UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

  

(Mark One)

   

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED August 31, 2014

   

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

FOR THE TRANSITION PERIOD FROM __________ TO __________  

 

COMMISSION FILE NUMBER: 333-148005

 

CALA ENERGY CORP.

 (Exact name of registrant as specified in its charter)

 

Nevada		20-8009362
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

777 South Post Oak Lane

One Riverway

Suite 1700, PMB #1554

Houston, TX 77056

 (Address of principal executive offices, Zip Code)

 

(281) 667-9360

(Registrant’s telephone number, including area code)

 

Copies to:

Asher S. Levitsky P.C.

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas; 11th floor

New York, New York 10105-0302

Phone: (212) 370-1300

Fax: (646) 895-7182

E-mail: alevitsky@egsllp.com

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☐      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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,”  ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒     No ☐

 

The number of shares of registrant’s common stock outstanding, as of July 7, 2014: 339,757,357

 

 

 

CALA ENERGY CORP.

Form 10-Q

For the Quarter Ended August 31, 2014

 

TABLE OF CONTENTS

 

		Page
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Balance Sheets as of August 31, 2014 (unaudited) and February 28, 2013	2
	Unaudited Condensed Statements of Operations and Other Comprehensive Loss for the six and three months ended August 31, 2014 and 2013	3
	Unaudited Condensed Statements of Cash Flows for the six months ended August 31, 2014 and 2013	4
	Notes to Unaudited Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	8
Item 4.	Controls and Procedures.	8
PART II - OTHER INFORMATION
Item 6.	Exhibits.	9

 

FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our report on Form 10-K for the year ended February 28, 2014, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and in other reports that we file with the SEC.   You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

 

CALA ENERGY CORP.

CONDENSED BALANCE SHEETS

 

		August 31, 2014				February 28, 2014
		(Unaudited)
ASSETS
Current assets
Cash		$	3,287			$	35,607
Total current assets			3,287				35,607
Total assets		$	3,287			$	35,607
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Other current liabilities		$	270,100			$	215,400
Total current liabilities			270,100				215,400
Total liabilities			270,100				215,400
Stockholders' deficit
Series A  convertible preferred stock, par value $0.001 per share, 10,000,000 shares authorized; 0 share issued and outstanding,			-				-
Common stock ( 400,000,000 authorized shares, par value $0.001 per share; 339,757,357 shares issued and outstanding)			339,757				339,757
Additional paid in capital			8,182,945				8,182,945
Accumulated deficit			(8,789,515	)			(8,702,495	)
Total stockholders' deficit			(266,813	)			(179,793	)
Total liabilities and stockholders' deficit		$	3,287			$	35,607

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

CALA ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS AND

OTHER COMPREHENSIVE LOSS

 

		Six months ended August 31,								Three months ended August 31,
		2014				2013				2014				2013
Revenue		$	-			$	-			$	-			$	-
Selling, general and administrative expenses			87,020				134,076				38,788				47,839
Loss from operations			(87,020	)			(134,076	)			(38,788	)			(47,839	)
Net Loss		$	(87,020	)		$	(134,076	)		$	(38,788	)		$	(47,839	)
Comprehensive loss		$	(87,020	)		$	(134,076	)		$	(38,788	)		$	(47,839	)
Net loss per share
Net loss per share from continuing operations		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Basic and Diluted loss per share		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average common shares outstanding
- Basic and Diluted			339,757,357				257,148,661				339,757,357				319,539,966

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

CALA ENERGY CORP.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

 

		Six months ended August 31,
		2014				2013
Cash Flows from operating activities:
Net loss		$	(87,020	)		$	(134,076	)
Increase in liabilities:
Other current liabilities			54,700				57,460
Net cash used in operating activities			(32,320	)			(76,616	)
Cash flows from financing activities:
Repayment of related parties			-				(125,100	)
Proceeds from issuance of common stock			-				200,000
Net cash provided by financing activities			-				74,900
Net decrease in cash and cash equivalents			(32,320	)			(1,716	)
Cash, beginning of the period			35,607				5,960
Cash, end of the period		$	3,287			$	4,244
Supplemental disclosures of cash flow information:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-
Supplemental disclosures of cash flow for non-cash transaction:
Issuances of common stock upon conversion of preferred stock		$	-			$	100,000

