same period last year. The net loss consisted of general and administrative expenses of $64,925, interest expense of $3,262 and consulting fees of $11,000. Additionally, the Company recognized $875,000 in expense related to the issuance of warrants to purchase common stock and expense to the abandonment of farming operations of $125,533.

 

For the nine months ending May 31, 2014, we experienced a net loss of $2,774,162. The net loss consisted of general and administrative expenses of $248,200, interest expense of $19,450, and consulting fees of $37,200. Additionally the Company wrote off $2,250,000 of intangible assets and $219,312 of fixed asset. This compares to a net loss of $1,182,458 for the same period last year. The net loss consisted of general and administrative expenses of $145,084, interest expense of $8,341 and consulting fees of $28,500. Additionally, the Company recognized $875,000 in expense related to the issuance of warrants to purchase common stock and expense to the abandonment of farming operations of $125,533.

 

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 $5,165,860

 

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 May 31, 2014, the Company has recognized $5,000 in revenues and has accumulated operating losses of approximately $5,165,860 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.

 

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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.

 

 

Liquidity and Capital Resources

 

As of May 31, 2014 the Company has no cash, no current assets and current liabilities of $782,531. As of May 31, 2014, the Company’s total assets were $10,838 and total liabilities of $790,942.

 

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. Currently, the Company has ceased most operations with the exception of certain aspects of its product development and protecting its intellectual property.

 

 

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 May 31, 2014 and concluded that they will not have a material effect on the financial statements as of May 31, 2014.

 

 

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not required for smaller reporting companies.

 

 

 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

 

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. 

 

Item 3 -- Defaults Upon Senior Securities

 

On April 4, 2014, the Company issued a One-year Promissory Note (“the Note”) in the amount of $50,000 to a stockholder. The Note bears interest at 12% percent per annum with interest due each month. In the event that interest is not paid within three days from the time it is due the Note would be considered in default and would be fully due and payable. Additional consideration for the Note included the Chief Executive Officer of the Company giving the note holder his voting proxy for all of the shares he held with the exception of voting on a tender offer or a sale of the Company’s assets. As of May 31, 2014, the Note was in default.

 

 

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

 

On May 3, 2014, the majority of shareholders JA Energy, Inc. (the “Company” or the “Registrant”) as authorized by Section 78.320 of the Nevada Revised Statutes, ("Nevada Law") called a special meeting of the shareholders. This Section provides that the written consent of the holders of outstanding shares of voting capital stock, having not less than the minimum number of votes which would be necessary to authorize or take the action at a meeting at which all shares entitled to vote on a matter were present and voted, may be substituted for the special meeting.

 

 

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Further, pursuant to the Company’s By-laws, Article II (12) states “any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action."

 

At this special meeting, the majority of the shareholders voted to remove James L. Lusk as a director of the Company.

 

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.

 

 

 

 

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.

 

Date: July 20, 2014

 

/s/ Barry Hall

Name: Barry Hall

Title: Chief Executive Officer and Chief

Financial Officer

(Principal Executive Officer and Principal Accounting Officer)

 

 

 

 

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