Attached files
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended
June 30, 2009
or
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[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ____ to ___
Commission File
Number: 333-146533
HAGUE
CORP.
(Exact
name of Registrant as specified in its charter)
| Nevada | 20-8195578 |
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(State of
jurisdiction of
incorporation or
oganization)
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(I.R.S.
Employer
Identification
Number)
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7700 S. River
Parkway
Tempe, AZ
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85284 |
| (Address of principal executive offices) | (Zip Code) |
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Registrant’s
telephone number, including area code:
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(214) 701-8779 |
Securities registered
pursuant to Section 12 (b) of the Act: None
Securities
registered pursuant to Section 12 (g) of the Act: Common Stock, $.001
Par Value
Check
whether the Registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. [ ]
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 if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K
[ ].
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company as
defined by Rule 12b-2 of the Exchange Act: smaller reporting company
[X].
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes
[ ] No [X]
State
Issuer’s revenues for its most recent fiscal year: $-0-.
As of
November 5, 2009, the number of shares of Common Stock held by non-affiliates
was approximately 24,600,000 shares with a market value of $3,198,000 based upon
a last sale for our Common Stock of $.13 as of the closed of business on
November 5, 2009.
As of
November 10, 2009, the issuer had 73,725,167 shares of common stock, $0.001 par
value per share outstanding.
FORWARD-LOOKING
STATEMENTS
Some of
the statements under this Form 10-K contain forward-looking statements. All
statements other than statements of historical facts contained in this Form
10-K, including statements regarding our plans, objectives, goals, strategies,
future events, capital expenditures, future results, our competitive strengths,
our business strategy and the trends in our industry are forward-looking
statements. The words “believe,” “may,” “could,” “will,” “estimate,” “continue,”
“anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “forecast,”
“future,” “likely,” “probably,” “suggest” and similar expressions, as they
relate to the Company, are intended to identify forward-looking
statements.
Forward-looking
statements reflect only our current expectations. We may not update these
forward-looking statements, even though our situation may change in the future.
In any forward-looking statement, where we express an expectation or belief as
to future results or events, such expectation or belief is expressed in good
faith and believed to have a reasonable basis, but there can be no assurance
that the statement of expectation or belief will be achieved or accomplished.
Our actual results, performance or achievements could differ materially from
those expressed in, or implied by, the forward-looking statements due to a
number of uncertainties, many of which are unforeseen, including, without
limitation:
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our
reliance on our exclusive licensing agreement with William Marsh Rice
University;
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we
are a development stage company with no history of profitable
operations;
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we
will likely need substantial additional capital to finance our
business;
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our
solar products may not gain market acceptance;
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we
need to build a manufacturing plant which could have cost overruns and
implement plans to hire sales and marketing personal, establish
distribution relationships and channels and strategic alliances for market
penetration and revenue growth;
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competition
within our industry;
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reduction
or elimination of government subsidiaries and economic incentives for
solar technology could cause our anticipated revenues to decline;
and
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the
availability of additional capital on terms acceptable to
us.
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In
addition, you should refer to the “Risk Factors” section of this Form 10-K for a
discussion of other factors that may cause our actual results to differ
materially from those implied by our forward-looking statements. As a result of
these factors, we cannot assure you that the forward-looking statements in this
Form 10-K will prove to be accurate. Furthermore, if our forward-looking
statements prove to be inaccurate, the inaccuracy may be material. In light of
the significant uncertainties in these forward-looking statements, you should
not regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time
frame, if at all. Accordingly, you should not place undue reliance on these
forward-looking statements.
We
qualify all the forward-looking statements contained in this Form 10-K by the
foregoing cautionary statements.
2
PART
I
Item
1. Business
Corporate
Structure
As described below, Hague Corp.
(“Hague”) owns 100% of its operating subsidiary, Solterra Renewable
Technologies, Inc. (“Solterra”). The term “the Company” includes
Hague and Solterra unless the context indicates otherwise.
History
of Hague Corp.
Hague was formed under the laws of the
State of Nevada on January 9, 2007. It acquired certain mineral claims located
in Nevada. Hague has not pursued these rights to its mineral claims and is
concentrating its business operations on those of its wholly-owned subsidiary
described below.
Solterra Renewable Technologies,
Inc.
Solterra
was organized in the State of Delaware on the 19th day of May 2008. The
principal executive office of Solterra is located at 7700 S. River Parkway,
Tempe, AZ 85284 and its phone number is (214) 701-8779.
Plan
of Reorganization and Financing Transaction
On
November 4, 2008, the Company closed on an Agreement and Plan of Merger and
Reorganization by and among Hague, Solterra, the shareholders of Solterra and
Gregory Chapman as “Indemnitor” (the “Agreement”), which resulted in Solterra
becoming a wholly-owned subsidiary of the Company. Pursuant to the Agreement,
Mr. Chapman cancelled 40,000,000 shares of Common Stock of the Company owned by
him and issued a general release in favor of the Company terminating its
obligations to repay Mr. Chapman approximately $34,000 in principal owed to
him.
In
accordance with the Agreement, the Company issued 41,250,000 shares of its
Common Stock to the former stockholders of Solterra. Certain existing
stockholders of the Company in consideration, of Solterra and its shareholders
completing the transaction, issued to the Company a Promissory Note in the
amount of $3,500,000 due and payable on or before January 15, 2009, through the
payment of cash or, with the consent of the Company, the cancellation of up to
12,000,000 issued and outstanding shares of the Company owned by them. As of the
filing date of this Form 10-K, these Notes are in default and the Company has
not been able to recover payment on the Notes or the cancellation of the
Company’s 12,000,000 shares in satisfaction thereof. The Company is considering
pursuing all legal alternatives in connection with this matter.
On
November 4, 2008, the Company entered into a Securities Purchase Agreement,
Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration
Rights Agreement, Escrow Agreement and other related transactional documents
(the “Transaction Documents”) to obtain $1,500,000 in gross proceeds from three
non-affiliated parties (collectively hereinafter referred to as the “Lenders”)
in exchange for 3,525,000 restricted shares of Common Stock of the Company (the
“Restricted Shares”) and Debentures in the principal amount aggregating
$1,500,000. Each Debenture has a term of three years maturing on November 4,
2011 bearing interest at the rate of 8% per annum and is prepayable by the
Company at anytime without penalty, subject to the Debenture holders’ conversion
rights. Each Debenture is convertible at the option of each Lender into the
Company’s Common Stock (the “Debenture Shares”, which together with the
Restricted Shares shall collectively be referred to as the “Securities”) at a
conversion price of $.2667 per share (the “Conversion Price”). The Registration
Rights Agreement requires the Company to register the resale of the Securities
within certain time limits and to be subject to certain penalties in the event
the Company fails to timely file the Registration Statement, fails to obtain an
effective Registration Statement or, once effective, to maintain an effective
Registration Statement until the Securities are saleable pursuant to Rule 144
without volume restriction or other limitations on sale. The Debentures are
secured by the assets of the Company and are guaranteed by Solterra as the
Company’s subsidiary. In the event the Debentures are converted in their
entirety, the Company would be required to issue an aggregate of 5,624,297
shares of the Company’s Common Stock, subject to anti-dilution protection for
stock splits, stock dividends, combinations, reclassifications and sale of the
Company’s Common Stock at a price below the Conversion Price. Certain
changes of control or fundamental transactions such as a merger or consolidation
with another company could cause an event of default under the Transaction
Documents. See “Item 13.”
3
Business
Overview
Competitors
are pursuing different nanotechnological approaches to developing solar cells,
but the general idea is the same for all. When light hits an atom in a
semiconductor, those photons of light with lots of energy can push an electron
out of its nice stable orbital around the atom. The electron is then free to
move from atom to atom, like the electrons in a piece of metal when it conducts
electricity. Using nano-size bits of semiconductor embedded in a conductive
plastic maximizes the chance that an electron can escape the nanoparticle and
reach the conductive plastic before it is "trapped" by another atom that has
also been stripped of an electron. Once in the plastic, the electron can travel
through wires connecting the solar cell to an electronic device. It can then
wander back to the nanocrystal to join an atom that has a positive charge, which
scientifically is called electron hole
recombination.
A quantum
dot solar cell typically uses a thin layer of quantum dot semiconductor
material, rather than silicon chips, to convert sunlight into electricity.
Quantum Dots, also known as nanocrystals, measure near one billionth of an inch
and are a non-traditional type of semiconductor. Management believes that they
can be used as an enabling material across many industries and that quantum dots
are unparalleled in versatility and flexible in form.
Solterra
intends to design and manufacture solar cells using a proprietary thin film
semiconductor technology that we believe will allow us to reduce our average
solar cell manufacturing costs and be extremely competitive in this market.
Solterra will be one of the first companies to integrate non-silicon quantum dot
thin film technology into high volume low cost production using proprietary
technologies. Our objective is to become one of the first solar module
manufacturer to offer a solar electricity solution that competes on a
non-subsidized basis with the price of retail electricity in key markets in
North America, Europe, the Middle East and Asia.
Management
believes that the manufacture of our thin film quantum dot solar cells can
introduce a cost effective disruptive technology that can help accelerate the
conversion from a fossil fuel dependent energy infrastructure to one based on
renewable, carbon-neutral energy sources. We believe that our proposed products
also can be a part of the solution to greenhouse gases and global
warming.
Solterra
plans to:
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a)
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Scale up Quantum Dot
Production by applying
proprietary technology licensed from Rice University for our quantum dot
synthesis process. This licensed technology enables Solterra to produce
the highly desirable CdSe tetrapod quantum dots at a cost savings of
greater than 50% compared to competing suppliers, and will organically
supply Solterra’s requirements for quantum dots for its solar cells.
Additionally, Solterra will market these Q-Dots through various existing
supply channels into various markets, including but not limited to medical
diagnostics and printed electronics. The initial pilot scale up will take
place at or near Rice University in Houston, Texas. The staff there will
include one post doctorate, Professor Michael Wong the inventor of the
technology and our Vice President in charge of quantum dot
commercialization David Doderer. Following initial proof of scale
production, the commercial production of quantum dots will likely be
consolidated in a purpose built facility in Phoenix, Arizona, adjoining
the proposed solar cell production
line.
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b)
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Fabricate
solar cells and optimize the performance of solar cells based on a blend
of a suitable conjugated polymer and CdSe quantum dots
(QDs). The aim is to invest our best efforts to demonstrate and
scale up production of low cost quantum dot solar cells having peak
efficiency of greater than 6%. The efficiency of solar cells is the
electrical power it puts out as percentage of the power in incident
sunlight. Within the photovoltaic market, cell pricing and peak efficiency
are key benchmarks for consumers in the decision for system selection and
installation. The design and manufacture of Solterra's quantum dot based
solar cells is projected to allow for the conversion of sunlight into
usable electricity at a combination of efficiencies and cell cost at a
very low "cents per kilowatt-hour" rate. This work is expected to be
accomplished on site at the Arizona State University labs where we also
maintain our corporate offices. The staff there includes three post
doctorates three undergraduates, our Chief Science Officer, Professor
Ghassan Jabbour and our CEO, Stephen
Squires.
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Objectives:
The
Current Objectives of Solterra are as follows:
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Become
the first bulk manufacture of high quality tetrapod quantum dots and the
first solar cell manufacturer to be able to offer a solar electricity
solution that competes on a non-subsidized basis with the price of retail
electricity in key markets in North America, Europe the Middle East and
Asia.
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Build
a robust intellectual property portfolio in third generation
photovoltaics. Success criteria include completion of preparation and
filing of various patent applications in the area of Quantum Dot
Solar Cell technology, by January 2010, defining and initiating the
strategy to secure a reliable source of key materials by February 2010,
and filing or acquiring additional process related patent applications in
solar or printed electronics in general by July 2010, which intellectual
property would be owned or controlled by
Solterra.
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Initiate
scaled manufacturing of tetrapod quantum dots, based in part on technology
licensed from William H. Marsh Rice University, and building on continued
research. Planning includes the implementation of one or more
Solterra owned mini-batch lines for quantum dot conjugation and quality
control studies, as well as a pilot line based on outcomes of
collaboration with Access2Flow, an advanced flow chemistry consortium
based in the Netherlands. The design of the pilot line is
intended such that the initial target output of the line, at approximately
one kilogram per day, can be further scaled at least by an order of
magnitude to 1,000 grams per day in 2010. The output of the
tetrapod quantum dots manufacturing will be used for Solterra’s quantum
dot solar cells as well as stand-alone sales into the biomedical research
fields and to third party developers of quantum dot products such as
displays, memory and computer and consumer
electronics.
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Continue
to develop and characterize the Quantum Dot Solar Cell product;
moving towards pilot proof line for solar cells and leading to high
throughput print line ultimately capable of yearly solar cell output near
gigawatt range. Target cell efficiencies are 6% within one year, 10%
within 2 years and greater than 20% within five years. Coupled
within cell cost per watt decreasing below $1.00/Watt, we intend to pursue
initial product sales in late 2010 with significant increases in
2011.
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Products:
Solar
Panels
A solar
cell or photovoltaic cell is a device that converts solar energy into
electricity by the photovoltaic effect. Photovoltaics is the
field of technology and research related to the application of solar cells as
solar energy. Sometimes the term solar cell is reserved for
devices intended specifically to capture energy from sunlight, while the term
photovoltaic cell is
used when the source is unspecified. Assemblies of cells are used to make solar
modules or solar panels (as we refer to them), which may in turn be linked in
larger photovoltaic arrays that can produce substantial amounts of
electricity.
Solar
cells have many applications. Individual cells are used for powering small
devices such as electronic calculators. Photovoltaic (“PV”) arrays generate a
form of renewable electricity, particularly useful in situations where
electrical power from the grid is unavailable such as in remote area power
systems, Earth-orbiting satellites and space probes, remote radiotelephones and
water pumping applications. Photovoltaic electricity is also increasingly
deployed in grid-tied electrical systems. Similar devices intended to capture
energy radiated from other sources include thermophotovoltaic cells,
betavoltaics cells, and optoelectric nuclear batteries.
5
Thin Film
Quantum Dot PV Solar Cell: Solterra is expected to produce a low cost, easily
processed quantum dot derived solar cell that operates at peak efficiency
greater than 6%, and more importantly has a cost per kilowatt hour (“kWH”)
comparable to conventional grid supplied power. Within the photovoltaic market,
cell pricing and peak efficiency are key benchmarks for consumers in the
decision for system selection and installation. At the end of the day, a
combination of the two is what is really important for the consumer -- the
actual cost for each kilowatt-hour produced. The cleanliness of all renewable
energies makes these technologies attractive, and delivery of electricity at or
near an equivalent cost to conventional fossil fuel produced energy will make
total clean energy adoption inevitable. The design and manufacture of Solterra's
quantum dot based solar cells is projected to allow for the conversion of
sunlight into usable electricity at a combination of efficiencies and cell cost
at a very low "cents per kilowatt-hour" rate. As Solterra approaches this "grid
parity," we believe the decision for Solterra Solar Cells will be quickly
made.
Quantum
Dots
Solterra
has a worldwide exclusive license with Rice University for the manufacture of
low cost, high quality tetrapod quantum dots using Rice developed intellectual
property. Solterra is planning the scale up the bulk production of quantum dots
based on this technology and intends to manufacture and sell these semiconductor
materials for a broad range of emerging applications both in the United States
and abroad.
According
to the new report available at Electronics.ca Publications, the global market
for quantum dots, which in 2008 is estimated to generate $28.6 million in
revenues, is projected to grow over the next five years at a compound annual
growth rate (“CAGR”) of 90.7%, reaching over $700 million by
2013. Following the initially modest revenues generated by standalone
colloidal quantum dots - primarily serving the life sciences, academic, and
other industrial research and development communities - within the next 2 years
several product launches with colloidal or in situ quantum dot underpinning will
bolster market revenue considerably.
Quantum
dots refer to one of several promising materials niche sectors that recently
have emerged from the burgeoning growth area of nanotechnology. Quantum dots
fall into the category of nanocrystals, which also includes quantum rods and
nanowires. As a materials subset, quantum dots are characterized by particles
fabricated to the smallest of dimensions from only a few atoms and upwards. At
these tiny dimensions, they behave according to the rules of quantum physics,
which describe the behavior of atoms and sub atomic particles, in contrast to
classical physics that describes the behavior of bulk materials, or in other
words, objects consisting of many atoms.
Current
and future applications of quantum dots impact a broad range of industrial
markets. These include, for example, biology and biomedicine; computing and
memory; electronics and displays; optoelectronic devices such as LEDs, lighting,
and lasers; optical components used in telecommunications; and security
applications such as covert identification tagging or biowarfare detection
sensors.”
Advantages
of Quantum Dot Based Solar Cells
The
efficiency of solar cells is the electrical power it puts out as percentage of
the power in incident sunlight. One of the most fundamental limitations on the
efficiency of a solar cell is the ‘band gap’ of the semi-conducting material
used in conventional solar cells: the energy required to boost an electron from
the bound valence band into the mobile conduction band. When an electron is
knocked loose from the valence band, it goes into the conduction band as a
negative charge, leaving behind a ‘hole’ of positive charge. Both electron and
hole can migrate through the semi-conducting material.
In a
solar cell, negatively doped (n-type) material with extra electrons in its
otherwise empty conduction band forms a junction with positively doped (p-type)
material, with extra holes in the band otherwise filled with valence electrons.
When a photon with energy matching the band gap strikes the semiconductor, it is
absorbed by an electron, which jumps to the conduction band, leaving a
hole.
Both
electron and hole migrate in the junction’s electric field, but in opposite
directions. If the solar cell is connected to an external circuit, an electric
current is generated. If the circuit is open, then an electrical potential or
voltage is built up across the electrodes.
Photons
with less energy than the band gap slip right through without being absorbed,
while photons with energy higher than the band gap are absorbed, but their
excess energy is wasted, and dissipated as heat. The maximum efficiency that a
solar cell made from a single material can theoretically achieve is about 30
percent, but Management believes that in practice, the best achievable is about
25 percent.
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It is
possible to improve on the efficiency by stacking materials with different band
gaps together in multi-junction cells. Stacking dozens of different layers
together can increase efficiency theoretically to greater than 70 percent. But
this results in technical problems such as strain damages to the crystal layers.
The most efficient multi-junction solar cell is one that has three layers:
gallium indium phosphide/gallium arsenide/germanium (GaInP/GaAs/Ge) made by the
National Center for Photovoltaics in the US, which achieved an efficiency of 34
percent in 2001.
Recently,
entirely new possibilities for improving the efficiency of photovoltaics based
on quantum dot technology have opened up. Quantum dots have quantum optical
properties that are absent in the bulk material due to the confinement of
electron-hole pairs (called excitons) on the particle.
The first
advantage of quantum dots is their tunable bandgap. It means that the wavelength
at which they will absorb or emit radiation can be adjusted at will: the larger
the size, the longer the wavelength of light absorbed and emitted. The
greater the bandgap of a solar cell semiconductor, the more energetic the
photons absorbed, and the greater the output voltage.
On the
other hand, a lower bandgap results in the capture of more photons including
those in the red end of the solar spectrum, resulting in a higher output of
current but at a lower output voltage. Thus, there is an optimum bandgap that
corresponds to the highest possible solar-electric energy conversion, and this
can also be achieved by using a mixture of quantum dots of different sizes for
harvesting the maximum proportion of the incident light.
Another
advantage of quantum dots is that in contrast to traditional semiconductor
materials that are crystalline or rigid, quantum dots can be molded into a
variety of different form, in sheets or three-dimensional arrays. They can
easily be combined with organic polymers, dyes, or made into porous films in the
colloidal form suspended in solution, they can be processed to create junctions
on inexpensive substrates such as plastics, glass or metal sheets.
When
quantum dots are formed into an ordered three-dimensional array, there will be
strong electronic coupling between them so that excitons will have a longer
life, facilitating the collection and transport of ‘hot carriers’ to generate
electricity at high voltage. In addition, such an array makes it possible to
generate multiple excitons from the absorption of a single photon.
Quantum
dots are offering the possibilities for improving the efficiency of solar cells
in at least two respects, by extending the band gap of solar cells for
harvesting more of the light in the solar spectrum, and by generating more
charges from a single photon.
Infrared
photovoltaic cells – which transform infrared light into electricity - are
attracting much attention, as nearly half of the approximately 1000W/m2 of
the intensity of sunlight is within the invisible infrared region. So it is
possible to use the visible half for direct lighting while harvesting the
invisible for generating electricity.
Photovoltaic
cells that respond to infrared – ‘thermovoltaics’ - can even capture radiation
from a fuel-fire emitter; and co-generation of electricity and heat are said to
be quiet, reliable, clean and efficient. A 1 cm2
silicon cell in direct sunlight will generate about 0.01W, but an efficient
infrared photovoltaic cell of equal size can produce theoretically 1W in a
fuel-fired system.
One
development that has made infrared photovoltaics attractive is the availability
of light-sensitive conjugated polymers - polymers with alternating single and
double carbon-carbon (sometimes carbon-nitrogen) bonds. It was discovered in the
1970s that chemical doping of conjugated polymers increased electronic
conductivity several orders of magnitude. Since then, electronically conducting
materials based on conjugated polymers have found many applications including
sensors, light-emitting diodes, and solar cells.
Conjugated
polymers provide ease of processing, low cost, physical flexibility and large
area coverage. They now work reasonably well within the visible
spectrum.
Researchers
led by Arthur Nozik at the National Renewable Energy Laboratory Golden, Colorado
in the United States have demonstrated that the absorption of a single photon by
their quantum dots yielded - not one exciton as is usually the case, but three
of them.
7
The
formation of multiple excitons per absorbed photon happens when the energy of
the photon absorbed is far greater than the semiconductor band gap. This
phenomenon does not readily occur in bulk semiconductors where the excess energy
simply dissipates away as heat before it can cause other electron-hole pairs to
form.
In
semi-conducting quantum dots, the rate of energy dissipation is significantly
reduced, and the charge carriers are confined within a minute volume, thereby
increasing their interactions and enhancing the probability for multiple
excitons to form.
Solterra’s Quantum Dot Solar
Cell Architecture
Although
there are many different nanotechnological approaches to developing solar cells,
the general idea is the same for all. When light hits an atom in a semiconductor
which in our case is the quantum dot tetrapod, those photons of light with lots
of energy can push an electron out of its nice stable orbital around the atom.
The electron is then free to move from atom to atom, like the electrons in a
piece of metal when it conducts electricity.
Using
nano-size bits of semiconductor, again in our case quantum dots, embedded in a
conductive plastic maximizes the chance that an electron can escape the
nanoparticle and reach the conductive plastic before it is "trapped" by another
atom that has also been stripped of an electron. Once in the plastic, the
electron can travel through wires connecting the solar cell to your electronic
device. It can then wander back to the nanocrystal to join an atom
that has a positive charge.
As stated
above, quantum dots improve the efficiency of solar cells in at least two
respects, by extending the band gap of solar cells for harvesting more of the
light in the solar spectrum, and by generating more charges from a single
photon. “We have shown that solar cells based on quantum dots theoretically
could convert more than 65 percent of the sun’s energy into electricity,
approximately doubling the efficiency of solar cells”, said Arthur Nozik at the
National Renewable Energy Laboratory led by Arthur Nozik.
This
technology is also applicable to other thin-film devices--where it offers a
potential four-fold increase in power-to-weight ratio over the state of the art.
Intermediate-band gap solar cells require that quantum dots be sandwiched in an
intrinsic region between the photovoltaic solar cells ordinary p- and n-type
regions. The quantum dots form the intermediate band of discrete states that
allow sub-band gap energies to be absorbed. However, when the current is
extracted, it is limited by the bandgap, not the individual photon energies. The
energy states of the quantum dot can be controlled by controlling the size of
the dot.