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

CALA ENERGY CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

AUGUST 31, 2014

 

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

Cala Energy Corp. (the “Company”) is a Nevada corporation incorporated on November 29, 2006 under the name Sparking Events, Inc.  The Company has experienced several corporate name changes: Xodtec Group USA, Inc. in June 2009, Xodtec LED, Inc. in May 2010 and Cala Energy Corp. in September 2013.

 

On July 10, 2013, the Company formed Cala Energy International Corp. (the “Subsidiary”), a wholly-owned subsidiary, under the laws of the Nevada. The Subsidiary’s charter has been revoked.

 

During September 2013, the Company approved on creating an Indonesian subsidiary under the laws of Republic of Indonesia in which the Company will have a 95% interest. As of August 31, 2014, the Company had abandoned the application submitted to Indonesian government due to inactivity and unusual length in application process time.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these iterim financial statements do not include all of the information and notes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended February 28, 2014 included in the Company’s Form 10-K. In the opinion of management, the interim financial statements included herein contain all adjustments, including normal recurring adjustments considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented. The operating results and cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

 

The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the unaudited condensed financial statements, during the six months ended August 31, 2014, the Company generated no revenue and incurred an operating loss and a net loss of approximately 87,000. The Company had a negative cash flow in operating activities amounted to approximately $32,000 for the six months ended August 31, 2014, and as of August 31, 2014, the Company’s accumulated deficit was approximately $8,790,000, substantially all of which was generated by operations which were spun off. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results.

 

Segment Information

 

ASC 280 requires companies to report information about operating segment in interim and annual financial statements. It also requires segment disclosures about products and services geographic and major customers. The Company has determined that it does not have any separately reportable operating segments.

 

Net Loss per Share

 

The Company calculates its basic and diluted earnings per share in accordance with ASC 260. Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive warrants and options and convertible securities. Because the Company incurred losses for the six months ended August 31, 2014, the number of basic and diluted shares of common stock is the same.

 

 

CALA ENERGY CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

AUGUST 31, 2014

 

NOTE 3 –  RECENT ACCOUNTING PRONOUNCEMENTS

 

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

 

NOTE 4 – INCOME TAXES

 

The Company did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because the Company has experienced operating losses for U.S. federal income tax purposes since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of the results of our operations and financial condition should be read in conjunction with our financial statements and the related notes, which appear elsewhere in this report. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see “Forward Looking Statements.”

 

Overview

 

Prior to July 13, 2012, through our subsidiaries we were engaged in design, marketing and selling of advanced lighting solutions which are designed to use less energy and have a longer life than traditional incandescent, halogen, fluorescent light sources.   We were not able to generate profits from this business and, for the several years prior to July 13, 2012, we financed our operations primarily through funds provided by our officers and directors.

 

On July 13, 2012, pursuant to agreements with one of our former directors, we transferred the stock in our subsidiaries and our 35% ownership in an inactive company to the former director in exchange for cancellation of debt totaling $100,000.  As a result of the transfer of the subsidiaries, we were no longer engaged in the lighting solutions business.  We transferred the stock of the subsidiaries because we felt that, as a result of our continuing losses and our inability to develop the business as we had planned, it was not in our best interest to continue in this business.

 

Following the sale of our subsidiaries in the lighting solutions business, we were not engaged in any business activity. We had initially planned to focus on providing an internet based security system to companies that would like to replace security guards with video cameras that are monitored 24/7.  Through February 28, 2013, we did not generate any revenue from this new proposed business, and we discontinued our efforts with respect to that business.

 

Subsequent to February 2013, we planned to provide enhanced oil recovery services and supplying materials to existing operators of oil fields in Indonesia. In this connection, we approved creating an Indonesian subsidiary under the laws of Republic of Indonesia in which we would have a 95% interest. As of August 31, 2014, we abandoned the application submitted to Indonesian government, and we are evaluating potent business opportunities. We cannot assure you that we will be able to engage in any business activities or that any business activities in which we may engage will be profitable.