Solterra’s
high quality tetrapod quantum dots provide access to quantum effects that
provide for greater power generation potential, and therefore greater efficiency
per cell area and thus lower cost per watt produced. Prior research has shown
that four-legged quantum dots are many times more efficient at converting
sunlight into electricity than regular quantum dots.
Solterra’s
manufacturing design relies on state-of-the-art but widely available high volume
silkscreen and inkjet printing technologies. Solterra’s cell ingredients will be
formulated into an ink medium compatible with such equipment. Solterra has
negotiated a contractual funded optimization effort with Dr. Ghassan Jabbour,
our Chief Science Officer, and Arizona State Universities Macro Technology Works
in order to support this effort.
The
solar power industry:
Today’s
top ten solar cell manufactures are all manufacturing silicon based solar cells.
Since the complex and relatively high cost of dicing and polishing pure silicon
will never be a trivial task, it is unlikely we will see a significant drop in
cost. The solar photovoltaic industry is divided into three generations of
technology. The first generation technology PV products account for over 86% of
the total market. This segment of the industry is made up of numerous large
players including Sharp and Sanyo.
Three Generations of
Photovoltaic Technology
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1.
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The
first generation photovoltaic, consists of a large-area, single layer p-n
junction diode, which is capable of generating usable electrical energy
from light sources with the wavelengths of solar light. These cells are
typically made using silicon wafer. First generation photovoltaic cells
(also known as silicon wafer-based solar cells) are the dominant
technology in the commercial production of solar cells, accounting for
more than 86% of the solar cell
market.
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2.
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The
second generation of photovoltaic materials is based on the use of
thin-film deposits of semiconductors. These devices were initially
designed to be high-efficiency, multiple junction photovoltaic cells.
Later, the advantage of using a thin-film of material was noted, reducing
the mass of material required for cell
design.
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3.
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Solterra
is poised to be one of the front runners in large scale commercialization
of third generation photovoltaic. Third generation photovoltaics are very
different from the other two, broadly defined as semiconductor devices
which do not rely on a traditional p-n junction to separate photo
generated charge carriers. These new devices include photo electrochemical
cells, Polymer solar cells, and nanocrystal solar
cells.
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Photovoltaics
are a compelling long-term investment, and even at today's high prices,
management believes that photovoltaic manufacturers are selling solar panels as
fast as they can be produced.
The
installed base of photovoltaics world wide is only slightly more than 10
gigawatts (12.6 GW is the electrical power generated by the Itaipu Dam, the
world's largest hydroelectric power plant) out of 15 Terawatts (terawatt is
1012
watts) that is used worldwide. The main reason there is a shortage of production
capacity is that photovoltaics are manufactured using polysilicon, the same
semi-conductor substrate used for integrated circuits. For years, the
photovoltaic manufacturers have bought their polysilicon from manufacturers who
primarily produced this product for the computer industry. But in 2005,
photovoltaic manufacturing output rose to over 1.6 gigawatts, and for the first
time, the solar energy industry was competing with the computer industry to buy
polysilicon. Photovoltaic panels consumed about one-third of the 30,000 tons of
polysilicon produced worldwide in 2005, about 10,000 tons. There has been a
worldwide shortage of polysilicon, which lead to a significant increase in the
price.
Competitive
Strengths
We
believe that Solterra’s licensed technology provides us with a number of
competitive strengths that position us to become a leader in the solar energy
industry and compete in the broader electric power industry:
Cost-per-Watt
advantage. Our proprietary thin film technology should allow us to
achieve an average manufacturing cost per watt less than $1.30 and position
Solterra’s cells as one of the lowest priced in the world and significantly less
than the per watt manufacturing cost of crystalline silicon solar
modules.
Continuous and
scalable production process. We will manufacture our solar cells on
high-throughput production lines that complete all manufacturing steps, from
semiconductor printing to final assembly and testing, in an automated,
proprietary, continuous process.
Replicable
production facilities. We will use a systematic replication process to
build new production lines with operating metrics that are comparable to the
performance of best of bread production lines. By expanding production, we
believe we can take advantage of economies of scale, accelerate development
cycles and leverage our operations, enabling further reductions in the
manufacturing cost per watt of our solar cells.
Stable supply of
raw materials. We will not be constrained by shortages
of semiconductor material, as we will be positioned to produce our own quantum
dot materials.
Pre-sold capacity
through Long Term Supply Contracts. We intend to pursue Long Term Supply
Contracts which, if successfully entered into, would provide us with predictable
net sales and enable us to realize economies of scale from capacity expansions
quickly. By pre-selling the solar cells to be produced on future production
lines, we expect to minimize the customer demand risk of our expansion
plans.
Favorable system
performance. Under real-world conditions, including variation in ambient
temperature and intensity of sunlight, we believe systems incorporating our
solar cells will generate more kilowatt hours of electricity per watt of rated
power than systems incorporating crystalline silicon solar modules, increasing
our end-users’ return on investment. Solterra solar cells successfully blend the
needs for efficiency, low cost, and time to recoup investment. Furthermore, the
solar panels will be easy to install due to their flexibility and low
weight.
9
Market
Opportunity
Global
demand for electricity is expected to increase from 14.8 trillion kilowatt hours
in 2003 to 27.1 trillion kilowatt hours in 2025, according to the Energy
Information Administration. However, supply constraints, rising prices,
dependence on foreign countries for fuel feedstock and environmental concerns
could limit the ability of many conventional sources of electricity to supply
the rapidly expanding global demand. These challenges create a growth
opportunity for the renewable energy industry, including solar energy. According
to the Department of Energy, solar energy is the only source of renewable power
with a large enough resource base to supply a significant percentage of the
world’s electricity needs. Worldwide, annual installations by the
photovoltaic industry grew from 0.4GW in 2002 to 1.7GW in 2006, representing an
average annual growth rate of over 42%. In 2006, the cumulative installed
capacity of solar modules worldwide reached just below 7GW.
Target Market Segment
Strategy
Strategies
Our goal
is to create a sustainable market for our solar modules by utilizing our
proprietary thin film semiconductor technology to develop a solar electricity
solution that competes on a non-subsidized basis with the price of retail
electricity in key markets in North America, Europe, the Middle East and Asia.
We intend to pursue the following strategies to attain this goal:
Penetrate key
markets rapidly. We expect to be a fully-integrated solar cell
manufacturer. To the extent that our finances will permit in the future, we
intend to place production lines in strategic locations over the course of many
years across the globe which will enable us to diversify our customer base, gain
market share in key solar cell markets and reduce our dependence on any
individual country’s subsidy programs.
Further reduce
manufacturing cost. We will deploy continuous improvement systems and
tools to increase the throughput of all of our production lines and the
efficiency of our workforce and to reduce our capital intensity and raw material
requirements. In addition, as we expand production, we believe we can absorb
fixed costs over higher production volumes, reduce fixed costs by manufacturing
in low-cost regions such as Malaysia, negotiate volume-based discounts on
certain raw material and equipment purchases and gain production and operational
experience that translate into improved process and product
performance.
Increase sellable
Watts per module. We will constantly be driving several programs designed
to increase the number of sellable watts per solar module, which is driven
primarily by conversion efficiency.
Enter the
mainstream market for electricity. We believe that our ability to enter
the non-subsidized, mainstream market for electricity will require system
development and optimization, new system financing options and the development
of new market channels. As part of these activities, we anticipate developing
other quantum dot renewable energy solutions beyond the solar cell that we plan
to offer in select market segments.
The
grid-tied Photovoltaic market is of importance because it is the fastest growing
segment for Photovoltaics. Many of the early niche markets for solar were
off-grid solutions such as emergency phone boxes, sail boats, and, of course,
outer space. However, now that the price for Photovoltaic solar has dropped and
can compete effectively with additional electric power sources (especially when
energy rebates are considered), the grid-tied Photovoltaic systems has become
the largest growing segment. An appealing aspect of the potential
large projects is that a large project can represent the sales volume in one
transaction that might require hundreds of individual transactions for
residential Photovoltaic solar applications and successfully obtaining these
contracts can help us obtain other customer contracts. In addition, the lifetime
requirements for some custom large projects may not be as stringent as for the
regulated residential electricity market.
GROWTH
OPPORTUNITIES
In North
America, where we use far more oil than anywhere else on Earth, the vast
majority (71%) of electrical power generation is entirely dependent on fossil
fuels - coal (52%), gas (16%), and oil (3%). The world's natural gas is running
out along with the oil, and the coal supply is not unlimited either. Nuclear
energy contributes only one-fifth to the US power network, and 7% of power is
hydroelectric. Only 2% of US electricity production is from renewable sources.
As we continue to burning up the world's dwindling fossil energy sources at a
terrifying rate, we simultaneously unleash catastrophic damage to the natural
environment.
10
Production
of photovoltaics (PV) jumped to 3,800 megawatts worldwide in 2007, up an
estimated 50 percent over 2006. At the end of the year, according to preliminary
data, cumulative global production stood at 12,400 megawatts, enough to power
2.4 million U.S. homes. Growing by an impressive average of 48 percent each year
since 2002, PV production has been doubling every two years, making it the
world’s fastest-growing energy source.
Photovoltaics,
which directly convert sunlight into electricity, include both traditional,
polysilicon-based solar cell technologies and new thin-film technologies.
Thin-film manufacturing involves depositing extremely thin layers of
photosensitive materials on glass, metal, or plastics. While the most common
material currently used is amorphous silicon, the newest technologies use
non-silicon-based materials such as cadmium telluride.
A
key force driving the advancement of thin-film technologies is a polysilicon
shortage that began in April 2004. In 2006, for the first time, more than half
of polysilicon production went into PVs instead of computer chips. While thin
films are not as efficient at converting sunlight to electricity, they currently
cost less and their physical flexibility makes them more versatile than
traditional solar cells. Led by the United States, thin film grew from four
percent of the market in 2003 to seven percent in 2006. Polysilicon supply is
expected to match demand by 2010, but not before thin film obtains an estimate
20 percent of the market.
Government
Support
Ongoing
US Department of Energy (DOE) grant announcements have been made pursuant to the
US economic stimulus package. We will continue to review these grant
opportunities to see if there is a good fit for funding for our near and long
term goals. Regrettably, much of the stimulus money seems to be earmarked
for solar generation from established sources like conventional silicon-based
solar cells that otherwise may not be economically feasible. However, the
US House of Representatives passed its version of the American Clean Energy and
Security Act (ACES) which would mandate significant additional electricity
consumption to be supplied by renewable sources, totaling at least 15% of
national demand by 2020. We believe that cost effective solar such as
ours, of high volume production capability is the only way that nationally we
can meet these clean energy consumption goals. As national and state
program mandates are enforced, the economic incentives to purchase the energy
from solar will undoubtedly mount.
Additionally,
for consumers and manufactures of solar, impressive tax incentives have been
established. A commercial tax credit of 30% of the cost (plus installation
and labor) for any installation at the Company’s facilities for the generation
of electricity (see additional information below, but note that taking this
credit may preclude participation in the following credit for pv cell
manufacturers). The American Recovery and Reinvestment Act of 2009
(H.R. 1), enacted in February 2009, established a new investment tax credit to
encourage the development of a U.S.-based renewable energy manufacturing sector.
In any taxable year, the investment tax credit is equal to 30% of the qualified
investment required for an advanced energy project that establishes, re-equips
or expands a manufacturing facility that produces equipment and/or technologies
used to produce energy from the sun, wind, geothermal or "other" renewable
resources. Qualified investments generally include personal tangible
property that is depreciable and required for the production process. Other
tangible property may be considered a qualified investment only if it is an
essential part of the facility, excluding buildings and structural
components.
11
The U.S.
Treasury Department will issue certifications for qualified investments eligible
for credits to qualifying advanced energy project sponsors. In total, $2.3
billion worth of credits may be allocated under the program. After certification
is granted, the taxpayer has one year to provide additional evidence that the
requirements of the certification have been met and three years to put the
project in service. In determining which projects to certify, the
U.S. Treasury Department must consider those which most likely will be
commercially viable, provide the greatest domestic job creation, provide the
greatest net reduction of air pollution and/or greenhouse gases, have great
potential for technological innovation and commercial deployment, have the
lowest levelized cost of generated (or stored) energy or the lowest levelized
cost of reduction in energy consumption or greenhouse gas emissions, and have
the shortest project time. The U.S. Treasury Department, in consultation with
the U.S. Department of Energy, created additional specific program guidelines
and an application process. Any taxpayer receiving this credit may not also
receive a business energy investment tax credit.
Research
and Development Tax Credit.
The bill
would extend the research and development tax credit equal to 20 percent of the
amount by which a taxpayer’s qualified research expenditures for a taxable year
exceed its base amount for that year. The R&D tax credit expired December
31, 2007. The provision would be extended retroactively to January 1, 2008 and
through the end of 2009. In addition, the proposal would increase the
alternative simplified credit from 12% to 14% for the 2009 tax year, and repeal
the alternative incremental research credit for the 2009 tax year. The proposal
is effective for amounts paid or incurred after December 31, 2007. Thus,
research expenditures incurred by the solar energy industry would qualify for
the credit.
Direct
tax and grant opportunities to the Company’s customers
Commercial
solar credit: 30% of basis a company has invested in eligible property placed in
service during the period 2006 through 2016. Credit will drop to 10% of
basis for property put into service after December 31, 2016 unless deadline is
extended by US Congress. The tax credit is a dollar-for-dollar reduction
of income taxes that would otherwise be owed to the federal government.
The commercial credit may be claimed for spending on both equipment and
installation cost, including labor.
The solar
equipment can also usually be depreciated over five years on an accelerated
basis (cost of equipment can be deducted and deductions are front loaded.
When 30% tax credit is claimed, only 85% of equipment cost is subject to
depreciation, due to a reduction of the depreciable basis (100% cost – ½ of 30%
= 85% cost is depreciable). (See section 168(e)(3)(B)(vi)(I) of US Tax
Code).
The owner
of any commercial solar project laced in service in 2009 or 2010 – or that
starts construction during 2009 or 2010 and is completed by 2016 – has the
option to forego the tax credit and receive a check for the cash value from the
US Treasury. The owner would qualify for the same depreciation as if the
owner claimed the tax credit. State rebates, buydowns, grants or other
incentives do not decrease the amount eligible for the commercial solar credit
if the company is required to pay federal income tax on the
incentive.
Also,
there is a Renewable Energy Production Incentive (REPI) which applies to
renewable energy facilities and amounts to 2.1¢/kWh. For homeowners, the
tax credit that is available is also 30%, and a cap on the amount of the credit
has been removed.
Finally,
while the ultimate effect on solar initiatives is not completely clear,
significant general benefit to our operations is expected from continued
pressure to reduce carbon emissions as part of global carbon cap and trade
programs. Currently, it appears that for each megawatt of clean energy
generated, four renewable energy credits (RECs) will be created. This adds
to the benefit that solar provides, and at competitive generation prices,
inclusive of all tax credit incentives, the market for our advance solar cells
is poised to enjoy considerable growth.
12
SALES AND
MARKETING
Out of
the top 45 major solar module manufacturers, only about half manufacture their
own solar cells. The remaining half is purchasing their cells from third party
suppliers. We believe Solterra’s solar cells will have a high probability of
being an attractive alternative for these established manufacturers. Our initial
sales strategy for both quantum dots and solar cells will be to develop and
execute a value added reseller’s channel strategy. We are also pursuing
strategic alliances with companies that have established sales, marketing and
distribution networks. We also intend to penetrate into the Middle East markets
in order to gain access to large grid tied renewable energy initiatives that are
currently underway in these emerging markets. We intend to hire sales and
marketing personnel as needed and attend applicable trade shows.
COMPETITION
Some of
the largest and well financed enterprises in the solar manufacturing market do
not have very much manufacturing capacity. Management believes that these
companies have been waiting to see what technologies are the most efficient. As
market trials begin to be successful, it is certain that there will be a
significant number of acquisition and merger activities as companies move to
achieve strategic advantage in the growing solar markets.
Adoption
of solar energy has a simple market driving force. If people do not adopt solar
energy, the planet will become unfit for human habitation. The fossil fuels are
warming the planet at an increasing rate that makes life unsustainable if
something does not change.
As stated
above, there are 45 major solar module manufacturers, but only half manufacture
their own solar cells. The remaining half is purchasing their cells from third
party suppliers. We believe Solterra’s solar cells will have a high
probability of being an attractive alternative for these established value added
resellers.
The
manufacture of photovoltaic cells has expanded dramatically in recent years.
Photovoltaic production has also been doubling every two years, increasing by an
average of 48% each year since 2002, making it a fast growing energy
technology.
As of
February 2008, the German PV manufacturer Q-Cells surpassed
Sharp as the #1 producer of solar cells. Founded in 1999, Q-Cells is a very
young company which has risen like wildfire along with the solar industry
itself. Although branching out into other solar technologies, the company has
focused mainly on silicon cells. In fact, their recent ascent to the top is
likely due to their ability to acquire an adequate amount of silicon during the
recent polysilicon
shortage.
Right up
there with Sharp and Q-Cells is Suntech Power
Corporation. Like Q-Cells, Suntech has focused primarily on silicon based solar
cells and, only founded in 2001, is even younger than its German
counterpart. Suntech is also diversifying within the solar industry and last
year began construction on a thin film cell production plant. These are just the
top three.
Worldwide,
solar currently provides less than one percent of electricity demand but is
projected to supply 26% of the worlds consumption by 2040. This industrial
transition is expected to occur as solar generated electricity becomes cost
effective throughout the United States and much of the world. Competition for
sources of energies and the sale thereof is intense. Most companies have far
greater experience and resources than our company. Fortunately, Management
believes that the size and more importantly the ever increasing demand for cheap
clean energy can provide consistent long term demand for low cost high
efficiency solar cells which is the market that we intend to
compete.
EMPLOYEES
As of
September 30, 2009, Solterra had four full-time employees and one part-time
employee. We anticipate that we will hire additional key staff as
financing permits in areas of Chief Operating Officer, Vice President Sales and
Marketing; research and development, administration/accounting, business
development, operations and sales/marketing.
13
License
Agreement with Rice University
On August 20, 2008, Solterra entered
into a License Agreement with Rice University. Rice is the owner of certain
inventions and patent applications, know-how and rights pertaining to the
synthesis of uniform nanoparticle shapes with high
selectivity. Solterra obtained the exclusive rights to license,
develop, manufacture, market and exploit Rice’s inventions, patent applications
and any issued patents for the manufacture and sale of photovoltaic cells and
the manufacture and sale of quantum dots for electronic and medical
applications. With respect to Rice’s patent applications, Rice made a
provisional filing for an invention disclosure titled “synthesis of uniform
nanoparticle shapes with high selectivity” with the United States Patent and
Trademark Office on April 13, 2007 and a subsequent utility filing on April 11,
2008 under the Patent Cooperation Treaty (“PCT”). PCT enables the U.S. applicant
to file one application, "an international application," in a standardized
format in English in the U.S. Receiving Office (the U.S. Patent and Trademark
Office), and have that application acknowledged as a regular national or
regional filing in any State or region that is party to the PCT. Dr. Michael
Wong who has been nominated and appointed to become a director of our company is
the inventor of Rice’s patent application licensed by Solterra.
Our
initial agreement with Rice requires the payment of certain patent fees to Rice
and for us to acquire additional funding and to meet certain milestone by
specific dates. These milestones have been amended by agreement with
Rice and currently include the following:
|
(a)
|
Licensee
shall submit a business plan and/or a technology development to Rice
prior to the Effective Date of this
Agreement.
|
(b) Licensee
shall acquire $2,750,000 (two million seven hundred and fifty thousand
dollars) in initial funding according to the following plan:
(i) A first
installment of $1,500,00 (one million five hundred thousand dollars)
shall be received by November 5th,
2008.
(ii) A second
cumulative installment of $1,250,000 (one million two hundred
fifty thousand dollars) shall be received by March 31,
2010.
(c) Licensee
shall be current with all payments of patent expenses due Rice under Section 4
of the License Agreement by November 15, 2009.
(d) Licensee
shall fund $79,930 (seventy-nine thousand nine hundred thirty dollars)(in direct
costs) of sponsored research with Professor Michael Wong by October 31, 2008 and
be current with all direct costs due Rice under this
agreement by November 30, 2009, and all payments, including overhead, by
December 31, 2009.
(e) Following
the successful completion of the sponsored research goals with Michael Wong,
Licensee shall demonstrate the scalability of the quantum dot production
technology by January 31, 2010.
(f)
Licensee shall establish a QD production pilot plant capable of producing 1000
g/week by June 30, 2010.
(g) Licensee
shall start up a full scale QD production plant by June 30, 2010.
(h) Licensee
shall demonstrate a working model of a thin film quantum dot solar cell product
using Rice Intellectual Property by April 30, 2010. This working
model shall achieve 6% efficiency at a manufactured cell cost of <$1.50/Watt,
and have a consumer warranty regarding product lifetime performance comparable
to existing photovoltaics.
(i)
Licensee shall receive an additional investment commitment of at least
$1,000,000 (one million) dollars by June 30, 2010.
(j)
Licensee shall bring a 10MW capacity solar cell pilot production line on-stream
by December, 2010.
(k) Licensee
shall offer for sale solar cells incorporating a Rice License Product on or
before August 30, 2010.
(l)
Licensee shall bring a 100 Megawatt volume production facility for solar cells
on stream by February 28, 2012.
(m) Licensee
shall offer for sale quantum dots manufacture with Rice Patents for electronic
or medical applications on or before February 28, 2010.
14
Rice is
entitled to receive during the term of the License Agreement certain royalties
under the License Agreement of adjusted gross sales (as defined) ranging from 2%
to 4% for photovoltaic cells and 7.5% of adjusted gross sales for quantum dots
sold in electronic and medical applications. Minimum royalties payable under the
License Agreement include $129,400 due August 1, 2010, $473,250 due August 1,
2011, $1,746,000 due August 1, 2012 and $3,738,000 due August 1, 2013 and each
August 1 of every year thereafter, subject to adjustments for changes in the
consumer pricing index. In the event of a Liquidity Event (as defined), Rice is
entitled to receive from Licensee a fee of $750,000 within five business days of
the Liquidity Event. The term of the License Agreement is to expire on the
expiration date of Rice’s rights in its intellectual property and the Licensee’s
rights are worldwide. Our Agreement with Rice provides for termination of the
Agreement in the event that Solterra is determined to be insolvent. In November
2009, Rice agreed that it would not terminate the Agreement due to insolvency
unless Solterra is insolvent on or after December 31, 2009.
Agreement
with Arizona State University
Solterra has an agreement with Arizona
State University (“ASU”) pursuant to which ASU at a cost of $835,000 will assist
Solterra in scaling up or optimizing the solar cells so that they can be
printed. At June 30, 2009, $320,000 of these costs in this agreement have been
incurred, a further $515,000 will occur before the end of the fiscal year ended
June 30, 2010. ASU has agreed to provide the services of Ghassan
Jabbour of the ASU School of Materials and Flexible Display Center as project
director for this work. Separately, Mr. Jabbour has also agreed to serve as our
Chief Science Officer and is an employee of Solterra.
Significant
Employees and Consultants
Prior to
November 2008, we have had no employees other than Greg Chapman, who served as
our sole director and officer. For our accounting requirements, Mr.
Chapman utilized the consulting services of an independent bookkeeper to assist
in the preparation of our interim financial statements in accordance with
generally accepted accounting principles in the United States. Mr. Chapman was
serving as our principal accounting officer.
As of
September 30, 2009, we have four new full-time employees (including Stephen
Squires and Brian Lukian) and one part-time employee namely, Dr. Ghassan E.
Jabbour. We anticipate that we will hire additional key staff upon
receipt of financing in areas of Chief Operating Officer, Vice President Sales
and Marketing; research and development, administration/accounting, business
development, operations and sales/marketing.
Item 1.A. Risk
Factors
You
should carefully consider the following risk factors, in addition to the other
information presented in this Form 10-K, in evaluating us and our
business. Any of the following risks, as well as other risks and uncertainties,
could harm our business and financial results and cause the value of our
securities to decline, which in turn could cause you to lose all or part of your
investment.
RISKS
ASSOCIATED WITH INVESTING IN OUR COMPANY
Our
business, operations and financial condition are subject to various risks. Some
of these risks are described below and you should take these risks into account
in making a decision to invest in our common stock. If any of the following
risks actually occurs, we may not be able to conduct our business as currently
planned and our financial condition and operating results could be seriously
harmed. In that case, the market price of our common stock could decline and you
could lose all or part of your investment in our common stock.
We
need to continue as a going concern if our business is to succeed, if we do not
we will go out of business.
Our independent accountant’s report to
our audited consolidated financial statements for the period June 30, 2009
indicates that there are a number of factors that raise substantial doubt about
our ability to continue as a going concern. Such factors identified
in the report are our accumulated deficit since inception, our failure to attain
profitable operations and our dependence upon financing to pay our
liabilities. If we are not able to continue as a going concern, it is
likely investors will lose their investments.
Our
intended business is based solely on rights granted to Solterra pursuant to a
license agreement with William Marsh Rice University.
15
Pursuant to an agreement dated August
20, 2008, we entered into an exclusive license agreement (the “License”) with
Rice University to use, develop, manufacture, market and exploit certain
inventions, patent applications and issued patents of licensor with respect to
the manufacture and sale of photovoltaic cells and the manufacture and sale of
quantum dots for electronic and medical applications. Our license agreement with
Rice University requires Solterra to be financially solvent at all times on or
after December 31, 2009, meet certain milestones and other obligations,
conditions and to make certain royalty and other payments during the term of the
license agreement. Any default under the terms of our license
agreement, which if not cured or waived by Rice University, could result in the
loss of our exclusive license agreement and the right to manufacture and sell
our intended products. The loss of our exclusive license agreement with Rice
University would have a material adverse affect on our operations and investors
could lose their entire investment.
We
will need additional funds to meet our obligations under our Secured Debentures
which become due and payable upon the earlier of November 4, 2011 or a default
under the Transaction Documents. Further, we need consent of Rice
University to assign our license from Solterra to Hague and obtain the right to
grant sub licenses.
Pursuant
to Transaction Documents (as defined under item 1), we borrowed $1,500,000 from
certain non-affiliated parties on November 4, 2008 and issued Debentures secured
by a pledge of stock from Mr. Squires, our Chief Executive Officer and by our
assets. We also entered into a 120 day Standstill Agreement effective June 1,
2009, which was amended in October 2009 to currently expire at the close of
business on December 1, 2009. The Standstill Agreement
provided for the resignation of Isaac Horton (which resignation occurred on
November 12, 2009) and obligates Hague with the consent of Rice, which consent
has not been obtained as of the filing date of this Form 10-K, to transfer its
license with Rice University from Solterra to Hague and for Solterra to obtain
an exclusive worldwide license to purchase quantum dots for solar purposes and
to its sublicenses. We can provide no assurances that we will be able to meet
our obligations under the Transaction Documents and Standstill Agreement, the
failure of which could materially adversely affect our operations and business
prospects and our ability to meet our obligations as they become due and payable
under the Debentures.
We will need to
raise significant additional capital in order to continue to grow our business
and fund our operations which subjects us to the risk that we may be unable to
grow our business and fund our operations as planned.
While
we are effectuating our business strategy, we expect to operate on a negative
cash flow basis. We can provide no assurance that our current funds will be
sufficient to fund operations over an extended period of time. Moreover, our
business plans are based upon the need to raise substantial funds to become
operational and to support our intended operations and plans for expansion and
growth. As such, we can provide no assurances that we will be able to
successfully raise additional financing as needed, on terms satisfactory to us,
if at all. Any additional financing will also likely cause substantial dilution
to our stockholders. Further, certain existing shareholders (the “Obligors”)
have executed a promissory note to pay us $3,500,000 in cash or, with our
consent, through the cancellation of up to 12,000,000 shares of our common
stock. These obligations are in default and we have not received payment under
the Note as required. We can provide no assurances that the Obligors will pay us
$3,500,000 in cash under the terms of the Note, if at all. Our License Agreement
with Rice and our operational needs require us to raise substantial additional
financing. We can provide no assurances that these funds will be obtained on
satisfactory terms to us, if at all.
We
have a limited operating history and limited historical financial information
upon which you may evaluate our performance.
We are in
our early stages of development and face risks associated with a new company in
a growth industry. We may not successfully address these risks and uncertainties
or successfully implement our operating strategies. If we fail to do so, it
could materially harm our business to the point of having to cease operations
and could impair the value of our common stock to the point investors may lose
their entire investment. Even if we accomplish these objectives, we may not
generate positive cash flows or the profits we anticipate in the
future.
We
are a development stage company and it may be difficult to evaluate our business
prospects due to rapidly changing market landscape.
Solterra
is a development stage company formed in May 2008 in order to commercialize low
cost Quantum Dot production and low cost highly efficient Solar Panels
incorporating Quantum Dots and Thin Film Technology pursuant to an exclusive
license agreement with William Marsh Rice University. We have limited historical
information about our company on which you can base an evaluation of our
business and prospects. As a development stage company, we are subject to all
the risks involved in a start-up business. We can provide no assurances that our
operations will be profitable in the future.
16
The solar
power market is rapidly evolving and is experiencing technological advances and
new market entrants. Our future success will require us to scale our
manufacturing capacity significantly; even though our business model,
technologies and processes are unproven at significant scale. We are in the
early stages of final product development, and we have limited experience upon
which to predict whether it will be successful. As a result, you should consider
our business and prospects in light of the risks, expenses and challenges that
we will face as a development stage company seeking to develop and manufacture
new products in a growing and rapidly evolving market. We expect to
continue to make significant capital expenditures and anticipate that our
expenses will increase as we seek to:
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establish
our manufacturing operations, initially domestically or potentially
internationally at a future date;
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develop
our distribution network;
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continue
to research and develop our products and manufacturing
technologies;
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implement
internal systems and infrastructure to support our
growth; and
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hire
additional personnel.
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We do not
know whether our revenues will grow at all or grow rapidly enough to absorb
these costs, and our limited operating history makes it difficult to assess the
extent of these expenses or their impact on our operating results.
Our future
success depends on our ability to develop our manufacturing capacity. If we are
unable to achieve our capacity expansion goals, it would limit our growth
potential and impair our operating results and financial
condition.
We can
provide no assurance that we will be successful in establishing production
facilities or, once established, that we will attain the expected manufacturing
capacity or financial results. Our ability to complete the planning,
construction and equipping of manufacturing facilities is subject to significant
risk and uncertainty, including:
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We
will need to raise significant additional capital in order to finance the
costs of constructing and equipping of large scale manufacturing
facilities, which we may be unable to do so on reasonable terms or at all,
and which could be dilutive to our existing
stockholders;
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The
build-out of any facilities will be subject to the risks inherent in the
development of a manufacturing facility, including risks of delays and
cost overruns as a result of a number of factors, many of which may be out
of our control, such as delays in government approvals, burdensome permit
conditions and delays in the delivery of manufacturing equipment from
numerous suppliers; and
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We
may be required to depend on third parties or strategic partnerships that
we establish in the development and operation of additional production
capacity, which may subject us to risks that such third parties do not
fulfill their obligations to us under our arrangements with
them.
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If we are
unable to develop and successfully operate manufacturing facilities, or if we
encounter any of the risks described above, we may be unable to scale our
business to the extent necessary to improve results of operations and achieve
profitability. Moreover, there can be no assurance that if we do expand our
manufacturing capacity that we will be able to generate customer demand for our
solar power products at these production levels or that we will increase our
revenues or achieve profitability.
We
may be unable to effectively manage the expansion of our
operations.
We expect
to expand our business significantly in order to satisfy demand for our quantum
dots and solar power products and obtain market share. To manage the development
and expansion of our operations, we will be required to improve our operational
and financial systems, procedures and controls and expand, train and manage a
larger employee base. Our management will also be required to maintain and
expand our relationships with distribution partners, suppliers and other third
parties and attract new distribution partners and suppliers. In addition, our
current and planned operations, personnel, systems and internal procedures and
controls might be inadequate to support our future growth. If we cannot manage
our growth effectively, we may be unable to take advantage of market
opportunities, execute our business strategies or respond to competitive
pressures, and our business and results of operations could be
harmed.
17
There are
significant risks associated with the completion of development and facilities
which may cause budget overruns or delays in completion of the
projects.
Construction,
equipment or staffing problems or difficulties in obtaining all of the requisite
licenses, permits or authorizations from regulatory authorities could delay or
prevent the construction or opening or otherwise affect our development and
manufacturing facilities. Failure to complete our manufacturing facilities
within budget or on schedule may have a significant negative effect on our
financial condition and results of operations.
Any
damage to or breakdown of our manufacturing equipment at a time when we are
manufacturing commercial quantities of our products may have a material adverse
impact on our business. For example, a supplier’s failure to supply this
equipment in a timely manner, with adequate quality and on terms acceptable to
us, could delay our manufacturing capacity expansion and otherwise disrupt our
production schedule or increase our costs of production. If we fail to
develop successfully our new solar power products or technologies, we will
likely be unable to recover the costs we have incurred to develop these products
and technologies and may be unable to increase our revenues and to become
profitable. Some of our new product and manufacturing technologies are unproven
at commercial scale and represent a departure from conventional solar power
technologies, and it is difficult to predict whether we will be successful in
completing their development. In addition, we intend to invest significantly in
developing state of the art manufacturing processes designed to reduce our total
costs of production. If our development efforts regarding new manufacturing
processes are not successful, and we are unable to increase the efficiency and
decrease the costs of our intended manufacturing process, we may not be able to
reduce the price of our products, which might prevent our products from gaining
wide acceptance, and our gross margins may be negatively impacted.
Our solar power
products may not gain market acceptance, which would prevent us from achieving
increased revenues and market share.
The
development of a successful market for our solar power products may be adversely
affected by a number of factors, many of which are beyond our control,
including:
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our
failure to produce solar power products that compete favorably against
other solar power products on the basis of cost, quality and
performance;
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our
failure to produce solar power products that compete favorably against
conventional energy sources and alternative distributed generation
technologies, such as wind and biomass, on the basis of cost, quality and
performance;
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whether
or not customers will accept our new technology;
and
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our
failure to develop and maintain successful relationships with
distributors, systems integrators, project developers and other resellers,
as well as strategic partners.
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If our
solar power products fail to gain market acceptance, we would be unable to
increase our revenues and market share and to achieve and sustain
profitability.
Technological
changes in the solar power industry could render our solar power products
uncompetitive or obsolete, which could reduce our market share and cause our
revenues to decline.
The solar
power market is characterized by continually changing technology requiring
improved features, such as increased efficiency, higher power output and lower
price. Our failure to further refine our technology and develop and introduce
new solar power products could cause our products to become uncompetitive or
obsolete, which could reduce our market share and cause our revenues to decline.
The solar power industry is rapidly evolving and competitive. We will need to
invest significant financial resources in research and development to keep pace
with technological advances in the solar power industry and to effectively
compete in the future. A variety of competing solar power technologies are under
development by other companies that could result in lower manufacturing costs or
higher product performance than those expected for our solar power products. Our
development efforts may be rendered obsolete by the technological advances of
others, and other technologies may prove more advantageous for the
commercialization of solar power products.
18
Our ability to
develop market share and revenues depends on our ability to successfully grow
our distribution relationships and distribution channels.
If we are
unable to develop successfully our distribution relationships and distribution
channels, our revenues and future prospects will be materially harmed. As we
seek to grow our revenues by entering new markets in which we have little
experience selling our products, our ability to increase market share and
revenues will depend substantially on our ability to expand our distribution
channels by identifying, developing and maintaining relationships with
resellers. We may be unable to enter into relationships with resellers in the
markets we target or on terms and conditions favorable to us, which could
prevent us from entering these markets or entering these markets in accordance
with our plans. Our ability to enter into and maintain relationships with
resellers will be influenced by the relationships between these resellers and
our competitors, market acceptance of our products and our low brand recognition
as a new entrant.
We face risks
associated with the marketing, distribution and sale of our solar power products
and if we are unable to effectively manage these risks, it could impair our
ability to develop expand our business.
Significant
management attention and financial resources will be required to develop
successfully our sales channels. In addition, the marketing, distribution and
sale of our solar power products outside the United States expose us to a number
of markets in which we have limited experience. If we are unable to manage
effectively these risks, it could impair our ability to grow our business
abroad. These risks include:
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difficult
and expensive compliance with the commercial and legal
requirements;
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encountering
trade barriers such as export requirements, tariffs, taxes and other
restrictions and expenses, which could affect the competitive pricing of
our solar power products and reduce our market share in some
countries;
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unavailability
of government grants from foreign sources, or for government grants that
have been approved, risk of forfeiture or repayment in whole or in
part:
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fluctuations
in currency exchange rates relative to the
U.S. dollar;
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limitations
on dividends or restrictions against repatriation of
earnings;
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difficulty
in recruiting and retaining individuals skilled in international business
operations; and
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increased
costs associated with maintaining international marketing
efforts.
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Problems with
product quality or product performance may cause us to incur warranty expenses
and may damage our market reputation and prevent us from achieving increased
sales and market share.
Consistent
with standard practice in the solar industry, the duration of our product
warranties is lengthy. Our standard product warranty is expected to include a
five-year warranty period for defects in material and workmanship and a 20-year
warranty period for declines in power performance beyond specified levels. We
believe our warranty periods are consistent with industry practice. Due to the
long warranty period, we bear the risk of extensive warranty claims long after
we have shipped product and recognized revenues. The possibility of future
product failures could cause us to incur substantial expenses to repair or
replace defective products. Furthermore, widespread product failures may damage
our market reputation and reduce our market share and cause sales to
decline.
Our success in
the future may depend on our ability to establish and maintain strategic
alliances, and any failure on our part to establish and maintain such
relationships could adversely affect our market penetration and revenue
growth.
Our
ability to establish strategic relationships will depend on a number of factors,
many of which are outside our control, such as the competitive position of our
technology and our products relative to our competitors. We can provide no
assurance that we will be able to establish new strategic relationships in the
future. In addition, strategic alliances that we may establish, will subject us
to a number of risks, including risks associated with sharing proprietary
information, loss of control of operations that are material to our business and
profit-sharing arrangements. Moreover, strategic alliances may be expensive to
implement, require us to issue additional shares of our common stock and subject
us to the risk that the third party will not perform its obligations under the
relationship, which may subject us to losses over which we have no control or
expensive termination arrangements. As a result, even if our strategic alliances
with third parties are successful, our business may be adversely affected by a
number of factors that are outside of our control.
19
The success of
our business depends on the continuing contributions of our key personnel and
our ability to attract and retain new qualified employees in a competitive labor
market.
Our
future success depends to a significant degree on the skills, experience and
efforts of our executive officers, namely, Stephen Squires and Ghassan E.
Jabbour, SPIE, Fellow. The loss of the services of either of these individuals
could harm our business. While we currently do not have employment agreements
with these individuals, we expect to enter into employment contracts with them
in the near future. We have not obtained life insurance on any key
executive officers. If any executive officer left us or were seriously injured
and become unable to work, our business could be harmed.
The reduction or
elimination of government subsidies and economic incentives for solar technology
could cause our revenues to decline.
We
believe that the growth of the majority of our target markets depends on the
availability and size of government subsidies and economic incentives for solar
technology. Today, the cost of solar power substantially exceeds the cost of
power furnished by the electric utility grid. As a result, federal, state and
local governmental bodies in many countries, most notably the United States,
Japan and Germany, have provided subsidies in the form of cost reductions, tax
incentives and other incentives to end users, distributors, systems integrators,
other resellers and manufacturers of solar power products to promote the use of
solar energy and to reduce dependency on other forms of energy. In the future,
these government subsidies and economic incentives could be reduced or
eliminated altogether. For example, German subsidies decline at a rate of 5.0%
to 6.5% per year (based on the type and size of the PV system) and the German
Federal Ministry for the Environment recently announced a gradual increase of
two percentage points from 2010 through 2011 and three percentage points in 2012
in the rate at which German subsidies decline. In addition, the Emerging
Renewables Program in California has finite funds that may not last through the
current program period. California subsidies have declined in the past and will
continue to decline as cumulative installations exceed stated thresholds. Net
metering policies in California, which currently only require each investor
owned utility to provide net metering up to 2.5% of its aggregate customer peak
demand, could also limit the amount of solar power installed within California.
Further, the 30% investment tax credit for solar energy manufacturers provided
in the Energy Policy Act of 2005 was set to expire after 2008, but was extended
by the United States federal government for an additional eight years. Any
future reduction or elimination of government subsidies and economic incentives
would likely reduce the size of these markets and/or result in increased price
competition, which could cause our revenues to decline.
If solar power
technology is not suitable for widespread adoption or sufficient demand for
solar power products does not develop or takes longer to develop than we
anticipate, our revenues would not significantly increase and we would be unable
to achieve or sustain profitability.
The
market for solar power products is emerging and rapidly evolving, and its future
success is uncertain. If solar power technology proves unsuitable for widespread
commercial deployment or if demand for solar power products fails to develop
sufficiently, we would be unable to generate enough revenues to achieve and
sustain profitability. In addition, demand for solar power products in the
markets and geographic regions we target may not develop or may develop more
slowly than we anticipate. Many factors will influence the widespread adoption
of solar power technology and demand for solar power products,
including:
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cost-effectiveness
of solar power technologies as compared with conventional and non-solar
alternative energy technologies;
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performance
and reliability of solar power products as compared with conventional and
non-solar alternative energy
products;
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success
of alternative distributed generation technologies such as fuel cells,
wind power and micro turbines;
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fluctuations
in economic and market conditions that impact the viability of
conventional and non-solar alternative energy sources, such as increases
or decreases in the prices of oil and other fossil
fuels;
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capital
expenditures by customers that tend to decrease when the United States or
global economy slows;
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continued
deregulation of the electric power industry and broader energy
industry; and
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availability
of government subsidies and
incentives.
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We face intense
competition from other companies producing solar power and other energy
generation products. If we fail to compete effectively, we may be unable to
increase our market share and revenues.
The solar
power market is intensely competitive and rapidly evolving. Management believes
that there are over 100 companies that are engaged in manufacturing
photovoltaic products or have announced an intention to do so. Many of our
competitors have established a market position more prominent than ours, and if
we fail to attract and retain distribution partners and establish a successful
distribution network for our solar power products, we may be unable to obtain
anticipated sales and market share. There are a large number of companies in the
world with substantially more capital and experience than us that produce solar
power products, including, without limitation, BP Solar International Inc.,
First Solar, Inc., Kyocera Corporation, Mitsubishi, RWE Schott Solar, Inc.,
Sanyo Corporation, Sharp Corporation, Evergreen Solar, Solar World AG, SunPower
Corporation and SunTech Power Holdings Co., Ltd. We also expect that future
competition will include new entrants to the solar power market offering new
technological solutions. We can provide no assurances that we will be able to
successfully compete in our intended markets.
If we are unable
to protect our intellectual property adequately, we could lose our competitive
advantage in the solar power market.
Our
ability to compete effectively against competing solar power technologies will
depend, in part, on our ability to protect our current and future licensed and
other proprietary technology, product designs and manufacturing processes by
obtaining, maintaining, and enforcing our intellectual property rights through a
combination of licenses, patents, copyrights, trademarks, and trade secrets and
also through unfair competition laws. We may not be able to obtain, maintain or
enforce adequately our intellectual property and may need to defend our products
against infringement or misappropriation claims, either of which could result in
the loss of our competitive advantage in the solar power market and materially
harm our business and profitability. We face the following risks in protecting
our intellectual property and in developing, manufacturing, marketing and
selling our products:
• possible
loss of our exclusive license with William Marsh Rice University;
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we
cannot be certain that Rice University’s pending patent applications will
result in issued patents or that the claims in any issued patents are or
will be sufficiently broad to prevent others form developing or using
technology similar to ours or in developing, using, manufacturing,
marketing or selling products similar to
ours;
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given
the costs of obtaining patent protection, we may choose not to file patent
applications for or not to maintain issued patents for certain innovations
that later turn out to be important, or we may choose not to obtain
foreign patent protection at all or to obtain patent protection in only
some of the foreign countries, which later turn out to be important
markets for us;
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although
we intend to have a number of foreign patents and applications as well as
the two held by Rice University, the laws of some
foreign jurisdictions do not protect intellectual property rights to the
same extent as laws in the United States, and we may encounter
difficulties in protecting and defending our rights in such foreign
jurisdictions;
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third
parties may design around our licensed technologies, and there is no
assurance that any licensed patents and other intellectual property rights
will be sufficient to deter infringement or misappropriation of our
intellectual property rights by
others;
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third
parties may seek to challenge or invalidate any licensed patents, which
can result in a narrowing of or invalidating our patents, or rendering our
licensed patents unenforceable;
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we
may have to participate in proceedings such as interference, cancellation,
or opposition, before the United States Patent and Trademark Office, or
before foreign patent and trademark offices, with respect to our licensed
patents, patent applications, trademarks or trademark applications or
those of others, and these actions may result in substantial costs to us
as well as a diversion of management
attention;
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although
we are not currently involved in any litigation involving intellectual
property rights, we may need to enforce our intellectual property rights
against third parties for infringement or misappropriation or defend our
intellectual property rights through lawsuits, which can result in
significant costs and diversion of management resources, and we may not be
successful in those lawsuits;
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we
rely on trade secret protections to protect our interests in proprietary
know-how and processes for which patents are difficult to obtain or
enforce; however, we may not be able to protect our trade secrets
adequately; and
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the
contractual provisions on which we rely to protect our trade secrets and
proprietary information, such as our confidentiality and non-disclosure
agreements with our employees, consultants and other third parties, may be
breached, and our trade secrets and proprietary information may be
disclosed to competitors, strategic partners and the public, or others may
independently develop technology equivalent to our trade secrets and
proprietary information.
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Our technology
and products could infringe intellectual property rights of others, which may
require costly litigation and, if we are not successful, could cause us to pay
substantial damages and disrupt our business.
In recent
years, there has been significant litigation involving patents and other
intellectual property rights in many technology-related industries. There may be
patents or patent applications in the United States or other countries that are
pertinent to our products or business of which we are not aware. The technology
that we incorporate into and use to develop and manufacture our current and
future solar power products may be subject to claims that they infringe the
patents or proprietary rights of others. The success of our business will also
depend on our ability to develop new technologies without infringing or
misappropriating the proprietary rights of others. Third parties may allege that
we infringe patents, trademarks or copyrights, or that we misappropriated trade
secrets. These allegations could result in significant costs and diversion of
the attention of management.
If a
successful claim were brought against us and we are found to infringe a third
party’s intellectual property right, we could be required to pay substantial
damages, including treble damages if it is determined that we have willfully
infringed such rights, or be enjoined from using the technology deemed to be
infringing or using, making or selling products deemed to be infringing. If we
have supplied infringing products or technology to third parties, we may be
obligated to indemnify these third parties for damages they may be required to
pay to the patent holder and for any losses they may sustain as a result of the
infringement. In addition, we may need to attempt to license the intellectual
property right from such third party or spend time and money to design around or
avoid the intellectual property. Any such license may not be available on
reasonable terms, or at all. Regardless of the outcome, litigation can be very
costly and can divert management’s efforts. An adverse determination may subject
us to significant liabilities and/or disrupt our business.