 

Significant Accounting Estimates and Policies

 

The discussion and analysis of our financial condition and results of operations is based upon our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of our products, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Income Taxes

 

We account for income taxes in accordance with ASC 740, Income Taxes, which requires that we recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized. 

 

We adopted ASC 740-10-25, Income Taxes-Overall-Recognition, on January 1, 2007, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. We must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

 

 

Recent accounting pronouncements 

 

We considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

 

RESULTS OF OPERATIONS

 

Three and six months Ended August 31, 2014 and 2013

 

We had no revenue for the three or six months ended August 31, 2014 and 2013. General and administrative expenses, which consisted primarily of professional fees and executive compensation, were approximately $39,000, for the quarter ended August 31, 2014, as compared with approximately $48,000 for the quarter ended August 31, 2013, a decrease of approximately $9,000 or approximately 18.9%%. General and administrative expenses, which consisted primarily of professional fees and executive compensation, were approximately $87,000, for the six months ended August 31, 2014, as compared with approximately $134,000 for the six months ended August 31, 2013, a decrease of approximately $47,000 or approximately 35.1% primarily because of higher professional fees during the six months ended August 31, 2013. Executive compensation was $30,000 for each of the quarters ended August 31, 2014 and 2013 and $60,000 for the six months ended August 31, 2014 and 2013.

 

As a result of the foregoing, our net loss for the three months ended August 31, 2014 was approximately $39,000, or $0.00 per share (basic and diluted), as compared with a loss of approximately $48,000, or $0.00 per share (basic and diluted), for the three months ended August 31, 2013. Our net loss for the six months ended August 31, 2014 was approximately $87,000, or $0.00 per share (basic and diluted), as compared with a loss of approximately $134,000, or $0.00 per share (basic and diluted), for the six months ended August 31, 2013.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.  At August 31, 2014, we had a cash balance of approximately $3,000, representing the balance of the $300,000 proceeds from the sale of stock during the year ended February 28, 2014 after giving effect to the payment of a loan from the chief executive officer of $125,100 and other operating expenses. We had a working capital deficiency of $267,000 at August 31, 2014, as compared with a working capital deficiency of approximately $180,000 at February 28, 2014.

 

During the six months ended August 31, 2014, we used approximately $32,000 in our operations, which reflected our net loss of approximately $87,000, representing our general and administrative expenses, and an approximately $55,000 decrease in current liabilities. There was no cash flow from financing activities during the six months ended August 31, 2014.

 

For the six months ended August 31, 2013, we used approximately $77,000 in our operations, which reflected our net loss of approximately $134,000, representing our general and administrative expenses, and an approximately $57,000 decrease in current liabilities. Cash flow from financing activities was approximately $75,000, consisting of $200,000 proceeds from the sale of stock, net of a payment of the loan to the chief executive officer of $125,100.

 

We believe that, if we engage in any significant business activities, we will require significant financing for our operations. Because of the absence of both operating activities and an actively traded stock, we may have difficulty raising additional funds through the sale of our equity or debt securities. 

 

The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2014.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive and financial officer. Based on that evaluation, our chief executive and financial officer concluded that because of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of August 31, 2014.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended August 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We anticipate that, with our proposed entry into a new business, we will seek to implement effective controls over financial reporting, although we recognize that, in view of the small number of employees, segregation of duties may be difficult. As of the date of this report, we have one part-time employee.

 

PART II - OTHER INFORMATION

 

ITEM 6. EXHIBITS

 

Exhibit		Description of the Exhibit
31.1		Rule 13a-14(a)/15d-14(a) certification by the chief executive officer and chief financial officer.
32.1		Section 1350 certification by the chief executive officer and chief financial officer.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	CALA ENERGY CORP.
Date:  October 9, 2014	/s/ Terry Butler
	Terry Butler
	Chief Executive and Financial Officer

 

 

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