We may be unable
to protect adequately or enforce our proprietary information, which may result
in its unauthorized use, reduced revenues or otherwise reduce our ability to
compete.
Our
business and competitive position depend upon our ability to protect our
licensed and other proprietary technology, including any manufacturing processes
and solar power products that we develop. Despite our efforts to protect this
information, unauthorized parties may attempt to obtain and use information that
we regard as proprietary. Any patents issued to our licensor or us in connection
with our efforts to develop new technology for solar power products may not be
broad enough to protect all of the potential uses of the
technology.
In
addition, when we do not control the prosecution, maintenance and enforcement of
certain important intellectual property, such as a technology licensed to us,
the protection of the intellectual property rights may not be in our hands. If
the entity that controls the intellectual property rights does not adequately
protect those rights, our rights may be impaired, which may impact our ability
to develop, market and commercialize the related solar power
products.
Our means
of protecting our proprietary rights may not be adequate, and our competitors
may:
• independently
develop substantially equivalent proprietary information, products and
techniques;
• otherwise
gain access to our proprietary information; or
• design
around our licensed patents (if any) or other intellectual
property.
We intend
to pursue a policy of having our employees, consultants and advisors execute
proprietary information and invention agreements when they begin working for us.
However, these agreements may not provide meaningful protection for our trade
secrets or other proprietary information in the event of unauthorized use or
disclosure. If we fail to maintain trade secret and patent protection, our
potential, future revenues may be decreased.
22
Licenses for
technologies and intellectual property may not be available to
us.
We have
entered into license agreements for technologies and intellectual property
rights, including quantum dots. Our license agreement, which currently does not
permit us the right to grant sublicenses, is subject to terms and conditions
which may limit our ability to use the licensed intellectual property under
certain circumstances. For example, our quantum dot license may terminate if we
materially breach the license agreement or if we abandon the construction of a
manufacturing facility to exploit the licensed technology. We may need to enter
into additional license agreements in the future for other technologies or
intellectual property rights of third parties. Such licenses, however, may not
be available to us on commercially reasonable terms or at all.
Existing
regulations and changes to such regulations concerning the electrical utility
industry may present technical, regulatory and economic barriers to the purchase
and use of solar power products, which may significantly reduce demand for our
products.
The
market for electricity generation products is heavily influenced by foreign,
federal, state and local government regulations and policies concerning the
electric utility industry, as well as internal policies and regulations
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries,
these regulations and policies are being modified and may continue to be
modified. Customer purchases of, or further investment in the research and
development of, alternative energy sources, including solar power technology,
could be deterred by these regulations and policies, which could result in a
significant reduction in the potential demand for our solar power products. For
example, utility companies commonly charge fees to larger, industrial customers
for disconnecting from the electric grid or for having the capacity to use power
from the electric grid for back-up purposes. These fees could increase the cost
to our customers of using our solar power products and make them less desirable,
thereby harming our business, prospects, results of operations and financial
condition.
We
anticipate that our solar power products and their installation will be subject
to oversight and regulation in accordance with national, state and local laws
and ordinances relating to building codes, safety, environmental protection,
utility interconnection and metering and related matters. There is also a burden
in having to track the requirements of individual states and design equipment to
comply with the varying standards. Any new government regulations or utility
policies pertaining to our solar power products may result in significant
additional expenses to us and our resellers and their customers and, as a
result, could cause a significant reduction in demand for our solar power
products.
Compliance with
environmental regulations can be expensive, and noncompliance with these
regulations may result in potentially significant monetary damages and penalties
and adverse publicity.
If we
fail to comply with present or future environmental laws or regulations we may
be required to pay substantial civil or criminal penalties, incur significant
capital expenditures, suspend or limit production or cease operations. Any
failure by us to control the use of or generation of, or to restrict adequately
the discharge or disposal of, hazardous substances or wastes or to otherwise
comply with the complex, technical environmental regulations governing our
activities could subject us to potentially significant monetary damages and
penalties, criminal proceedings, third party property damage or personal injury
claims, natural resource damage claims, cleanup costs or other costs, or
restrictions or suspensions of our business operations. In addition, under some
foreign, federal and state statutes and regulations governing liability for
releases of hazardous substances or wastes to the environment, a governmental
agency or private party may seek recovery of response costs or damages from
generators of the hazardous substances or operators of property where releases
of hazardous substances have occurred or are ongoing, even if such party was not
responsible for the release or otherwise at fault. Also, federal, state or
international environmental laws and regulations may ban or restrict the
availability and use of certain hazardous or toxic raw materials that are or may
be used in producing our products, and substitute materials may be more costly
or unsatisfactory in performance. We believe that we either have all
environmental permits necessary to conduct our business or have initiated the
process to obtain additional or modified environmental permits needed to conduct
our business. While we are not aware of any outstanding, material environmental
claims, liabilities or obligations, future developments such as the
implementation of new, more stringent laws and regulations, more aggressive
enforcement policies, or the discovery of unknown environmental conditions
associated with our current or past operations or properties may require
expenditures that could have a material adverse effect on our business, results
of operations or financial condition. Any noncompliance with or incurrence of
liability under environmental laws may subject us to adverse publicity, damage
our reputation and competitive position and adversely affect sales of our
products.
23
Compliance with
occupational safety and health requirements and best practices can be costly,
and noncompliance with such requirements may result in potentially significant
monetary penalties and adverse publicity.
Our
intended manufacturing operations and research and development activities
involve the use of mechanical equipment which involve a risk of potential injury
to our employees. These operations are subject to regulation under the
Occupational Safety and Health Act, or OSHA. If we fail to comply with OSHA
requirements, or if an employee injury occurs, we may be required to pay
substantial penalties, incur significant capital expenditures, suspend or limit
production or cease operations. Also, any such violations, employee injuries or
failure to comply with industry best practices may subject us to adverse
publicity, damage our reputation and competitive position and adversely affect
sales of our products.
Product liability
claims against us could result in adverse publicity and potentially significant
monetary damages.
Like
other retailers, distributors and manufacturers of products that are used by
consumers, we face an inherent risk of exposure to product liability claims in
the event that the use of the solar power products we sell results in injury.
Since our products are electricity producing devices, it is possible that
consumers could be injured or killed by our products, whether by product
malfunctions, defects, improper installation or other causes. In addition, since
revenues generated from our existing products have been modest and the products
we are developing incorporate new technologies and use new installation methods,
we cannot predict whether or not product liability claims will be brought
against us in the future or the effect of any resulting adverse publicity on our
business. We intend to rely on our general liability insurance to cover product
liability claims and currently do not expect to obtain separate product
liability insurance. The successful assertion of product liability claims
against us could result in potentially significant monetary damages and if our
insurance protection is inadequate to cover these claims, they could require us
to make significant payments. Also, any product liability claims and any adverse
outcomes with respect thereto may subject us to adverse publicity, damage our
reputation and competitive position and adversely affect sales of our
products.
Our
sales, marketing and distribution plans may substantially rely on the efforts
and abilities of third parties and such plans may not be
successful.
We intend
to sell our solar panels using domestic and international distributors, system
integrators, project developers and other resellers, who will often add value
through system design by incorporating our solar panels with inverters and other
electronics, mounting structures and wiring systems. Most of our distribution
partners will have a geographic or applications focus. Our distribution partners
will likely include companies that are exclusively solar power system resellers
as well as others for whom solar power is an extension of their core business,
such as engineering design firms or other energy product marketers.
We expect
to collaborate closely with a relatively small number of resellers both
domestically and in the future internationally. We are actively working to
recruit our distribution partners by very careful selection of a few accounts
and channel partners. We intend to selectively pursue additional strategic
relationships with other companies worldwide for the joint marketing,
distribution and manufacturing of our products. These resellers are expected to
range from large, multinational corporations to small, development-stage
companies, each chosen for their particular expertise. We believe that these
relationships will enable us to leverage the marketing, manufacturing and
distribution capabilities of other companies, explore opportunities for
additional product development and more easily enter new geographic markets in a
cost effective manner, attract new distribution partners and develop advanced
solar power applications. Our sales, marketing and distribution plans may
substantially rely on the efforts and abilities of third parties and such plans
may not be successful. Moreover, we face risks associated with the marketing,
distribution and sale of our solar power products internationally, and if we are
unable to effectively manage these risks, it could impair our ability to expand
our business abroad.”
RISKS RELATED TO OUR COMMON
STOCK
Our
common stock trades on a limited basis since listing on the Over the Counter
Bulletin Board and there can be no assurance that an established trading market
will develop.
Our
common stock trades on a limited basis since listing in the OTC Electronic
Bulletin Board. Accordingly, there is no established trading market for the
common stock. As of November 9, 2009, we have a public
float of 24,600,000 shares beneficially owned by a limited number of public
shareholders, which may result in high volatility in trading of our common
stock, should a public market develop.
24
If
an established trading market for our common stock does develop, trading prices
may be volatile.
In the
event that an established trading market develops in the future, of which there
can be no assurances given, the market price of our shares of common stock may
be based on factors that may not be indicative of future market performance.
Consequently, the market price of our common stock after this transaction may
vary greatly. If a market for our common stock develops, there is a significant
risk that our stock price may fluctuate dramatically in the future in response
to any of the following factors, some of which are beyond our
control:
|
|
variations
in our quarterly operating results;
|
|
|
|
announcements
that our revenue or income/loss levels are below analysts'
expectations;
|
|
|
general
economic slowdowns;
|
|
|
|
changes
in market valuations of similar
companies;
|
|
|
announcements
by us or our competitors of significant contracts;
and/or
|
|
|
|
acquisitions,
strategic partnerships, joint ventures or capital
commitments.
|
25
There is no
assurance that our common stock will remain on the OTB Bulletin
Board.
In order
to maintain the quotation of our shares of common stock on the OTC Bulletin
Board, we must remain a reporting company under the Securities Exchange Act of
1934 (the “Exchange Act”). This requires us to comply with the periodic
reporting and proxy statement requirements of the Exchange Act. It is possible
that our common stock could be removed from the OTC Bulletin Board and then be
traded on the less desirous Pink Sheets. In either venue, an investor may find
it difficult to obtain accurate quotations as to the market value of the common
stock. In addition, if we failed to meet the criteria set forth in SEC
regulations, various requirements would be imposed by law on broker-dealers who
sell our securities to persons other than established customers and accredited
investors. Consequently, such regulations may deter broker-dealers from
recommending or selling the common stock, which may further affect its
liquidity. This would also make it more difficult for us to raise additional
capital.
We are subject to
the reporting requirements of the federal securities laws, which can be
expensive.
We are a
public reporting company in the United States and, accordingly, subject to the
information and reporting requirements of the Securities Exchange Act of 1934
and other federal securities laws, and the compliance obligations of the
Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly
reports and other information with the SEC will cause our expenses to be higher
than they would be if we were a privately-held company.
Our
Common Stock may be considered to be a “penny stock” and, as such, the market
for our Common Stock may be further limited by certain Commission rules
applicable to penny stocks.
To the
extent the price of our Common Stock remains below $5.00 per share or we have a
net tangible assets of $5,000,000 or less, our common shares will be subject to
certain “penny stock” rules promulgated by the Commission. Those rules impose
certain sales practice requirements on brokers who sell penny stock to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000). For transactions covered by the penny stock
rules, the broker must make a special suitability determination for the
purchaser and receive the purchaser’s written consent to the transaction prior
to the sale. Furthermore, the penny stock rules generally require,
among other things, that brokers engaged in secondary trading of penny stocks
provide customers with written disclosure documents, monthly statements of the
market value of penny stocks, disclosure of the bid and asked prices and
disclosure of the compensation to the brokerage firm and disclosure of the sales
person working for the brokerage firm. These rules and regulations
adversely affect the ability of brokers to sell our common shares in the public
market should one develop and they limit the liquidity of our
Shares.
The issuance or
sale of equity, convertible or exchangeable securities in the market, or the
perception of such future sales or issuances, could lead to a decline in the
price, if any, of our common stock.
Any
issuance of equity, convertible or exchangeable securities, including for the
purposes of financing acquisitions and the expansion of our business, may have a
dilutive effect on our existing stockholders. In addition, the perceived risk
associated with the possible issuance of a large number of shares or securities
convertible or exchangeable into a large number of shares could cause some of
our stockholders to sell their stock, thus causing the price of our stock to
decline. Subsequent sales of our common stock in the open market or the private
placement of our common stock or securities convertible or exchangeable into our
common stock could also have an adverse effect on the market price, if any, of
our shares. If our stock price declines, it may be more difficult for us to or
we may be unable to raise additional capital.
26
In
addition, future sales of substantial amounts of our currently outstanding
common stock in the public market, or the perception that such sales could
occur, could adversely affect prevailing trading prices of our common stock and
could impair our ability to raise capital through future offerings of equity or
equity-related securities. We cannot predict what effect, if any, future sales
of our common stock, or the availability of shares for future sales, will have
on the market price of our stock.
The
price of common stock may fluctuate significantly, which could result in
substantial losses for our stockholders and subject us to
litigation.
The
market price, if any, of our common stock also may be adversely impacted by
broad market and industry fluctuations regardless of our operating performance,
including general economic and technology trends. The various stock markets in
general have, from time to time, experienced extreme price and trading volume
fluctuations, and the market prices of technology companies such as ours have
been extremely volatile. In addition, some companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. We may be involved in securities class
action litigation in the future. This litigation often results in substantial
costs and a diversion of management’s attention and resources.
Our
operating results will be subject to quarterly fluctuations which could lead to
uncertainty in the marketplace.
Our
revenue may fluctuate significantly from quarter to quarter in the future due to
a variety of factors, including, without limitation:
•
the
size and timing of orders and shipments of our intended
products;
•
the
rate and cost at which we are able to expand our manufacturing capacity to meet
product demand, including the rate and cost at which we are able to implement
advances in our quantum dot, thin film technology;
•
our
ability to establish and expand key distribution partners and supplier
relationships;
•
our
ability and the terms upon which we are able to raise capital sufficient to
finance the expansion of our manufacturing capacity and our sales and marketing
efforts;
•
our
ability to establish strategic relationships with third parties to accelerate
our growth plans;
•
the
amount and timing of expenses associated with our research and development
programs and our ability to develop enhancements to our manufacturing processes
and our products;
•
delays
associated with the supply of specialized materials necessary for the
manufacture of our solar power products;
•
our
ability to execute our cost reduction programs;
•
charges
resulting from replacing existing equipment or technology with new or improved
equipment or technology as part of our strategy to expand our manufacturing
capacity and to decrease our per unit manufacturing cost;
•
developments
in the competitive environment, including the introduction of new products or
technological advancements by our competitors; and
• the
timing of adding the personnel necessary to execute our growth
plan.
We
anticipate that our operating expenses will continue to increase significantly,
particularly as we develop our internal infrastructure to support our
anticipated growth. If our product revenues in any quarter do not increase
correspondingly, our net losses for that period will increase. Moreover, given
that a significant portion of our operating expenses is largely fixed in nature
and cannot be quickly reduced, if our product revenues are delayed or below
expectations, our operating results are likely to be adversely and
disproportionately affected. For these reasons, quarter-to-quarter comparisons
of our results of operations are not necessarily meaningful and you should not
rely on results of operations in any particular quarter as an indication of
future performance. If our quarterly revenue or results of operations fall below
the expectations of investors or public market analysts in any quarter, the
market value of our common stock would likely decrease, and it could decrease
rapidly and substantially.
27
THE
FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF THE RISKS
INHERENT IN AN INVESTMENT IN THE COMPANY.
Item
2. Description of
Property
Since
inception of Solterra, Solterra utilizes the home of Stephen Squires in
Scottsdale, Arizona as an executive office. During the year ended
June 30, 2009 the Company has reimbursed Stephen Squires $11,040 for the use of
his premises. The Company has also leased about 200 square feet of
laboratory office space from Arizona State University (“ASU”) at a cost of
$410.00 per month.
Item 3. Legal
Proceedings
We are not a party to any pending legal
proceedings. Our property is not the subject of any pending legal proceedings.
To our knowledge, no governmental authority is contemplating commencing a legal
proceeding in which we would be named as a party.
Item
4. Submission of Matters to a
Vote of Security Holders.
No
matters were submitted to a vote of security holders during the fourth quarter
of fiscal year ended June 30, 2009.
PART
II
Item
5. Market for Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.
The
principal United States market for our common equity is the Over-The-Counter
Bulletin Board (the “OTC
Bulletin Board”), a quotation medium for subscribing
members. Since February 27, 2008, our common stock has been available
for quotation and trading on the OTC Bulletin Board under the symbol
“HGUE.”
The table
below sets out the range of high and low sales information for our common stock
for each quarterly period from February 27, 2008 through June 30,
2009.
|
Quarter
Ended
|
High
|
Low
|
|
September
30, 2009
|
.115
|
.1075
|
|
June
30, 2009
|
.102
|
.09
|
|
March
31, 2009
|
.065
|
.06
|
|
December
31, 2008
|
.40
|
.20
|
|
September
30, 2008
|
1.00
|
1.00
|
|
June
30, 2008
|
1.00
|
1.00
|
|
March
31, 2008
|
.02
|
.02
(1)
|
(1)
Commenced trading on the OTC BB on February 27, 2008.
These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Holders
As of
November 5, 2009, there were approximately 900 beneficial holders of our common
stock, but only 20 stockholders of record.
Dividends
We have
not paid dividends on our common stock, and do not anticipate paying dividends
on our common stock in the foreseeable future.
Securities
authorized for issuance under equity compensation plans
As of
June 30, 2009, we have no compensation plans under which our equity securities
are authorized for issuance. See “Item 11.”
Performance
graph
We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this item.
Issuer
Repurchases of Equity Securities
From inception through the filing date
of this Form 10-K, there have been no repurchases of our equity securities,
other than Mr. Chapman’s voluntary cancellation of 40,000,000 shares of our
Common Stock as described in Item 1.
28
Recent Sales of Unregistered
Securities
For the year ended June
30, 2009 and the quarter ended September 30, 2009, there were no sales of
unregistered securities, except as follows:
|
Date
of Sale
|
Title
of Security
|
Number
Sold
|
Consideration
Received and Description of Underwriting or Other Discounts to Market
Price or Convertible Security, Afforded to Purchasers
|
Exemption
from Registration Claimed
|
If
Option, Warrant or Convertible Security, terms of exercise or
conversion
|
|
Nov.
4, 2008
|
Common
Stock
|
41,250,000
Shares
|
Share
exchange pursuant to Plan of Reorganization; no commissions
paid.
|
Section
4(2) and/or
Rule
506.
|
Not
applicable.
|
|
Nov.
4,
2008
|
Common
Stock and
Debentures
|
3,525,000
shares
and
$1,500,000
Debentures
|
$1,500,000;
$150,000 of finder’s fees
|
Section
4(2).
|
Notes
are convertible at $.2667 per share.
|
|
March,
2009
|
Common
Stock
|
506,493
Shares
|
Shares
issued in exchange for interest of $30,667; no commissions
paid.
|
Section
4(2) and/or
Rule
506.
|
Not
applicable.
|
|
June,
2009
|
Common
Stock
Warrants
|
1,000,000
Shares
|
Warrants
issued as part
of
a Standstill Agreement;
no
commissions paid.
|
Section
4(2) and/or
Rule
506.
|
Warrants
are exercisable at $0.25 per share over a period of 18
months.
|
|
November
,
2009
|
Common
Stock
|
843,674
|
Shares issued in
exchange
For interest of
$60,000;
no commissions
paid.
|
Section 4(2)
and/or
Rule
506.
|
Not
applicable.
|
Item
6. Selected Financial
Data
Not applicable.
Item
7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
The
following discussion should be read in conjunction with our consolidated
financial statements and the notes thereto appearing elsewhere in this Form
10-K. All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated future capital
requirements, our future plan of operations, our ability to obtain debt, equity
or other financing, and our ability to generate cash from operations, are based
on current expectations. These statements are forward-looking in nature and
involve a number of risks and uncertainties that may cause the Company’s actual
results in future periods to differ materially from forecasted
results.
Forward-Looking
Statements
The
Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements made by or on behalf of our Company. Our
Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other Company filings with the Securities and Exchange Commission and in our
reports to stockholders. Statements that relate to other than strictly
historical facts, such as statements about the Company's plans and strategies
and expectations for future financial performance are forward-looking statements
within the meaning of the Act. Generally, the words “believe,” “expect,”
“intend,” “estimate,” “anticipate,” “will” and other similar expressions
identify forward-looking statements. The forward-looking statements are and will
be based on management's then current views and assumptions regarding future
events and operating performance, and speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
See “Risk Factors” for a discussion of events and circumstances that could
affect our financial performance or cause actual results to differ materially
from estimates contained in or underlying our forward-looking
statements.
29
Critical Accounting
Policies
Cash and cash
equivalents
Cash and
cash equivalents include cash and all highly liquid financial instruments with
original purchased maturities of three months or less. At various times during
the year, the Company maintained cash balances in excess of FDIC insurable
limits. Management feels this risk is mitigated due to the longstanding
reputation of these banks.
Fair value of financial
instruments
The
Company's financial instruments consist of cash and cash equivalents, inventory,
sales tax receivable and prepaids, deposits and debt. The carrying amount of
these financial instruments approximates fair value due either to length of
maturity or interest rates that approximate prevailing market rates unless
otherwise disclosed in these consolidated financial statements.
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 reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates
Deferred Finance
Costs
Deferred
finance costs which arose from the Company’s convertible debenture financing are
amortized using the effective interest method over the three year term of the
debentures.
Equipment
Office
furniture and office equipment are stated at cost less accumulated
depreciation. Major renewals and improvements are capitalized: minor
replacements, maintenance and repairs are charged to current
operations. Depreciation is computed by applying the straight-line
method over the estimated useful lives which are generally three to seven
years.
|
Method
|
Period
|
|
|
Office
furniture
|
Straight
line
|
7
years
|
|
Office
equipment
|
Straight
line
|
3
years
|
Long-lived
assets
We review
our long-lived assets, which include intangible assets subject to amortization,
for recoverability whenever events or changes in circumstances indicate that the
carrying amount of such long-lived asset or group of long-lived assets
(collectively referred to as “the asset”) may not be
recoverable. Such circumstances include, but are not limited
to:
|
·
|
a
significant decrease in the market price of the asset:
|
|
·
|
a
significant change in the extent or manner in which the asset is being
used:
|
|
·
|
a
significant change in the business climate that could affect the value of
the asset:
|
|
·
|
a
current period loss combined with projection of continuing loss associated
with use of the asset:
|
|
·
|
a
current expectation that, more likely than not, the asset will be sold or
otherwise disposed of
before
the end of its previously estimated useful
life.
|
Beneficial
conversion
Equity
instruments that contain a beneficial conversion feature are recorded as a
deemed dividend to the holders of the convertible equity instruments. The deemed
dividend associated with the beneficial conversion is calculated as the
difference between the fair value of the underlying common stock less the
proceeds that have been received for the equity instrument limited to the value
received. The beneficial conversion amount is recorded as a deemed dividend or
interest expense and an increase to additional paid-in-capital.
Research and development
costs
Research
and development costs are expensed as they are incurred. Research and
development expense was $411,420 and $nil for the year ended June 30, 2009 and
from May 19, 2008 (inception) to June 30, 2009.
30
Basic and diluted loss per
share
The
Company reports basic loss per share in accordance with the SFAS No. 128,
“Earnings Per Share”. Basic loss per share is computed using the weighted
average number of shares outstanding during the period. Diluted loss per
share has not been provided as it would anti-dilutive. Dilution is
computed by applying the treasury stock method.
Liquidity
and Capital Resources
At June
30, 2009 the Company had a working capital deficit of $513,174. The
Company has been in the development stage since inception. As a result, the
Company has relied on financing through the issuance of common stock and a
convertible debenture as well as advances from a director shareholder as well as
employees working without pay.
We expect
to run at a loss for at least the next twelve months. Certain existing
stockholders of the Company in consideration of Solterra and its shareholders
completing the transaction, issued to the Company a Promissory Note in the
amount of $3,500,000 due and payable on or before January 15, 2009, through the
payment of cash or, with the consent of the Company, the cancellation of up to
12,000,000 issued and outstanding shares of the Company owned by
them. As of the filing date of this Form 10-K, this Note has not been
paid. We have demanded payment on the Note of $3,500,000 or the cancellation of
the 12,000,000 shares. We reserve the right to take all corporate legal actions
against the obligors of the Note. We can provide no assurances that a
successful resolution of this matter will occur.
Our Chief
Executive Officer has loaned to us $83,000 as of November 10, 2009, which monies
have no set repayment terms. We have no agreements for additional financing and
cannot provide any assurance that additional funding will be available to
finance our operations on acceptable terms in order to enable us to complete our
new plan of operations. If we are unable to achieve substantial additional
financing necessary to continue our new plan of operations, then our
stockholders would likely lose their entire investment in the Company. See “Risk
Factors.”
We
need to continue as a going concern if our business is to succeed, if we do not
we will go out of business.
Our independent accountant’s report to
our audited financial statements for the period June 30, 2009 indicates that
there are a number of factors that raise substantial doubt about our ability to
continue as a going concern. Such factors identified in the report
are our accumulated deficit since inception, our failure to attain profitable
operations and our dependence upon financing to pay our
liabilities. If we are not able to continue as a going concern, it is
likely investors will lose their investments. See “Risk Factors.”
Our
intended business is based solely on rights granted to Solterra pursuant to a
license agreement with William Marsh Rice University.
Pursuant to an agreement dated August
20, 2008, we entered into an exclusive license agreement (the “License”) with
Rice University to use, develop, manufacture, market and exploit certain
inventions, patent applications and issued patents of licensor with respect to
the manufacture and sale of photovoltaic cells and the manufacture and sale of
quantum dots for electronic and medical applications. Our license agreement with
Rice University requires Solterra to be financially solvent at all times on or
after December 31, 2009, meet certain milestones and other obligations,
conditions and to make certain royalty and other payments during the term of the
license agreement. Any default under the terms of our license
agreement, which if not cured or waived by Rice University, could result in the
loss of our exclusive license agreement and the right to manufacture and sell
our intended products. The loss of our exclusive license agreement with Rice
University would have a material adverse affect on our operations and investors
could lose their entire investment. See “Risk Factors.”
We
will need additional funds to meet our obligations under our Secured Debentures
which become due and payable upon the earlier of November 4, 2011 or a default
under the Transaction Documents. Further, we need consent of Rice
University to assign our license from Solterra to Hague and obtain the right to
grant sub licenses.
Pursuant
to Transaction Documents (as defined under item 1), we borrowed $1,500,000 from
certain non-affiliated parties on November 4, 2008 and issued Debentures secured
by a pledge of stock from Mr. Squires, our Chief Executive Officer and by our
assets. We also entered into a 120 day Standstill Agreement effective June 1,
2009, which was amended in October 2009 to currently expire at the close of
business on December 1, 2009. The Standstill Agreement provides for
the resignation of Isaac Horton (which resignation has not occurred as of the
filing date of this Form 10-K) and obligates Hague with the consent of Rice,
which consent has not been obtained as of the filing date of this Form 10-K, to
transfer its license with Rice University from Solterra to Hague and for
Solterra to obtain an exclusive worldwide license to purchase quantum dots for
solar purposes and to its sublicenses. We can provide no assurances that we will
be able to meet our obligations under the Transaction Documents and Standstill
Agreement, the failure of which could materially adversely affect our operations
and business prospects and our ability to meet our obligations as they become
due and payable under the Debentures. See “Risk Factors.”
31
We will need to
raise significant additional capital in order to continue to grow our business
and fund our operations which subjects us to the risk that we may be unable to
grow our business and fund our operations as planned.
While
we are effectuating our business strategy, we expect to operate on a negative
cash flow basis. We can provide no assurance that our current funds will be
sufficient to fund operations over an extended period of time. Moreover, our
business plans are based upon the need to raise substantial funds to become
operational and to support our intended operations and plans for expansion and
growth. As such, we can provide no assurances that we will be able to
successfully raise additional financing as needed, on terms satisfactory to us,
if at all. Any additional financing will also likely cause substantial dilution
to our stockholders. Further, certain existing shareholders (the “Obligors”)
have executed a promissory note to pay us $3,500,000 in cash or, with our
consent, through the cancellation of up to 12,000,000 shares of our common
stock. These obligations are in default and we have not received payment under
the Note as required. We can provide no assurances that the Obligors will pay us
$3,500,000 in cash under the terms of the Note, if at all. Our License Agreement
with Rice and our operational needs require us to raise substantial additional
financing. We can provide no assurances that these funds will be obtained on
satisfactory terms to us, if at all. See “Risk Factors.”
Balance
Sheet – June 30, 2009
Bank
indebtedness
At June
30, 2009, the Company’s balance sheet contained bank indebtedness of
$1,377. This is a decrease of $1,377 since the June
30, 2008 year-end balance of $0. In November 2008, the Company netted
$1,185,000 from the issue of a convertible debenture; however, operating costs
have consumed the entire amount leaving the current deficit of
$1,377.
The
Company has been in a development stage since inception. As a result,
the Company has relied on financing through the issuance of common stock and a
convertible debenture in November 2008 as well as advances from a
director.
License
In August
2008, the Company concluded a license agreement with Rice. This
agreement gives the Company exclusive use of the issued patents and patent
applications as well as the know-how owned by Rice University to develop,
manufacture and market Quantum Dots. This licensed technology enables
the Company to produce highly desirable CdSe tetrapod quantum dots at an
anticipated cost savings of greater than 50% compared to competing suppliers,
and will organically supply Solterra’s requirements for quantum dots for its
solar cells. The balance of $40,000 represents the license fee paid
to Rice University. The license agreement also specifies minimum
royalty payments starting in August 2010. This agreement also
requires the Company to pay for all patent costs on the patents owned by Rice
and licensed to the Company. These costs have been expensed as
professional fees in general and administrative expenses and amounted to $21,542
at June 30, 2009.
32
Furniture
and equipment
During
the year ended June 30, 2009, the Company acquired $14,382 of office equipment
and $5,000 of office furniture. The company is amortizing the office
equipment on a straight line basis over 3 years and has therefore charged
operations with $2,412 of amortization for this period. The company
is amortizing the office furniture on a straight line basis over 7 years and has
therefore charged operations with $450 of amortization for this
period. There were no furniture or equipment at June 30,
2008.
Deferred
financing costs
Deferred
finance expenses were $246,167 at June 30, 2009. This amount relates
to the $315,000 of expenses associated with the $1,500,000 convertible debenture
financing raised in November 2008. The deferred financing cost is
being amortized using the effective interest method over the thirty-six month
life of the debenture.
Accounts
payable related party
At June
30, 2009 there were $162,687 due to related parties. Of this Stephen
Squires, our Chief Executive Officer, director and a shareholder, was owed
$40,369, comprised of $30,000 in unpaid wages, $7,869 in unreimbursed expenses
and $2,500 in advances paid to the Company. Other officers and
related parties are owed $115,000 in unpaid wages and $7,318 in unreimbursed
expenses. There was no balance owing or due from this related party
at June 30, 2008.
Accounts
payable and accrued liabilities
The
balance at June 30, 2009 was $349,110. Included in accounts payable
is accrued interest on the convertible debenture of $40,000, development
expenses of $236,420, patent maintenance fees associated with the license of
$21,542, legal and auditor expenses of $38,880, and other operating
expenses of $12,268. There were no accounts payable at June 30,
2008.
Convertible
debenture
On
November 4, 2008, Hague Corp entered into a Securities Purchase Agreement,
Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration
Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related
transactional documents to obtain $1,500,000 in gross proceeds from three
non-affiliated parties in exchange for 3,525,000 restricted shares of Common
Stock of Hague Corp and Debentures in the principal amount aggregating
$1,500,000. Each Debenture has a term of three years maturing on November 4,
2011 bearing interest at the rate of 8% per annum and is prepayable by Hague
Corp at anytime without penalty, subject to the Debenture holders’ conversion
rights. The Company recorded a discount of $1,155,826 associated with
the 3,525,000 shares issued. The discount will be amortized over the
3 year life of the debenture. Each Debenture is
convertible at the option of each Lender into Hague Corp’s Common Stock, at a
conversion price of $.2667 per share. The Debentures are secured by the
assets of Hague Corp and are guaranteed by Solterra as Hague Corp’s subsidiary
and through a pledge of 20,000,000 shares by Stephen Squires, the Company’s
Chief Executive Officer. In the event the Debentures are converted in their
entirety, Hague would be required to issue and aggregate of 5,624,297 shares of
Hague’s Common Stock, subject to anti-dilution protection for stock splits,
stock dividends, combinations, reclassifications and sale of Hague Common Stock
a price below the Conversion Price. Certain changes of control or
fundamental transactions such as a merger or consolidation with another company
or other material event could cause an event of default under the Transaction
Documents. The balance of the convertible debenture net of the
discount at June 30, 2009 was $ 540,726. The discount is being
amortized resulting in the convertible debenture balance being $1,500,000 at
November 4, 2011. We have entered into a Standstill Agreement with respect to
our obligations under the Transaction Documents, which agreement currently
expires on December 1, 2009. See “Item 11” and “Item 1 – Risk
Factors.”
Common Stock
The
accounting treatment of the November 4, 2008 plan of merger and reorganization
between Hague and Solterra regarding the common stock is as
follows: During the fiscal year ended June 30, 2009 the Company
issued 4,250,000 shares of common stock at $0.01 per share for a total of
$42,500. As a result of the plan of merger and reorganization 24,600,000 shares
were issued to the existing shareholders of Hague. In addition
3,525,000 shares were issued with the $1,500,000 convertible
debenture. It was determined the shares issued with the
debenture had a value of $1,155,826. As the par value of the shares
is $0.001 common stock increased by $3,525 and additional paid in capital
increased by $1,152,301. On March 1, 2009 according to the provisions
of the Convertible Debenture agreement, the Company elected to issue 506,493
shares of the Company’s Common Stock to pay accrued interest on the debentures
of $39,000. Common stock increased from 37,000,000 shares at June 30, 2008 to
69,881,493 shares at June 30, 2009. On November 6, 2009, the Company
elected to pay six months of accrued interest, totaling $60,000 through the
issuance of a total of 843,674 shares of restricted common stock.
33
Statement
of operations – June 30, 2009
General
and administrative expenses
During
the year ended June 30, 2009 the Company incurred $1,230,532 of general and
administrative expenses compared to $3,700 from the date of inception May 19,
2008 to June 30, 2008. Included in these expenses was a one time fee
of $500,000 for the development of the Companies tactical business plan and
reorganization, with ongoing support up to financing. A fee of
$100,000 was paid for the preparation of market development strategy for selling
solar licenses. Other expenses were wages of $365,000, legal and audit of
$75,707, license maintenance $21,542, corporate expense of $15,383, office
expenses of $50,370, travel expense of $88,268 insurance of $11,400 and
amortization of office equipment and furniture of $2,862. There were
$3,700 of general and administrative costs incurred in the period from inception
to June 30, 2008. However in this period the Company was waiting for
financing and not operational.
Development
expenses.
Development
expenses of $320,000 were incurred per an agreement to a major university to
optimize the printing process of solar cells. A further $91,420 of
expenses were recorded for the year ended June 30, 2009 to another major
university for the development of the continuous batch production of the
Company’s proprietary Quantum Dots. There were no development costs
incurred in the period ending June 30, 2008.
Amortization of deferred finance
cost
This
amount relates to the $315,000 of expenses associated with the $1,500,000
convertible debenture financing raised in November 2008. The deferred
financing cost is being amortized using the effective interest method over the
thirty-six month life of the debenture. Amortization recorded for the
period November 4, 2008 to June 30, 2009 was $68,833.
Amortization
of convertible debenture discount
The
convertible debenture discount of $1,189,974 is being amortized over the term of
the 36 month term of the debenture using the effective interest
method. The debenture was issued on November 4,
2008. Amortization recorded for the period November 4, 2008 to June
30, 2009 was $230,700. The amortized balance of the discount at June
30, 2009 is $959,274 resulting in the convertible debenture value on the balance
sheet net of the discount $540,726.
Interest
expense on the convertible debenture
This
amount relates to the 8% interest associated with the $1,500,000 convertible
debenture issued in November 2008. Interest expense recorded for the
period November 4, 2008 to June 30, 2009 was $79,000. On March 1, 2009
according to the provisions of the Convertible Debenture agreement the Company
elected to issue 506,493 shares of the Company’s Common Stock to pay accrued
interest on the debentures of $39,000.
Warrants
issued
Warrants
to purchase 1,000,000 shares were issued by the Company in June 2009 in
connection with the original standstill agreement signed with the
holders of the convertible debenture. The Company has attributed
$34,148 to the warrants using the Black Scholes option price
model. Not included in the foregoing, are the value of two million
warrants, exercisable of $.10 per share, through October 31, 2014, issued in
October, 2009, in connection of an extension of the standstill agreement,
through December 1, 2009.
Cash
Flow
During
the year ended June 30, 2009, cash was used in operations of
$1,168,118. During this period the Company received proceeds of
$42,500 through the issuance of common stock. The Company also
received net proceeds of $1,185,000 through the issue of $1,500,000 in
convertible debentures net of issuance costs of $315,000. Total
proceeds from financing activities were $1,227,500. The Company used
cash of $40,000 to purchase the license from William Marsh Rice University of
Houston, Texas. The Company also purchased office furniture and
equipment of $19,382.
These
changes resulted in a cash decrease for the year ended June 30, 2009 of
$1,377. The opening cash at June 30, 2008 was nil, and the closing
balance resulted in bank indebtedness at June 30, 2009 of $1,377.
34
Significant
Accounting Pronouncement
The
Company follows Statement of Financial Accounting Standards Number 109 (SFAS
109), “Accounting for Income Taxes.” Deferred income taxes reflect
the net effect of (a) temporary difference between carrying amounts of assets
and liabilities for financial purposes and amounts used for income tax reporting
purposes, and (b) net operating loss carryforwards. No net provision
for refundable Federal income tax has been made in the accompanying statement of
loss because no refundable taxes were paid previously. Similarly, no
deferred tax asset attributable to the net operating loss carryforward has been
recognized, as it is not likely to be realized. At June 30, 2009, the Company
had an used net operating loss carryover approximating $2,057,000 that is
available to offset taxable income which expires in 2029.
Item
8. Consolidated Financial
Statements
Consolidated Financial
Statements
The report of the Independent
Registered Public Accounting Firm on the Consolidated Financial Statements and
Schedules are set forth beginning on page F-1 of this Annual Report on Form 10-K
following this page.
35
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors of
Hague
Corp.
(A
Development Stage Company)
Tempe,
Arizona
We have
audited the accompanying consolidated balance sheets of Hague Corp. (the
“Company”) as of June 30, 2009 and 2008, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year then
ended and for the periods from May 19, 2008 (inception) through June 30, 2008
and 2009. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Hague Corp. as of June
30, 2009 and 2008, and the results of its operations and its cash flows for the
year then ended and for the period from May 19, 2008 (inception) through June
30, 2008 and 2009 in conformity with accounting principles generally accepted in
the United States of America.
As
discussed in Note 2 to the consolidated financial statements, the Company's
absence of significant revenues, recurring losses from operations, and its need
for additional financing in order to fund its projected loss in 2010 raise
substantial doubt about its ability to continue as a going concern. The 2009
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
LBB &
Associates Ltd., LLP
Houston,
Texas
November
10, 2009
36
|
Hague
Corp.
|
|||||||||
|
(A
Development Stage Company)
|
|||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
|||||||||
|
June
30
|
June
30
|
||||||||
|
2009
|
2008
|
||||||||
|
ASSETS
|
|||||||||
|
Current
|
|||||||||
| - | $ | - | $ | - | |||||
|
Total
current assets
|
- | - | |||||||
|
License
|
40,000 | - | |||||||
|
Furniture
and equipment, net of amortization
|
16,520 | - | |||||||
|
Deferred
financing cost, net
|
246,167 | - | |||||||
|
Total
other assets
|
302,687 | - | |||||||
|
Total
assets
|
$ | 302,687 | $ | - | |||||
|
LIABILITIES
AND STOCKHOLDER'S EQUITY (DEFICIT)
|
|||||||||
|
Current
liabilities
|
|||||||||
|
Bank
indebtedness
|
$ | 1,377 | $ | - | |||||
|
Accounts
payable and accrued Liabilities
|
349,110 | - | |||||||
|
Accrued
liabilities - related party
|
162,687 | - | |||||||
|
Total
current liabilities
|
513,174 | - | |||||||
|
Convertible
debenture, net of discount
|
540,726 | - | |||||||
|
Total
liabilities
|
1,053,900 | - | |||||||
|
Commitments
and Contingencies
|
|||||||||
|
Stockholder's
equity (deficit)
|
|||||||||
|
Common
stock, $0.001 par value,
|
|||||||||
|
Authorized,
100,000,000 shares
|
|||||||||
|
Issued
and outstanding 69,881,493 and 37,000,000 as of
|
|||||||||
|
June
30, 2009 and 2008, respectively
|
69,881 | 37,000 | |||||||
|
Additional
paid-in capital
|
1,203,091 | (33,300 | ) | ||||||
|
Deficit
accumulated during the development stage
|
(2,024,185 | ) | (3,700 | ) | |||||
|
Total
stockholders' (deficit)
|
(751,213 | ) | - | ||||||
|
Total
liabilities and stockholders' equity (deficit)
|
$ | 302,687 | $ | - | |||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|||||||||
37
|
Hague
Corp.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
|
For
the year ending June 30, 2009, and for the periods from May 19, 2008
(inception) to June 30, 2008
|
||||||||||||
|
and
May 19, 2008 (inception) through June 30, 2009
|
||||||||||||
|
Year
|
Inception
|
Inception
|
||||||||||
|
ended
|
through
|
through
|
||||||||||
|
June
30,
|
June
30,
|
June
30,
|
||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Operating
expenses:
|
||||||||||||
|
General
and administrative
|
$ | 1,230,532 | $ | 3,700 | $ | 1,234,232 | ||||||
|
Research
and development
|
411,420 | - | 411,420 | |||||||||
|
Total
operating expenses
|
1,641,952 | 3,700 | 1,645,652 | |||||||||
|
Loss
from operations
|
(1,641,952 | ) | (3,700 | ) | (1,645,652 | ) | ||||||
|
Other
expenses:
|
||||||||||||
|
Amortization
of convertible debenture discount
|
230,700 | - | 230,700 | |||||||||
|
Amortization
of deferred finance cost
|
68,833 | - | 68,833 | |||||||||
|
Interest
expense
|
79,000 | - | 79,000 | |||||||||
|
Total
other expenses
|
378,533 | - | 378,533 | |||||||||
|
Net
Loss
|
$ | (2,020,485 | ) | $ | (3,700 | ) | $ | (2,024,185 | ) | |||
|
Basic
and diluted loss per common share
|
$ | (0.03 | ) | $ | (0.00 | ) | ||||||
|
Weighted
average number of common
|
||||||||||||
|
shares
outstanding
|
59,425,115 | 37,000,000 | ||||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||||||
38
|
Hague
Corp.
|
||||||||||||||||||||
|
(A
Development Stage Company)
|
||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|
||||||||||||||||||||
|
For
the period from May 19,2008 (inception) to June 30, 2009
|
||||||||||||||||||||
|
Deficit
|
||||||||||||||||||||
|
accumulated
|
||||||||||||||||||||
|
Additional
|
during
the
|
Total
|
||||||||||||||||||
|
Common
Stock
|
paid
in
|
development
|
Stockholders
|
|||||||||||||||||
|
Shares
|
Amount
|
capital
|
stage
|
Equity
|
||||||||||||||||
|
Inception,
May 19, 2008
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
|
Issuance
of common stock
|
37,000,000 | 37,000 | (33,300 | ) | - | 3,700 | ||||||||||||||
|
Net
loss to June 30, 2008
|
(3,700 | ) | (3,700 | ) | ||||||||||||||||
|
Balance
June 30, 2008
|
37,000,000 | 37,000 | (33,300 | ) | (3,700 | ) | - | |||||||||||||
|
Common
stock sold at $0.01 per share
|
4,250,000 | 4,250 | 38,250 | 42,500 | ||||||||||||||||
|
Issuance
of common stock in connection
|
||||||||||||||||||||
|
with
recapitalization
|
24,600,000 | 24,600 | (26,802 | ) | (2,202 | ) | ||||||||||||||
|
Common
stock issued with debenture
|
3,525,000 | 3,525 | 574,388 | 577,913 | ||||||||||||||||
|
Beneficial
conversion feature of shares
|
||||||||||||||||||||
|
issued
with debenture
|
577,913 | 577,913 | ||||||||||||||||||
|
Common
stock issued for debenture interest
|
506,493 | 506 | 38,494 | 39,000 | ||||||||||||||||
|
Warrant
issued with standstill agreement
|
34,148 | 34,148 | ||||||||||||||||||
|
Net
loss year ended June 30, 2009
|
(2,020,485 | ) | (2,020,485 | ) | ||||||||||||||||
|
Balance
June 30, 2009
|
69,881,493 | $ | 69,881 | $ | 1,203,091 | $ | (2,024,185 | ) | $ | (751,213 | ) | |||||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||||||||||||||
39
|
Hague
Corp.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
|
For
the year ending June 30, 2009, and for the periods from May 19, 2008
(inception) to June 30, 2008
|
||||||||||||
|
and
May 19, 2008 (inception) through June 30, 2009
|
||||||||||||
|
Year
|
Inception
|
Inception
|
||||||||||
|
ended
|
through
|
through
|
||||||||||
|
June
30
|
June
30
|
June
30
|
||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
loss for the period
|
$ | (2,020,485 | ) | $ | (3,700 | ) | $ | (2,024,185 | ) | |||
|
Adjustments
to reconcile net loss to net cash
|
||||||||||||
|
used
in operating activities:
|
||||||||||||
|
Stock
issued for services
|
- | 3,700 | 3,700 | |||||||||
|
Depreciation
of furniture and office equipment
|
2,862 | - | 2,862 | |||||||||
|
Amortization
of convertible debenture discount
|
230,700 | - | 230,700 | |||||||||
|
Amortization
of deferred finance cost
|
68,833 | - | 68,833 | |||||||||
|
Net
change in:
|
||||||||||||
|
Bank
indebtedness
|
1,377 | - | 1,377 | |||||||||
|
Accounts
payable and accrued liabilities
|
385,908 | - | 385,908 | |||||||||
|
Accrued
liabilities - related party
|
162,687 | 162,687 | ||||||||||
|
Cash
flows used in operating activities
|
(1,168,118 | ) | - | (1,168,118 | ) | |||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Purchase
of license
|
(40,000 | ) | - | (40,000 | ) | |||||||
|
Purchase
of furniture & equipment
|
(19,382 | ) | - | (19,382 | ) | |||||||
|
Cash
flows used in investing activities
|
(59,382 | ) | - | (59,382 | ) | |||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Proceeds
from issuance of common stock
|
42,500 | - | 42,500 | |||||||||
|
Proceeds
from convertible debenture issued
|
1,500,000 | - | 1,500,000 | |||||||||
|
Payment
of deferred finance cost
|
(315,000 | ) | - | (315,000 | ) | |||||||
|
Cash
flows from financing activities
|
1,227,500 | - | 1,227,500 | |||||||||
|
NET
INCREASE IN CASH
|
- | - | - | |||||||||
|
Cash,
beginning of the period
|
- | - | - | |||||||||
|
Cash,
end of the period
|
$ | - | $ | - | $ | - | ||||||
|
Supplemental
disclosure with respect to cash flows:
|
||||||||||||
|
Cash
paid for income taxes
|
$ | - | $ | - | $ | - | ||||||
|
Cash
paid for interest
|
$ | - | $ | - | $ | - | ||||||
|
Non
cash transaction
|
||||||||||||
|
Common
stock issued for debenture interest
|
$ | 39,000 | $ | - | $ | 39,000 | ||||||
|
Issuance
of common stock in connection
|
||||||||||||
|
with
recapitalization
|
$ | 2,202 | $ | - | $ | 2,202 | ||||||
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||||||
40
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
Note 1.
Basis of
Presentation
The
consolidated balance sheets and the consolidated statements of operations and
cash flows for the year ended June 30, 2009 and the period from May 19, 2008
(inception) through June 30, 2009 of Hague Corp ("Hague" or the "Company") have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
("SEC").
Since
November 4, 2008, the Company has changed its business plans and is no longer
intending to pursue the mining of mineral rights located in Nevada. The Company
intends to pursue the business plans of its subsidiary, Solterra. The
following is a brief business overview of Solterra.
Solterra is a start-up solar
technology and quantum dot manufacturing firm which was founded by Stephen
Squires. Mr. Squires perceives an opportunity to acquire a significant amount of
both quantum dot and solar photovoltaic market share by commercializing a
low cost quantum dot processing technology and a low cost quantum dot based
third generation photovoltaic technology/solar cell, pursuant to an exclusive
license agreement with William Marsh Rice University (“Rice University” or
“Rice”). Our objective is to become the first bulk manufacture of
high quality tetrapod quantum dots and the first solar cell manufacturer to be
able to offer a solar electricity solution that competes on a non-subsidized
basis with the price of retail electricity in key markets in North America,
Europe, the Middle East and Asia.
In May
2009, the Financial Accounting Standards Board (“FASB”) issued accounting
guidance, effective for financial statements issued for interim and annual
periods ending after June 15, 2009, which requires us to disclose the date
through which we have evaluated subsequent events and whether the date
corresponds with the release of our financial statements. We have
evaluated subsequent events through November 10, 2009, the date the financial
statements were available to be issued.
Note 2.
Nature and Continuance
of Operations
In
November 2008, the Company acquired Solterra, through an Agreement and Plan of
Merger and Reorganization (the “Merger”) by and among Solterra, the Shareholders
of Solterra and Hague Corp and Gregory Chapman as “Indemnitor” which resulted in
Solterra becoming a wholly-owned subsidiary of Hague Corp. Pursuant to the
Merger, Mr. Chapman cancelled 40,000,000 shares of Common Stock of Hague Corp
owned by him and issued a general release in favor of Hague Corp terminating its
obligations to repay Mr. Chapman approximately $34,000 in principal owed to him.
In accordance with the Merger, Hague Corp issued 41,250,000 shares of its Common
Stock to the former stockholders of Solterra. Certain existing stockholders of
Hague Corp in consideration of Solterra and its shareholders completing the
transaction, issued to Hague Corp a Promissory Note in the amount of $3,500,000
due and payable on or before January 15, 2009, through the payment of cash or,
with the consent of Hague Corp, the cancellation of up to 12,000,000 issued and
outstanding shares of Hague Corp owned by them. The Company has
recorded the note receivable in equity as a subscription receivable which
is offset by additional paid in capital, thus this entry has a zero net effect
in the financial statements. As of November 6, 2009, the $3,500,000 Promissory
Note has not been collected and the Company has made demand
for payment or the cancellation of 12,000,000 shares per agreement.
The Company is considering all legal options to pursue collection of the funds
or cancellation of the shares.
Hague
Corp ceased the mining business that we had previously conducted, we closed
our offices in Canada, and we moved our offices to the offices of Solterra in
Arizona.
These
financial statements have been prepared in accordance with generally accepted
accounting principles applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for its
next fiscal year. Realization values may be substantially different from
carrying values as shown and these financial statements do not give effect to
adjustments that would be necessary to the carrying value and classification of
assets and liabilities should the Company be unable to continue as a going
concern. At June 30, 2009, the Company had not yet achieved profitable
operations, has accumulated losses of $2,024,185 since its inception, at June
30, 2009, has a working capital deficit of $513,174, which will not be
sufficient to sustain operations over the next twelve months, and expects to
incur further losses in the development of its business, all of which casts
substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its
ability to generate future profitable operations and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from normal
business operations when they come due. The Company requires immediate
and substantial additional financing during fiscal 2010 to maintain
its development stage operations. The Company is exploring all avenues of
financing at this time and can provide no assurances that such financing will be
obtained on terms satisfactory to the Company, if at all.
41
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
Note 3.
Summary of Significant
Accounting Policies
Cash and cash
equivalents
Cash and
cash equivalents include cash and all highly liquid financial instruments with
original purchased maturities of three months or less. At various times during
the year, the Company maintained cash balances in excess of FDIC insurable
limits. Management feels this risk is mitigated due to the longstanding
reputation of these banks.
Fair value of financial
instruments
The
Company's financial instruments consist of cash and cash equivalents, inventory,
prepaids, deposits and debt. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or interest rates that
approximate prevailing market rates unless otherwise disclosed in these
consolidated financial statements.
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 reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates
Deferred Finance
Costs
Deferred
finance costs which arose from the Company’s convertible debenture financing are
amortized using the effective interest method over the three year term of the
debentures.
Equipment
Office
furniture and office equipment are stated at cost less accumulated
depreciation. Major renewals and improvements are capitalized: minor
replacements, maintenance and repairs are charged to current
operations. Depreciation is computed by applying the straight-line
method over the estimated useful lives which are generally three to seven
years.
|
Method
|
Period
|
|
|
Office
furniture
|
Straight
line
|
7
years
|
|
Office
equipment
|
Straight
line
|
3
years
|
Long-lived
assets
We review
our long-lived assets, which include intangible assets subject to amortization,
for recoverability whenever events or changes in circumstances indicate that the
carrying amount of such long-lived asset or group of long-lived assets
(collectively referred to as “the asset”) may not be
recoverable. Such circumstances include, but are not limited
to:
|
·
|
a
significant decrease in the market price of the asset:
|
|
·
|
a
significant change in the extent or manner in which the asset is being
used:
|
|
·
|
a
significant change in the business climate that could affect the value of
the asset:
|
|
·
|
a
current period loss combined with projection of continuing loss associated
with use of the asset:
|
|
·
|
a
current expectation that, more likely than not, the asset will be sold or
otherwise disposed of before the end of its previously estimated useful
life.
|
Beneficial
conversion
Equity
instruments that contain a beneficial conversion feature are recorded as a
deemed dividend to the holders of the convertible equity instruments. The deemed
dividend associated with the beneficial conversion is calculated as the
difference between the fair value of the underlying common stock less the
proceeds that have been received for the equity instrument limited to the value
received. The beneficial conversion amount is recorded as a deemed dividend or
interest expense and an increase to additional paid-in-capital.
42
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
Research and development
costs
Research
and development costs are expenses as they are incurred. Research and
development expense was $411,420 and $nil for the year ended June 30, 2009 and
from May 19, 2008 (inception) to June 30, 2009.
Basic and diluted loss per
share
The
Company reports basic loss per share in accordance with the SFAS No. 128,
“Earnings Per Share”. Basic loss per share is computed using the weighted
average number of shares outstanding during the period. Diluted loss per
share has not been provided as it would anti-dilutive. Dilution is
computed by applying the treasury stock method.
Recent accounting
pronouncements
The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flow.
Note 4.
Furniture and
equipment
Components
of furniture and equipment consist of the following items as of June 30,
2009:
|
Accumulated
|
||||||||||||
|
Cost
|
depreciation
|
Net
|
||||||||||
|
Office
equipment
|
$ | 14,382 | $ | 2,412 | $ | 11,970 | ||||||
|
Office
furniture
|
5,000 | 450 | 4,550 | |||||||||
| $ | 19,382 | $ | 2,862 | $ | 16,520 | |||||||
Note 5.
Related party
transactions
During
the year ended June 30, 2009, the Company made management fee payments to the
CEO / major shareholder of $70,000 and accrued another $30,000 which was
expensed but not paid for year ended June 30, 2009. During the year
ended June 30, 2009 the Company recorded $11,040 of rent expense for the use of
executive office space in the home of the CEO / major shareholder, $9,120 was
paid and $1,920 was accrued at June 30, 2009.
The
shareholder advance of $40,368 is due to a director of the Company for $7,868 of
expenses paid by the Director on behalf of the Company, $2,500 of cash advances
paid to the Company and unpaid wages of $30,000.
In May
2008, Solterra issued 37,000,000 shares of its common stock for services
rendered associated with its formation and planning to its founding director at
a value of $.0001 per share for a total of $3,700. As part of the
agreement and plan of reorganization, Solterra's founding director exchanged his
Solterra common stock for 35,550,000 common shares of the Company on November 4,
2008.
The
Company made payments to Phoenix Alliance Corp. a related party by significant
shareholdings of $600,000. Of this amount, $500,000 was paid for the
development of the Company’s tactical business plan and reorganization, and a
further $100,000 was paid for the preparation of a market development strategy
for selling solar licenses.
43
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
Note 6.
Convertible
debentures
On
November 4, 2008, Hague Corp entered into a Securities Purchase Agreement,
Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration
Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related
transactional documents (the “Transaction Documents”) to obtain $1,500,000 in
gross proceeds from three non-affiliated parties (collectively hereinafter
referred to as the “Lenders”) in exchange for 3,525,000 restricted shares of
Common Stock of Hague Corp (the “Restricted Shares”) and Debentures in the
principal amount aggregating $1,500,000. Each Debenture has a term of three
years maturing on November 4, 2011 bearing interest at the rate of 8% per annum
and is prepayable by Hague Corp at anytime without penalty, subject to the
Debenture holders’ conversion rights. In recognition of the 3,525,000
shares issued, the Company recorded a discount of $1,155,826. The
discount is made up of two components, $577,913 related to the discount for the
relative fair value of the shares issued and $577,913 related to a beneficial
conversion feature. The discount will be amortized over the 3 year life of the
debenture and recorded as interest expense. Each Debenture is
convertible at the option of each Lender into Hague Corp’s Common Stock (the
“Debenture Shares”, which together with the Restricted Shares shall collectively
be referred to as the “Securities”) at a conversion price of $.2667 per share
(the “Conversion Price”). The Registration Rights Agreement requires Hague Corp
to register the resale of the Securities within certain time limits and to be
subject to certain penalties in the event Hague Corp fails to timely file the
Registration Statement, fails to obtain an effective Registration Statement or,
once effective, to maintain an effective Registration Statement until the
Securities are saleable pursuant to Rule 144 without volume restriction or other
limitations on sale. The Debentures are secured by the assets of
Hague Corp and are guaranteed by Solterra as Hague Corp’s subsidiary. In the
event the Debentures are converted in their entirety, Hague Corp would be
required to issue an aggregate of 5,624,297 shares of Hague Corp’s Common Stock,
subject to anti-dilution protection for stock splits, stock dividends,
combinations, reclassifications and sale of Hague Corp’s Common Stock a price
below the Conversion Price. Certain changes of control or fundamental
transactions such as a merger or consolidation with another company could cause
an event of default under the Transaction Documents. We also entered
into a 120-day Standstill Agreement with the Debenture Holders effective June 1,
2009 which was amended to currently expire at the close of business on December
1, 2009. The Standstill Agreement provides for the resignation of a
director, the transfer of Solterra’s License Agreement with Rice to Hague and
for Solterra to obtain from Hague a worldwide exclusive license to purchase
quantum dots for solar purposes and to grant sublicenses. To date, the Company
has not obtained the consent of Rice to accomplish these objectives. The
Standstill Agreement puts a moratorium on the rights of Debenture Holders,
subject to certain conditions set forth in the Standstill
Agreement.
The
deferred financing costs related to the issuance of the debenture are recorded
as deferred charges and are being amortized over 36 months using the effective
interest method. During the year ended June 30, 2009, amortization
expense of $68,833 was recorded.
The
Transaction Documents include a Stock Pledge Agreement pursuant to which Stephen
Squires has pledged 20,000,000 shares of our Common Stock to the Debenture
holders (the “Holders”) until such time as the Debentures are paid in their
entirety.
Standstill
Agreement
On June
1, 2009, the Company and its Debenture Holders entered into a Standstill
Agreement which provided for a 120-day standstill period pursuant to which the
Debenture Holders would not exercise their rights under the Debentures, security
agreements, guarantee, pledge agreement and other related “Transaction
Documents.” In October 2009 by separate agreement, the Standstill Period was
extended by the Debenture Holders through the close of business on December 1,
2009. The following is a summary of some of the material provisions of the
Standstill Agreement:
|
·
|
The
Debenture Holders would receive warrants to purchase 1,000,000 shares of
Hague’s Common Stock, exercisable at $.25 per share over a period of 18
months together with cashless exercise provisions in the event no
registration statement is effective at the time of exercise. Of the
1,000,000 warrants, the Debenture Holders assigned 175,000 warrants and
75,000 warrants to Dr.Isaac Horton and Richard Patton, respectively.
Messrs. Horton and Patton served as directors of Hague in accordance with
the Debenture Holders’ right to appoint two members to the Board of
Directors. Warrants to purchase 2,000,000 shares exercisable at $.10 per
share through October 31, 2014 were issued for an extension of the Standstill
Agreement. These Warrants also contain cashless exercise provisions in the
event that there is no current registration statement effective at the
time of exercise.
|
|
·
|
Certain
stockholders of the Company were to exchange up to 2,350,000 shares of
free trading shares for restricted shares of Hague’s Common
Stock.
|
|
·
|
The
Company would seek to raise additional financing either in Hague or in
Solterra. If the financing was in Solterra and at least $2,000,000 was
raised, then the Debenture Holders would have the right to have Hague
assign its Debenture obligation to Solterra and to permit the Debenture
Holders to convert their indebtedness into Solterra Common Stock at a 25%
discount to terms of the private placement offering. As of October 13,
2009, no additional equity financing has been raised by the
Company.
|
|
·
|
Isaac
Horton shall resign from Hague’s Board. The Debenture Holders may replace
Mr. Horton with David Skriloff. As of November 10, 2009, Mr.
Horton has not resigned from the
Board.
|
44
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
|
·
|
Upon
Hague’s receipt of $250,000 of financing, Hague has agreed to obtain
directors’ and officers’ liability insurance and agree to maintain same
for at least three years and to indemnify Mr. Skriloff to the fullest
extent provided by Nevada law should he agree to join the
Board.
|
|
·
|
On
or before Solterra’s acceptance of any private financing, Solterra shall
assign its license agreement with Rice University to Hague.
Simultaneously, Hague shall grant Solterra the exclusive worldwide right
under the Rice License Agreement to purchase the quantum dots for solar
purposes, including the right to grant sublicenses. The Company shall
obtain the written permission of Rice University to accomplish the
foregoing. Hague shall be the sole supplier of the quantum dots to
Solterra and to its sublicensees. Solterra shall pay a
licensing fee to Hague in an amount necessary to retire the Company’s
Notes (principal and accrued but unpaid interest) in full (unless the
Noteholders agree to have Solterra assume these obligations from Hague and
convert into common stock of Solterra), plus the sum of $1.0
million. It is understood that Solterra will be the solar sub
and Hague shall produce and sell the quantum dots and shall have the right
to grant sublicenses for all other purposes. During the Standstill Period
and thereafter, except as otherwise provided, Hague shall not transfer
and/or sell any of its assets without the express prior written consent of
the Noteholders, unless the Notes have been repaid or converted. Nothing
contained herein shall be construed to prohibit Hague or Solterra from
licensing its Intellectual Property or selling its quantum dots in a
business unrelated to solar to third parties in arm’s-length
transactions.
|
|
·
|
Upon
conversion of the Noteholders’ Notes into Solterra common stock or the
repayment of the Notes in full, the following shall occur: (i) all
security interests, registration rights and other such rights and
obligations of the Noteholders (as noteholders only and in no other
capacity) shall be terminated, (ii) if elected Mr. Skriloff, shall resign
from the Board of Directors of Hague, and (iii) the Noteholders, Hague and
Solterra shall exchange general releases which shall pertain to all past
actions of the Noteholders, as Noteholders, stockholders or security
holders in Hague or Solterra, as the case may
be.
|
|
·
|
The
Hague Board shall agree to hold board meetings no less frequently than
monthly, until the completion of the Private Offering and/or grants of at
least $2.0 million. It is further agreed that Hague shall adopt a
“Directors Manual: Public Corporation Governance and Guidelines,” which
includes a Code of Business Ethics, in the form customarily adopted by
smaller public companies and comply with all applicable provisions of the
Sarbanes-Oxley Act of 2002.
|
|
·
|
Upon
the completion of Solterra’s financing efforts, it will endeavor to become
an independent public entity through a self-directed offering and the
following actions would occur: Solterra’s Board would be expanded to
include additional directors. Mr. Squires would remain Chief Executive
Officer of one of these two companies with a new Chief Executive Officer
to be identified and hired on commercially reasonable terms to run the
other company. Mr. Squires would serve as Chairman of the Board of
Directors of the company in which he is Chief Executive Officer and he
would serve as a director of the other company. In the interim, until a
new Chief Executive Officer is found for the company in which he chooses
not to serve as Chief Executive Officer, he will serve as interim Chief
Executive Officer until his replacement is
hired.
|
|
·
|
The
provisions of the Standstill Agreement (except as otherwise provided
therein) shall automatically terminate and be of no further force and
effect ab initio, as if this agreement never took place or upon the
happening of one of the following events: (a) the entry of an order for
relief against Hague or Solterra (or equivalent thereof) in any case under
title 11 of the United States Code (or in connection with any case or
proceeding involving Hague or Solterra under any state or federal
insolvency law, (b) if Hague or Solterra fails to make any required
payments, under the terms of its agreements with Rice University or
Arizona State University, but only where either university notifies Hague
or Solterra that it is in default and that all opportunities to cure the
default have past, or (c) upon a material default (breach) of the
Standstill Agreement by Hague or Solterra and after being given written
notice of such default and at least five business days opportunity to cure
the default.
|
|
·
|
In
connection with the standstill agreement, the Company recorded $34,148 as
additional debt discount for the modification of terms, which will be
amortized over the life debt. The Company determined the conversion
feature issued to the Noteholders to convert their interest into the
common stock of Solterra was a derivative liability. The Company
determined the value of the derivative liability was nominal due to the
low probability of the Company or Solterra raising $2.0 million during the
standstill agreement.
|
45
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
Note 7.
Common
stock
The
transactions described in Note 2 and Note 6, resulted in 69,375,000 shares of
the Company’s Common Stock to be issued and outstanding as of December 31, 2008.
Included in the 69,375,000 shares are 4,250,000 shares issued for cash of $
42,500.
On March
1, 2009 according to the provisions of the Convertible Debenture agreement the
Company elected to issue 506,493 shares of the Company’s restricted Common Stock
to pay accrued interest on the debentures of $39,000. As of June 30,
2009 there were 69,881,493 shares of the Company’s Common Stock issued and
outstanding, without giving effect to the possible conversion of the
Debentures.
Note 8.
Commitments and
Contingencies
Contingency
Certain
default clauses related to the various agreements discussed in Note 6 would
result in a change of control of the board of directors. Certain debt
holders would have the option to appoint independent members to the board under
such default.
License
agreement
The
Company has a License agreement with William Marsh Rice University whereby
minimum royalty payments which are calculated based on sales volume must be made
starting in August 2010. This agreement can be terminated by Rice if certain
financial and other conditions are not fulfilled by Solterra.
Development service
agreements
In
October 2008, the Company entered into a development service agreement with a
major university to optimize the printing process of solar cells. The agreement
is for the period October 1, 2008 to September 30, 2009 with an option for two
additional years of services. The table below summarizes these
financial commitments under this agreement. The Company also has a
development service agreement with Rice University regarding the manufacturing
of quantum dots. This agreement expires in January
2010. These amounts are recorded as research and development expenses
in the consolidated financial statements.
Summary
|
Fiscal
|
Services
|
Lease
|
License
|
|||||||||||||
|
Year
|
agreement
|
agreement
|
agreement
|
Total
|
||||||||||||
|
2010
|
$ | 545,473 | $ | 1,636 | $ | - | $ | 547,109 | ||||||||
|
2011
|
- | - | 129,450 | 129,450 | ||||||||||||
|
2012
|
- | - | 473,250 | 473,250 | ||||||||||||
|
2013
|
- | - | 1,746,000 | 1,746,000 | ||||||||||||
|
2014
|
- | - | 3,738,600 | 3,738,600 | ||||||||||||
|
Thereafter
|
- | - | 3,738,600 | 3,738,600 | ||||||||||||
|
Total
|
$ | 545,473 | $ | 1,636 | $ | 9,825,900 | $ | 10,373,009 | ||||||||
Note 9.
Income
taxes
Hague
Corp. follows Statement of Financial Accounting Standards Number 109 (SFAS 109),
"Accounting for Income Taxes." Deferred income taxes reflect the net effect of
(a) temporary difference between carrying amounts of assets and liabilities for
financial purposes and the amounts used for income tax reporting purposes, and
(b) net operating loss carryforwards. No net provision for refundable Federal
income tax has been made in the accompanying statement of loss because no
recoverable taxes were paid previously. Similarly, no deferred tax asset
attributable to the net operating loss carryforward has been recognized, as it
is not deemed likely to be realized.
46
Hague
Corp.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
The
provision for refundable Federal income tax consists of the following for the
period ending June 30:
|
As at June 30, 2009
|
As at June 30, 2008
|
|||||||
|
Federal
income tax benefit attributed to:
|
||||||||
|
Current
Operations
|
687,000 | 1,300 | ||||||
|
Less,
Change in valuation allowance
|
(687,000 | ) | (1,300 | ) | ||||
|
Net
benefit
|
$ | - | $ | - | ||||
The
cumulative tax effect at the expected rate of 34% of significant items
comprising our net deferred tax amount is as follows:
|
As at June 30, 2009
|
As at June 30, 2008
|
|||||||
|
Deferred
tax asset attributed to:
|
||||||||
|
Net
operating loss carryover
|
688,000 | 1,300 | ||||||
|
Less,
Change in valuation allowance
|
(688,000 | ) | (1,300 | ) | ||||
|
Net
deferred tax asset
|
$ | - | $ | - | ||||
At June
30, 2009, Hague Corp. had an unused net operating loss carryover approximating
$2,024,000 that is available to offset future taxable income; it expires
beginning in 2025. United States tax regulations impose limitations on the use
of NOL carry forwards following certain changes in ownership. If such a
change were to occur with respect to the Company, the limitation could
significantly reduce the amount of benefits that would be available to offset
future taxable income each year, starting with the year of ownership change, the
subsequent merger result in limitation on the use of NOL carry
forwards.
Note 10.
Warrants
Warrants
for 1,000,000 shares were issued by the Company in June 2009 in connection with
the standstill agreement signed on June 1, 2009 with the holders of the
convertible debenture. The warrants have not been exercised at June
30, 2009. The Company has attributed $34,148 to the warrant value
using the Black Scholes option price model.
The
following summarizes warrants that are issued, outstanding and
exercisable.
|
Options/Warrants
|
||||||||
|
Issued
& Outstanding
|
||||||||
|
Exercise
Price
|
Expiration
Date
|
June
30,
|
June
30,
|
|||||
| 2009 | 2009 | |||||||
| 0.25 |
Dec
2010
|
1,000,000 | 1,000,000 | |||||
Note 11.
Subsequent
events
Stock options
issued
In
October 2009 the Board authorized the formation of a stock option plan to cover
7,500,000 shares. The Board also approved the granting of fully vested
non-statutory stock options to purchase 1,000,000 shares, 600,000 shares,
500,000 shares and 500,000 shares to Mr. Squires, Robin Squires (our
controller), Brian Lukian and David Doderer, respectively, exercisable
over a period of ten years at an exercise price of $.05 per
share.
Warrants
issued
Warrants
to purchase 2,000,000 shares exercisable at $.10 per share through October 31,
2014 were issued for an extension of the Standstill Agreement. These Warrants
also contain cashless exercise provisions in the event that there is no current
registration statement effective at the time of exercise.
Common
Stock
In
November 2009, the Company entered into a Consulting Agreement with Steven
Posner and Oceanus Capital LLC pursuant to which the Company agreed to issue an
aggregate of 3,000,000 restricted shares in exchange for certain introductions
made by them to the Company and various other related services. In
November 2009 according to the provisions of the Convertible Debenture
agreement, the Company elected to issue 843,674 shares of the Company's
restricted Common Stock to pay for accrued interest on debentures of
$60,000.
47
Item
9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
Not
applicable.
Item
9.A.(T) Controls and Procedures.
As of the
end of the period covered by this annual report on Form 10-K, we evaluated the
effectiveness of the design and operation of (i) our disclosure controls and
procedures, and (ii) our internal control over financial reporting. The
evaluators who performed this evaluation were our Chief Executive Officer,
Stephen Squires and our Chief Financial Officer and Acting Principal Accounting
Officer, Brian Lukian; their conclusions, based on and as of the date of the
Evaluation (i) with respect to the effectiveness of our Disclosure Controls and
(ii) with respect to any change in our Internal Controls that occurred during
the most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect our Internal Controls are presented
below.
CEO
and CFO Certifications
Attached
to this annual report, as Exhibits 31.1 and 31.2, are certain certifications of
the CEO and Acting CAO, which are required in accordance with the Exchange Act
and the Commission’s rules implementing such section (the "Rule
13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains
the information concerning the Evaluation referred to in the Rule
13a-14(a)/15d-14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.
Disclosure
Controls and Internal Controls
Disclosure
Controls are procedures designed with the objective of ensuring that information
required to be disclosed in the Company's reports filed with the Securities and
Exchange Commission under the Securities Exchange Act, such as this annual
report, is recorded, processed, summarized and reported within the time period
specified in the Commission’s rules and forms. Disclosure Controls are also
designed with the objective of ensuring that material information relating to
the Company is made known to the CEO and the Acting CAO by others, particularly
during the period in which the applicable report is being prepared. Internal
Controls, on the other hand, are procedures which are designed with the
objective of providing reasonable assurance that (i) the Company's transactions
are properly authorized, (ii) the Company’s assets are safeguarded against
unauthorized or improper use, and (iii) the Company's transactions are properly
recorded and reported, all to permit the preparation of complete and accurate
financial statements in conformity with accounting principals generally accepted
in the United States.
Limitations
on the Effectiveness of Controls
The
Company's management does not expect that their Disclosure Controls or their
Internal Controls will prevent all error and all fraud. A control system, no
matter how well developed and operated, can provide only reasonable, but not
absolute assurance that the objectives of the control system are met. Further,
the design of the control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of a system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated objectives under all
potential future conditions. Over time, control may become inadequate because of
changes in conditions, or because the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
48
Scope
of the Evaluation
The CEO
and Acting CAO’s evaluation of the our Disclosure Controls and Internal Controls
included a review of the controls’ (i) objectives, (ii) design, (iii)
implementation, and (iv) the effect of the controls on the information generated
for use in this annual report. In the course of the Evaluation, the CEO and
Acting CAO sought to identify data errors, control problems, acts of fraud, and
they sought to confirm that appropriate corrective action, including process
improvements, was being undertaken. This type of evaluation is done on a
quarterly basis so that the conclusions concerning the effectiveness of our
controls can be reported in our quarterly reports on Form 10-Q and annual
reports on Form 10-K. The overall goals of these various evaluation activities
are to monitor our Disclosure Controls and Internal Controls, and to make
modifications if and as necessary. Our external auditors also review Internal
Controls in connection with their audit and review activities. Our intent in
this regard is that the Disclosure Controls and the Internal Controls will be
maintained as dynamic systems that change (including improvements and
corrections) as conditions warrant.
Among
other matters, the Evaluation was to determine whether there were any
significant deficiencies or material weaknesses in our Internal Controls, which
are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, or whether the Evaluators identified
any acts of fraud, whether or not material, involving management or other
employees who have a significant role in our Internal Controls. This information
was important for both the Evaluation, generally, and because the Rule
13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and Acting CAO
disclose that information to our Board (audit committee), and our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions". These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. The Evaluators also sought to deal with other controls
matters in the Evaluation, and in each case, if a problem was identified, they
considered what revisions, improvements and/or corrections to make in accordance
with our ongoing procedures.
Conclusions
Based
upon the Evaluation, (i) our disclosure controls and procedures are effective in
giving us reasonable assurance that they are designed to ensure that
information we are required to disclose in the reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms and to ensure that
such information is accumulated and communicated to the our management,
including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure, and (ii) aside from the significant deficiency explained
below in Management’s Report Over Internal Controls – our Internal Controls are
effective at that assurance level to provide reasonable assurance that our
financial statements are fairly presented in conformity with accounting
principles generally accepted in the United States. Additionally, there has been
no change in our Internal Controls that occurred during our most recent fiscal
quarter that has materially affected, or is reasonably likely to affect, our
Internal Controls.
|
Report
of Management on Internal Control Over Financial
Reporting
|
Board of
Directors and Hague Corp.:
The
Management of Hague Corp. is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U. S. generally accepted accounting
principles. The Company’s internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company’s assets, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U. S. generally accepted accounting
principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and, (iii) provide reasonable assurance regarding prevention of
timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.
49
Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies as
identified.
Because
of its inherent limitations, internal control over financial reporting, no
matter how well designed, may not prevent or detect misstatements. Accordingly,
even effective internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, the
effectiveness of internal control over financial reporting was made as of a
specific date. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of June 30, 2009, based on criteria for effective
internal control over financial reporting described in “Internal Control—Integrated
Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Management’s assessment included an evaluation of the
design of the Company’s internal control over financial reporting and testing of
the operational effectiveness of its internal control over financial reporting.
Management reviewed the results of its assessment with the Audit Committee of
the Company’s Board of Directors.
Based on
this assessment, management determined that, as of June 30, 2009, Hague Corp.
maintained effective internal control over financial reporting, although we did
recognize a significant deficiency. A significant deficiency is a
deficiency, or a combination of deficiencies, that is less severe than a
material weakness, yet important enough to merit attention by those responsible
for oversight of the registrant’s financial reporting.
Although
currently we do not identify any material weaknesses in the process of self
assessment, we have recognized a significant deficiency in our internal
controls. Currently we do not have sufficient in-house expertise in
US GAAP reporting. Instead, we rely very much on the expertise and
knowledge of external financial advisors in US GAAP
conversion. External financial advisors have helped prepare and
review the consolidated financial statements. Although we have not
identified any material errors with our financial reporting or any material
weaknesses with our internal controls, no assurances can be given that there are
no such material errors or weaknesses existing. Upon obtaining
adequate financing we will seek to recruit experienced professionals to augment
and upgrade our financial staff to address issues of timeliness and completeness
in US GAAP financial reporting. In addition, we do not believe we
have sufficient documentation with our existing financial processes, risk
assessment and internal controls. We plan to work closely with
external financial advisors to document the existing financial processes, risk
assessment and internal controls systematically.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
HAGUE
CORP.
/s/ Stephen
Squires
Stephen
Squires
Chief
Executive Officer
/s/ Brian
Lukian
Brian
Lukian
Chief
Financial Officer, Acting Principal Accounting Officer
50
Item
9.B. Other Information.
Not Applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
The
names, ages and principal occupations of the Company's present officers and
directors are listed below, it being understood that there are
currently two vacancies on the Board of Directors.
|
Name
|
Age
|
Position
with the Company (1)
|
|||
|
Stephen
Squires
|
50
|
President
and Chief Executive Officer and Director
|
|||
|
Brian
Lukian C.A.
|
61
|
Acting
Chief Financial Officer
|
|||
|
Dr.Ghassan
E. Jabbour
|
47
|
Chief
Science Officer, Director
|
|||
|
Dr.
Michael S. Wong
|
36
|
Director
|
|||
|
David
Doderer
|
38
|
Vice
President of Research and Development
|
____________
|
(1)
|
Directors
are elected at the annual meeting of stockholders and hold office until
the following annual meeting.
|
The terms
of all officers expire at the annual meeting of directors following the annual
stockholders meeting. Officers serve at the pleasure of the Board and may be
removed, either with or without cause, by the Board of Directors, and a
successor elected by a majority vote of the Board of Directors, at any
time.
The
following is a brief summary of the background of each director, director
nominee and executive officer of our company:
Stephen Squires has over 25
years of experience in turnarounds, startups, business development, mergers and
acquisitions and strategic planning. Mr. Squires is skilled at identifying
emerging technologies and driving commercialization/global market introduction
to position companies for growth. From 1977 to1983, he worked
at McDonald Douglas Corporation, a company engaged in the business of
building advanced tactical fighter aircraft and space vehicles, developing and
adapting advanced materials for combat aircraft applications. From1983 to 2001,
Mr. Squires, as founder, served as President and Chief Executive Officer of
Aviation Composite Technologies, Inc., a company whose principal business was
the engineering, design, manufacture and refurbishment of advanced composite
aero structures. Under Mr. Squire’s leadership the company grew from zero to
over 200 employees and operated a 100,000 square foot state of the art facility.
Aviation Composite was merged with USDR Aerospace in 2001. Prior to his
employment with the Company which commenced upon the closing date of the
Agreement and Plan of Reorganization, Mr. Squire’s principal occupation was
consulting and advising in the areas of advanced materials, nanotechnology,
applications engineering, strategic international marketing with emphasis on
middle east and commercialization of emerging technologies for Orasi LLC. Since
1998, Mr. Squires has pursued his interests in advanced materials such as nano
fibers and nanotubes where he quickly recognized the potential of the unique
quantum features these materials held.
Brian Lukian C.A. has over 25
years of financial, strategic and business leadership contributing to the growth
and turnaround of corporations in various industries. Since January
2007, he has been providing consulting services in regards to mergers and
acquisitions, turnarounds, financings as well as business and industry analysis.
From 2005 through December 2006, he was employed by Ace Security Laminate
Corporation, Ottawa, Canada as its chief operating officer and chief financial
officer. Ace Security is in the business of manufacturing and distribution of
high-end security window laminates. From 2003 through 2005, he was employed by
Genomics One Corporation, Toronto and Montreal, Canada, as its chief operating
officer and chief financial officer. Genomics One is a distributor of a variety
of products that target the Life Sciences market. From 2000 through
2003, he was employed by Arcamatrix Corporation, Toronto Canada, as its chief
operating officer and chief financial officer. Arcamatrix is in the business of
secure document transfer and storage of information for the healthcare industry.
In the positions as chief financial officer and chief operating officer of the
aforementioned companies, Mr. Lukian reported directly to the chief executive
officer and the audit committee of the board of directors of each respective
company, and he was responsible for the daily operations, overseeing the
preparation of financial statements, forecasts, budgets and regulatory filings,
compliance with applicable securities laws, analyzing potential acquisitions and
serving as a liaison with the financial community, shareholders and investment
bankers and brokers. Mr. Lukian earned a certificate as Chartered Accountant,
McGill University, while employed by Ernst & Young, Montreal, Canada and is
a member of the Order of Chartered Accountants of Quebec. Mr. Lukian also has a
United States Investment Bankers license, Series Seven. He received a Bachelor
of Commerce from Loyola College, Montreal, Canada.
51
Dr. Ghassan E. Jabbour is the
Director of Flexible and Organic Electronics Development at the Flexible Display
Center (FDC) since 2006 and a Professor of Chemical and Materials Engineering at
Arizona State University since 2006. He is also the Technical Advisory Board
Leader on Optoelectronic Materials, Devices and Encapsulation at FDC. He has
been selected to the Asahi Shimbun 100 New Leaders of the USA and has received
the Presidential Award for Excellence from the Hariri Foundation in 1997. Dr.
Jabbour's research experience encompasses flexible-roll-to-roll-electronics and
displays, smart textile, moisture and oxygen barrier technology, transparent
conductors, organic light emitting devices, organic and hybrid photovoltaics,
organic memory storage, organic thin film transistors, combinatorial discovery
of materials, nano and macro printed devices, micro and nanofabrication,
biosensors, and quantum simulations of electronic materials. Dr. Jabbour
attended Northern Arizona University, the Massachusetts Institute of Technology
(MIT), and the University of Arizona. Dr. Jabbour is an SPIE
fellow. Prof. Jabbour has authored and co-authored over 300
publications, invited talks, and conference proceedings. He is the editor of
several books and symposia proceedings involving organic photonics and
electronics, and nanotechnology. Prof. Jabbour is the guest editor of the MRS
Bulletin issue on “Organic Photovoltaics”. He is the Chair and/or Co-Chair of
over 50 conferences related to photonic and electronic properties of organic
materials and their applications in displays and lighting, hybrid photosensitive
materials, and hybrid integration of semiconducting and
nanotechnology.
Dr. Michael S. Wong Principal
Investigator, Associate Professor in Chemical and Biomolecular Engineering
Associate Professor in Chemistry (Joint Appointment) at William Marsh Rice
University. His accomplishments include:
|
·
|
Smithsonian
Magazine "37 Under 36" Young Innovator Award
(2007)
|
|
·
|
3M
Non-tenured Faculty Award (2006,
2007)
|
|
·
|
GOLD
2006 Conference Best Presentation Award, for "best new idea in gold
catalysis" (2006)
|
|
·
|
AIChE
South Texas Section Best Applied Paper Award
(2006)
|
|
·
|
AIChE
Nanoscale Science and Engineering Forum Young Investigator Award
(2006)
|
|
·
|
MIT
Technology Review's TR35 Young Innovator Award
(2006)
|
|
·
|
Hershel
M. Rich Invention Award (2006)
|
|
·
|
National
Academy of Engineering Indo-America Frontiers of Engineering Symposium,
Invited Speaker (2006)
|
|
·
|
Smalley/Curl
Innovation Award (2005)
|
|
·
|
National
Academies Keck Futures Initiative (NAKFI) Symposium, Invited Participant
(2004)
|
|
·
|
Oak
Ridge Associated Universities Ralph E. Powe Junior Faculty Enhancement
Award (2003)
|
|
·
|
National
Academy of Engineering Japan-America Frontiers of Engineering
(JAFOE)
|
|
·
|
Symposium,
Invited Participant (2002)
|
|
·
|
Rice
Quantum Institute (RQI), Fellow
(2002)
|
|
·
|
Robert
P. Goldberg Grand Prize, MIT $50K Entrepreneurship Competition
(2001)
|
|
·
|
Union
Carbide Innovation Recognition Award
(2000)
|
|
·
|
MIT
Chemical Engineering Edward W. Merrill Outstanding Teaching Assistant
Award (1997)
|
|
·
|
Faculty
advisor for Phi Lambda Upsilon, chemical sciences honorary society (2003 -
present)
|
Dr.
Michael S. Wong joined the Department of Chemical Engineering in 2001, and
received a joint appointment in the Department of Chemistry in 2002. Before
coming to Rice University, he did post-doctoral research with Dr. Galen D.
Stucky of the Department of Chemistry and Biochemistry at University of
California, Santa Barbara. Mr. Wong’s educational background includes a B.S. in
Chemical Engineering from Caltech, an M.S. in Chemical Engineering Practice
(“Practice School”) from MIT, and a Ph.D. in Chemical Engineering from MIT
(under the supervision of Dr. Jackie Y. Ying, “Supramolecular Templating of
Mesoporous Zirconia-Based Nanocomposite Catalysts”). With the underlying theme
of designing and engineering novel materials for catalytic and encapsulation
applications, his research interests lie in the areas of nanostructured
materials (e.g. nanoporous materials, nanoparticle-based hollow spheres, and
quantum dots), heterogeneous catalysis, and bioengineering applications. He is
particularly interested in developing new chemical approaches to assembling
nanoparticles into functional macrostructures.
52
David Doderer has over 15
years of research & development experience in emerging technologies
including biotech, nanotech and quantum effects. From 2002 to 2005, he
served as principal investigator for USGN, a company engaged in the business of
defense, safety and security solutions, where he contributed to numerous
patents/patents pending & proprietary processes. From 2006 to 2008, he
managed Managing Hudler Titan LLC, a technology consulting company, specializing
in advanced nanofiber filtration for gaseous streams; crowd sourcing to
efficiently share and manage the information resource existing in personal
experience; and a clean energy/ clean air/ clean water initiative through
aggregation of retail level contributions in alternative energy based carbon
offset programs.
Possible
Expansion of the Board in the event of Default under Outstanding
Debentures
The
Transaction Documents include a Stock Pledge Agreement pursuant to which Stephen
Squires has pledged 20,000,000 shares of our Common Stock to the Debenture
holders (the “Holders”) until such time as the Debentures are paid in their
entirety. Also, the Securities Purchase Agreement provides until such time as
the Holders no longer hold any Debentures, we shall appoint two (2) members to
our Board of Directors, with such board members to be appointed by MKM
Opportunity Master Fund, Ltd. (“MKM”). Each member appointed by MKM
will be independent of, and not affiliated with, MKM. In addition, so long as
MKM has the right to appoint two board members under this Agreement, we shall
not expand the size of our Board of Directors to more than seven (7) board
members. Notwithstanding the foregoing, in the event of a default
under the Transaction Documents, MKM and Steven Posner Irrevocable Trust u/t/a
Dated 06/17/65 (“Posner”) shall have the right to appoint three (3) and two (2)
members, respectively, to our Board of Directors, which directors need not be
independent of, and may be affiliated with, MKM or Posner. In the
event that MKM or Posner exercises their right to appoint members of our Board
of Directors in the event of a default, the Board of Directors shall set the
size of the Board to no more than nine (9) members. Richard Patton served on our
Board of Directors as a designee of MKM during fiscal 2009 until he resigned
from the Board on August 17, 2009. Dr. Isaac Horton served on
our Board of Directors as a designee of MKM during fiscal 2009 until he resigned
from the Board on November 12, 2009.
53
Limitation
of Directors’ Liability and Indemnification
Our
company is incorporated under the laws of the State of Nevada. Nevada law
provides for indemnification of officers and directors under certain
circumstances. Our Bylaws provide for the indemnification of our directors to
the fullest extent permitted under the general corporation law of the State of
Nevada from time to time against all expenses, liability and loss (including
attorneys’ fees, judgments, fines and amounts paid or to be paid in settlement)
reasonably incurred or suffered in connection with acting as directors of our
company.
Our
articles of incorporation provide that no Director or Officer of the corporation
shall be personally liable to the corporation or any of its stockholders for
damages for breach of fiduciary duty as a Director or Officer involving any act
or omission of any such Director or Officer; provided, however, that: the
foregoing provision shall not eliminate or limit the liability of a Director or
Officer (i) for acts or omissions which involve intentional misconduct, fraud or
a knowing violation of the law, or (ii) the payment of dividends in violation of
Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of
this Article by the Stockholders of the corporation shall be prospective only,
and shall not adversely affect any limitations on the personal liability of a
Director or Officer of the corporation for acts or omissions prior to such
repeal or modification.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of our company under
Nevada law or otherwise, we have been advised the opinion of the Securities and
Exchange Commission is that such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event a claim for indemnification against such liabilities (other than payment
by us for expenses incurred or paid by a director, officer or controlling person
of our company in successful defense of any action, suit, or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction, the question of whether such indemnification by it is
against public policy in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
Committees
Currently the Company has no audit,
compensation, corporate governance, nominating or other committee of the Board
of Directors. The Sarbanes-Oxley Act of 2002, as amended, requires
each corporation to have an audit committee consisting solely of independent
directors and to identify the independent directors who are considered to be a
“financial expert.” Under the National Association of Securities Dealers
Automated Quotations definition, an “independent director means a person other
than an officer or employee of the Company or its subsidiaries or any other
individuals having a relationship that, in the opinion of the Company’s board of
directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of the director. The board’s discretion in determining
director independence is not completely unfettered. Further, under the NASDAQ
definition, an independent director is a person who (1) is not currently (or
whose immediate family members are not currently), and has not been over the
past three years (or whose immediate family members have not been over the past
three years), employed by the company; (2) has not (or whose immediate family
members have not) been paid more than $60,000 during the current or past three
fiscal years; (3) has not (or whose immediately family has not) been a
partner in or controlling shareholder or executive officer of an organization
which the company made, or from which the company received, payments in excess
of the greater of $200,000 or 5% of that organizations consolidated gross
revenues, in any of the most recent three fiscal years; (4) has not (or whose
immediate family members have not), over the past three years been employed as
an executive officer of a company in which an executive officer of Hague has
served on that company’s compensation committee; or (5) is not currently (or
whose immediate family members are not currently), and has not been over the
past three years (or whose immediate family members have not been over the past
three years) a partner of Hague’s outside auditor.
The term
“Financial Expert” is defined under the Sarbanes-Oxley Act of 2002, as amended,
as a person who has the following attributes: an understanding of generally
accepted accounting principles and financial statements; has the ability to
assess the general application of such principles in connection with the
accounting for estimates, accruals and reserves; experience preparing, auditing,
analyzing or evaluating financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by the
company’s financial statements, or experience actively supervising one or more
persons engaged in such activities; an understanding of internal controls and
procedures for financial reporting; and an understanding of audit committee
functions.
54
Board
Members Who Are Deemed Independent
Dr.
Michael S. Wong is an "independent director", but not a "Financial Expert"
as that term is defined herein. None of the Company's other directors
are independent.
|
Code of
Ethics
|
Effective March 3, 2003, the Securities
& Exchange Commission requires registrants like the Company to either adopt
a code of ethics that applies to the Company’s Chief Executive Officer and Chief
Financial Officer or explain why the Company has not adopted such a code of
ethics. For purposes of item 406 of Regulation S-K, the term “code of ethics”
means written standards that are reasonably designed to deter wrongdoing and to
promote:
|
·
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
|
·
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that the Company files with, or submits to, the Securities &
Exchange Commission and in other public communications made by the
Company;
|
|
·
|
Compliance
with applicable governmental law, rules and
regulations;
|
|
·
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code;
and
|
|
·
|
Accountability
for adherence to the code.
|
The Code
of Ethics was previously filed as an exhibit to our report on Form 10-K for the
fiscal year ended June 30, 2008. Management intends to review the Code of Ethics
and will consider appropriate amendments and revisions thereto.
Compliance with Section
16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the
“Commission”). Officers, directors and greater than ten percent
stockholders are required by the Commission's regulations to furnish us with
copies of all Section 16(a) forms they file. During the fiscal year ended June
30, 2009, none of our officers, directors or 10% or greater stockholders are
believed to have filed any forms late to the best of our knowledge
55
Item 11.
Compensation of Directors and Executive
Officers.
The
following table sets forth the overall compensation earned over the fiscal years
ended June 30, 2009 and 2008 by (1) each person who served as the principal
executive officer of the Company or its subsidiary during fiscal year 2009; (2)
our most highly compensated (up to a maximum of two) executive officers as of
June 30, 2009 with compensation during fiscal year ended 2009 of $100,000 or
more; and (3) those two individuals, if any, who would have otherwise been
included in section (2) above but for the fact that they were not serving as an
executive of us as of June 30, 2009.
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Options
Awards
($)(1)
|
Non-Equity
Incentive
Plan
Compen-
sation
($)
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compen-
sation
($) (2) (3)
|
Total ($)
(3)
|
|||
|
Greg
Chapman
(former
CEO
2009
and 2008)
|
2009
2008
|
$ -0-
$ 4,400
|
$ -0-
$ -0-
|
$
-0-
$
-0-
|
$ -0-
$ -0-
|
$ -0-
$ -0-
|
$
-0-
$ -0-
|
$
-0-
$
-0-
|
$ -0-
$
4,400
|
||
|
Stephen
Squires
Chief
Executive
Officer
|
2009
2008
|
$
100,000
$ -0-
|
$ -0-
$ -0-
|
$
-0-
$
-0-
|
$ -0-
$ -0-
|
$ -0-
$ -0-
|
$
-0-
$
-0-
|
$
11,040
$
-0-
|
$
111,040
$ -0-
|
________________
|
(1)
|
Reflects
dollar amount expensed by us during applicable fiscal year for financial
statement reporting purposes pursuant to FAS 123R. FAS 123R requires
the company to determine the overall value of the restricted stock awards
and options as of the date of grant based upon the Black-Scholes method of
valuation, and to then expense that value over the service period over
which the restricted stock awards and options become vested. As a
general rule, for time-in-service-based restricted stock awards and
options, the company will immediately expense any restricted stock awards
and option or portion thereof which is vested upon grant, while expensing
the balance on a pro rata basis over the remaining vesting term of the
restricted stock awards and options. For a description FAS 123R and
the assumptions used in determining the value of the restricted stock
awards and options under the Black-Scholes model of valuation, see the
notes to the consolidated financial statements included with this Form
10-K.
|
|
(2)
|
Includes
all other compensation not reported in the preceding columns, including
(i) perquisites and other personal benefits, or property, unless the
aggregate amount of such compensation is less than $10,000; (ii) any
“gross-ups” or other amounts reimbursed during the fiscal year for the
payment of taxes; (iii) discounts from market price with respect to
securities purchased from the company except to the extent available
generally to all security holders or to all salaried employees; (iv) any
amounts paid or accrued in connection with any termination (including
without limitation through retirement, resignation, severance or
constructive termination, including change of responsibilities) or change
in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the company
relating to life insurance for the benefit of the named executive officer;
and (vii) any dividends or other earnings paid on stock or option awards
that are not factored into the grant date fair value required to be
reported in a preceding column.
|
|
(3)
|
Since
inception of Solterra, Solterra utilizes the home of Stephen Squires in
Scottsdale, Arizona as an executive office. During the year
ended June 30, 2009 the Company has reimbursed Stephen Squires $11,040 for
the use of his premises.
|
None of
the Company’s executive officers have any employment contracts with the Company
or an agreement for termination pay in the event that the executive officer’s
relationship with the Company is terminated due to disability, death or for any
other reason. The Company also does not have an employee compensation and
benefit plan or stock option plan as of the filing date of this Form 10-K,
although the Board in October 2009 authorized the formation of a plan to cover
7,500,000 shares. The Board also approved the granting of fully vested
non-statutory stock options to purchase 1,000,000 shares, 600,000 shares,
500,000 shares and 500,000 shares to Mr. Squires, Robin Squires (our
controller), Brian Lukian and David Doderer, respectively, exercisable
over a period of ten years at an exercise price of $.05 per share.
Each executive Officer is currently receiving or accruing a monthly salary of
$10,000. As of June 30, 2009, the Company has accrued salaries of $30,000,
$30,000, $40,000 and $35,000 to Messrs. Squires, Doderer, Lukian and
Jabbour.
56
Executive
Officer Outstanding Equity Awards At Fiscal Year-End
The
following table provides certain information concerning any common share
purchase options, stock awards or equity incentive plan awards held by each of
our named executive officers that were outstanding, exercisable and/or vested as
of June 30, 2009.
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
|
Equity
Incentive Plan
Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
|
||||||||||||||||||||
|
Gregory
Chapman
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
||||||||||||||||||||
|
Stephen
Squires
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
||||||||||||||||||||
|
N/A
– Not applicable.
|
DIRECTOR
COMPENSATION
Cash Fees
and Options
Cash
fees, stock options and equity awards to our directors are at the discretion of
the Board. During fiscal 2009, no cash fees, stock options or equity awards were
made to directors of the Company, except that Warrants to purchase 1,000,000
shares of Common Stock were issued to our Note Holders in connection with a
Standstill Agreement described herein. The Note Holders then directed Warrants
to purchase 175,000 shares and 75,000 shares to be issued directly to their
appointees to the Board, namely, Isaac Horton and Richard Patton, respectively.
In October 2009, the Board granted Messrs. Wong and Jabbour ten year
non-statutory stock options to purchase 300,000 shares exercisable at $.05 per
share.
Travel
Expenses
All
directors shall be reimbursed for their reasonable out of pocket expenses
associated with attending the meeting.
57
2009
Compensation
The
following table shows the overall compensation earned for the 2009 fiscal year
with respect to each non-employee -director of the Company as of June 30,
2009.
|
DIRECTOR COMPENSATION
|
||||||||||||||||||||||
|
Name and
Principal
Position
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
(1)
|
Warrant/
Option
Awards ($)
(1)
|
Non-Equity
Incentive Plan
Compensation
($) (2)
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
(3)
|
Total ($)
|
|||||||||||||||
|
Dr.
Michael S. Wong,
Director
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|||||||||||||||
|
Dr.
Isaac B. Horton, III,
Former
Director
|
Nil
|
Nil
|
5,976
|
Nil
|
Nil
|
Nil
|
5,976
|
|||||||||||||||
|
Richard
Patton,
Former
Director
|
Nil
|
Nil
|
2,561
|
Nil
|
Nil
|
Nil
|
2,561
|
|||||||||||||||
|
Kim
Pichanick,
Former
Director
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|||||||||||||||
|
(1)
|
Reflects
dollar amount expensed by the company during applicable fiscal year for
financial statement reporting purposes pursuant to FAS 123R. FAS
123R requires the company to determine the overall value of the restricted
stock awards and the options as of the date of grant based upon the
Black-Scholes method of valuation, and to then expense that value over the
service period over which the restricted stock awards and the options
become exercisable vested. As a general rule, for
time-in-service-based restricted stock awards and options, the company
will immediately expense any restricted stock award or option or portion
thereof which is vested upon grant, while expensing the balance on a pro
rata basis over the remaining vesting term of the restricted stock award
and option. For a description FAS 123 R and the assumptions used in
determining the value of the restricted stock awards and options under the
Black-Scholes model of valuation, see the notes to the financial
statements included with this Form
10-SB/A.
|
|
(2)
|
Excludes
awards or earnings reported in preceding
columns.
|
|
(3)
|
Includes
all other compensation not reported in the preceding columns, including
(i) perquisites and other personal benefits, or property, unless the
aggregate amount of such compensation is less than $10,000; (ii) any
“gross-ups” or other amounts reimbursed during the fiscal year for the
payment of taxes; (iii) discounts from market price with respect to
securities purchased from the company except to the extent available
generally to all security holders or to all salaried employees; (iv) any
amounts paid or accrued in connection with any termination (including
without limitation through retirement, resignation, severance or
constructive termination, including change of responsibilities) or change
in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the company
relating to life insurance for the benefit of the director; (vii) any
consulting fees earned, or paid or payable; (viii) any annual costs of
payments and promises of payments pursuant to a director legacy program
and similar charitable awards program; and (ix) any dividends or other
earnings paid on stock or option awards that are not factored into the
grant date fair value required to be reported in a preceding
column.
|
58
Item
12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matters.
The
following table sets forth, as of November 10 2009, shares of Common Stock
beneficially owned by (1) each person (including any group) of more than five
percent of our Common Stock, based solely on Schedule 13D and 13G filings with
the Securities and Exchange Commission, and (2) the Company’s directors and
officers.
|
Name
of Beneficial Owner
|
Common
Stock
Beneficially
Owned (1)(2)
|
Percent
of Class (3)
|
||
|
Stephen
Squires (4) (5)
|
30,378,000
|
40.3
|
||
|
Brian
Lukian C.A. (6)
|
1,500,000
|
2.0
|
||
|
Ghassan
E. Jabbour (7)
|
300,000
|
.4
|
||
|
Michael
S. Wong (7)
|
300,000
|
.4
|
||
|
David
Doderer (6)
|
500,000
|
.6
|
||
|
Directors
and executive officers as a group (6) persons) (8)
|
32,978,000
|
49.9
|
||
|
Phoenix
Alliance Corp. (9)
|
4,404,000
|
6.0
|
____________
* Less
than 1%
|
(1)
|
Unless
otherwise indicated, ownership represents sole voting and investment
power.
|
|
(2)
|
The
address for each beneficial owner named above is c/o the Company at 7700
S. River Parkway, Tempe, AZ 85284.
|
|
(3)
|
Based
upon 73,725,167 common shares
outstanding.
|
|
(4)
|
Includes
20,000,000 shares pledged to our Debenture Holders. See “Item
10.”
|
|
(5)
|
Includes
options to purchase 1,600,000 shares owned by Mr. Squires and his
wife.
|
|
(6)
|
Includes
options to purchase 500,000 shares.
|
|
(7)
|
Includes
options to purchase 300,000 shares.
|
|
(8)
|
Includes
options and warrants to purchase 3,375,000
shares
|
|
(9)
|
Phoenix
Alliance Corp. is owned and controlled by Andrew
McKinnon.
|
Securities Authorized for
Issuance under Equity Compensation Plans.
|
|
None.
|
Item
13. Certain Relationships and Related
Transactions and Director Independence.
Agreement and Plan of
Reorganization
On
November 4, 2008, the Company closed on an Agreement and Plan of Merger and
Reorganization by and among Hague Corp. (the “Company”), Solterra Renewable
Technologies, Inc. (“Solterra”), the shareholders of Solterra and Gregory
Chapman as “Indemnitor” (the “Agreement”), which resulted in Solterra becoming a
wholly-owned subsidiary of the Company. Pursuant to the Agreement, Mr. Chapman
cancelled 40,000,000 shares of Common Stock of the Company owned by him and
issued a general release in favor of the Company terminating its obligations to
repay Mr. Chapman approximately $34,000 in principal owed to him.
In
accordance with the Agreement, the Company issued 41,250,000 shares of its
Common Stock to the former stockholders of Solterra, including 35,500,000 shares
to Stephen Squires, Chief Executive Officer and 1,000,000 shares to Brian
Lukian, Chief Financial Officer. Certain existing stockholders of the Company,
in consideration of Solterra and its shareholders completing the transaction,
issued to the Company a Promissory Note in the amount of $3,500,000 due and
payable on or before January 15, 2009, through the payment of cash or, with the
consent of the Company, the cancellation of up to 12,000,000 issued and
outstanding shares of the Company owned by them. As of the filing
date of this Form 10-K, these Notes are in default and the Company has not been
able to recover payment on the Notes or the cancellation of the Company’s
12,000,000 shares in satisfaction thereof. The Company is considering pursuing
all legal alternatives in connection with this matter.
59
On
November 4, 2008, the Company entered into a Securities Purchase Agreement,
Debenture, Security Agreement, Subsidiary Guarantee Agreement,
Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and
other related transactional documents (the “Transaction Documents”) to obtain
$1,500,000 in gross proceeds from three non-affiliated parties (collectively
hereinafter referred to as the “Lenders”) in exchange for 3,525,000 restricted
shares of Common Stock of the Company (the “Restricted Shares”) and Debentures
in the principal amount aggregating $1,500,000. Each Debenture has a term of
three years maturing on November 4, 2011 bearing interest at the rate of 8% per
annum and is prepayable by the Company at anytime without penalty, subject to
the Debenture holders’ conversion rights. Each Debenture is convertible at the
option of each Lender into the Company’s Common Stock (the “Debenture Shares”,
which together with the Restricted Shares shall collectively be referred to as
the “Securities”) at a conversion price of $.2667 per share (the “Conversion
Price”). The Registration Rights Agreement requires the Company to register the
resale of the Securities within certain time limits and to be subject to certain
penalties in the event the Company fails to timely file the Registration
Statement, fails to obtain an effective Registration Statement or, once
effective, to maintain an effective Registration Statement until the Securities
are saleable pursuant to Rule 144 without volume restriction or other
limitations on sale. The Debentures are secured by the assets of the Company and
are guaranteed by Solterra as the Company’s subsidiary. In the event the
Debentures are converted in their entirety, the Company would be required to
issue and aggregate of 5,624,297 shares of the Company’s Common Stock, subject
to anti-dilution protection for stock splits, stock dividends, combinations,
reclassifications and sale of the Company’s Common Stock at a price below the
Conversion Price. Certain changes of control or fundamental
transactions such as a merger or consolidation with another company could cause
an event of default under the Transaction Documents.
The
Transaction Documents include a Stock Pledge Agreement pursuant to which Stephen
Squires has pledged 20,000,000 shares of our Common Stock to the Debenture
holders (the “Holders”) until such time as the Debentures are paid in their
entirety. Also, the Securities Purchase Agreement provides until such time as
the Holders no longer hold any Debentures, we shall appoint two (2) members to
our Board of Directors, with such board members to be appointed by MKM
Opportunity Master Fund, Ltd. (“MKM”). Each member appointed by MKM
will be independent of, and not affiliated with, MKM. In addition, so long as
MKM has the right to appoint two board members under this Agreement, we shall
not expand the size of our Board of Directors to more than seven (7) board
members. Notwithstanding the foregoing, in the event of a default
under the Transaction Documents, MKM and Steven Posner Irrevocable Trust u/t/a
Dated 06/17/65 (“Posner”) shall have the right to appoint three (3) and two (2)
members, respectively, to our Board of Directors, which directors need not be
independent of, and may be affiliated with, MKM or Posner. In the
event that MKM or Posner exercises their right to appoint members of our Board
of Directors in the event of a default, the Board of Directors shall set the
size of the Board to no more than nine (9) members. The Debenture Holders
designated Isaac Horton and Richard Patton as their nominees for election to the
Board.
On November 4, 2008, in connection with
the Agreement and change in control, Stephen Squires was appointed President and
Chief Executive Officer of the Company, Brian Lukian was appointed Chief
Financial Officer, Treasure and Secretary of the Company, Dr. Ghassan E. Jabbour
as Chief Science Officer of the Company, and David Doderer as Vice President –
Research and Development. On that same date, Greg Chapman resigned as an
executive of the Company. On November 4, 2008, Mr. Chapman, the sole director of
the Company, resigned as a director of the Company effective 10 days following
the filing with the Securities and Exchange Commission (“SEC”) and mailing to
stockholders of an Information Statement on Schedule 14F-1, which Schedule 14F-1
sets forth certain information regarding the expansion of the Board of Directors
to six persons effective upon the resignation of Mr. Chapman. Such six directors
then included Stephen Squires, Dr. Ghassan E. Jabbour, Dr. Michael S. Wong, Kim
Pichanick, Dr. Isaac B. Horton III and Richard Patton. Dr. Horton and
Mr. Patton were appointed to the Board as appointees of MKM Opportunity Master
Fund Ltd. pursuant to the Transaction Documents.
Standstill
Agreement
On
June 1, 2009, the Company and its Debenture Holders entered into a Standstill
Agreement which provided for a 120-day standstill period pursuant to which the
Debenture Holders would not exercise their rights under the Debentures, security
agreements, guarantee, pledge agreement and other related “Transaction
Documents.” In October 2009 by separate agreement, the Standstill Period was
extended by the Debenture Holders through the close of business on December 1,
2009. The following is a summary of some of the material provisions of the
Standstill Agreement:
60
|
·
|
The
Debenture Holders would receive warrants to purchase 1,000,000 shares of
Hague’s Common Stock, exercisable at $.25 per share over a period of 18
months together with cashless exercise provisions in the event no
registration statement is effective at the time of exercise. Of the
1,000,000 warrants, the Debenture Holders assigned 175,000 warrants and
75,000 warrants to Isaac Horton and Richard Patton, respectively. Messrs.
Horton and Patton served as directors of Hague in accordance with the
Debenture Holders’ right to appoint two members to the Board of Directors.
Warrants to purchase 2,000,000 shares exercisable at $.10 per share
through October 31, 2014 were issued for an extension of the Standstill
Agreement. These Warrants also contain cashless exercise provisions in the
event that there is no current registration statement effective at the
time of exercise.
|
|
·
|
Certain
stockholders of the Company were to exchange up to 2,350,000 shares of
free trading shares for restricted shares of Hague’s Common
Stock.
|
|
·
|
The
Company would seek to raise additional financing either in Hague or in
Solterra. If the financing was in Solterra and at least $2,000,000 was
raised, then the Debenture Holders would have the right to have Hague
assign its Debenture obligation to Solterra and to permit the Debenture
Holders to convert their indebtedness into Solterra Common Stock at a 25%
discount to terms of the private placement offering. As of October 13,
2009, no additional equity financing has been raised by the
Company.
|
|
·
|
Isaac
Horton shall resign from Hague’s Board. The Debenture Holders may replace
Mr. Horton with David Skriloff. On November 12, 2009, Mr.
Horton resigned from the
Board.
|
|
·
|
Upon
Hague’s receipt of $250,000 of financing, Hague has agreed to obtain
directors and officer’s liability insurance and agree to maintain same for
at least three years and to indemnify Mr. Skriloff to the fullest extent
provided by Nevada law should he agree to join the
Board.
|
|
·
|
On
or before Solterra’s acceptance of any private financing, Solterra shall
assign its license agreement with Rice University to Hague.
Simultaneously, Hague shall grant Solterra the exclusive worldwide right
under the Rice license agreement to purchase the quantum dots for solar
purposes, including the right to grant sublicenses. The Company shall
obtain the written permission of Rice University to accomplish the
foregoing. Hague shall be the sole supplier of the quantum dots to
Solterra and to its sublicensees. Solterra shall pay a
licensing fee to Hague in an amount necessary to retire the Company’s
Notes (principal and accrued but unpaid interest) in full (unless the
Noteholders agree to have Solterra assume these obligations from Hague and
convert into common stock of Solterra), plus the sum of $1.0
million. It is understood that Solterra will be the solar sub
and Hague shall produce and sell the quantum dots and shall have the right
to grant sublicenses for all other purposes. During the Standstill Period
and thereafter, except as otherwise provided, Hague shall not transfer
and/or sell any of its assets without the express prior written consent of
the Noteholders, unless the Notes have been repaid or converted. Nothing
contained herein shall be construed to prohibit Hague or Solterra from
licensing its intellectual property or selling its quantum dots in a
business unrelated to solar to third parties in arm’s-length
transactions.
|
|
·
|
Upon
conversion of the Noteholders’ Notes into Solterra common stock or the
repayment of the Notes in full, the following shall occur: (i) all
security interests, registration rights and other such rights and
obligations of the Noteholders (as noteholders only and in no other
capacity) shall be terminated, (ii) if elected Mr. Skriloff, shall resign
from the Board of Directors of Hague, and (iii) the Noteholders, Hague and
Solterra shall exchange general releases which shall pertain to all past
actions of the Noteholders, as Noteholders, stockholders or security
holders in Hague or Solterra, as the case may
be.
|
|
·
|
The
Hague Board shall agree to hold board meetings no less frequently than
monthly, until the completion of the Private Offering and/or grants of at
least $2.0 million. It is further agreed that Hague shall adopt a
“Directors Manual: Public Corporation Governance and Guidelines,” which
includes a Code of Business Ethics, in the form customarily adopted by
smaller public companies and comply with all applicable provisions of the
Sarbanes-Oxley Act of 2002.
|
|
·
|
Upon
the completion of Solterra’s financing efforts, it will endeavor to become
an independent public entity through a self-directed offering and the
following actions would occur: Solterra’s Board would be expanded to
include additional directors. Mr. Squires would remain Chief Executive
Officer of one of these two companies with a new Chief Executive Officer
to be identified and hired on commercially reasonable terms to run the
other company. Mr. Squires would serve as Chairman of the Board of
Directors of the company in which he is Chief Executive Officer and he
would serve as a director of the other company. In the interim, until a
new Chief Executive Officer is found for the company in which he chooses
not to serve as Chief Executive Officer, he will serve as interim Chief
Executive Officer until his replacement is
hired.
|
|
·
|
The
provisions of the Standstill Agreement (except as otherwise provided
therein) shall automatically terminate and be of no further force and
effect ab initio, as if this agreement never took place or upon the
happening of one of the following events of default: (a) the entry of an
order for relief against Hague or Solterra (or equivalent thereof) in any
case under title 11 of the United States Code (or in connection with any
case or proceeding involving Hague or Solterra under any state or federal
insolvency law, (b) if Hague or Solterra fails to make any required
payments, under the terms of its agreements with Rice University or
Arizona State University, but only where either university notifies Hague
or Solterra that it is in default and that all opportunities to cure the
default have past, or (c) upon a material default (breach) of the
Standstill Agreement by Hague or Solterra and after being given written
notice of such default and at least five business days opportunity to cure
the default.
|
61
|
Consulting Contracts
and payments to consultants
|
In
November 2009, the Company entered into a Consulting Agreement with Steven
Posner and Oceanus Capital LLC pursuant to which the Company agreed to issue an
aggregate of 3,000,000 restricted shares in exchange for certain introductions
made by them to the Company and various other related services.
The Company made payments to Phoenix
Alliance Corp. a related party by significant shareholdings of
$600,000. Of this amount, $500,000 was paid for the development of
the Company’s tactical business plan and reorganization and a further $100,000
was paid for the preparation of a market development strategy for selling solar
licenses.
Other
Transactions
There
have been no transactions or proposed transactions in which the amount involved
exceeds the lesser of $120,000 or 1% of the average our total assets at year-end
for the last three completed fiscal years in which any of our directors,
executive officers or beneficial holders of more than 5% of the outstanding
shares of our common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect
interest, except as follows:
|
(i)
|
On
January 12, 2007, our sole director and officer, Greg Chapman, acquired
2,000,000 shares of our common stock at a price of $0.002 per share for
total cash proceeds of $4,000. In connection with the 20:1
forward stock split affected on July 15, 2007, the 2,000,000 shares now
total 40,000,000 shares of our common stock. Exemption from registration
is claimed under Section 4(2) of the Securities Act of 1933, as amended,
as an offering not constituting a “public
offering.”
|
|
(ii)
|
For
the period from January 9, 2007 (inception) through June 30, 2007, we
received $24,600 in cash for the sale of 24,600,000 shares of our common
stock at a purchase price of $0.001 per share in offshore transactions
with non-affiliated parties during the period between May and June 2007.
Our private placement was conducted in offshore transactions relying on
Regulation S of the Securities Act of 1933. None of the subscribers were
U.S. persons, as defined in Regulation S. No directed selling efforts were
made in the United States by us, any distributor, any of their respective
affiliates or any person acting on behalf of any of the foregoing. We
implemented the applicable offering restrictions required by Regulation S
by including an appropriate restrictive
legend.
|
|
|
(iii)
|
Our
former President, Greg Chapman, has in the past provided us office space
free of charge, which encompasses approximately 350 square feet. Mr.
Chapman’s father owns the space provided. This arrangement ceased on
November 4, 2008, the Closing Date of the Agreement and Plan of
Reorganization. Since inception of Solterra, Solterra utilizes the home of
Stephen Squires in Scottsdale, Arizona as an executive
office. During the year ended June 30, 2009 the Company has
reimbursed Stephen Squires $11,040 for the use of his
premises.
|
62
|
|
(iv)
|
The
Company was charged management fees of $6,620 from inception through
June 30, 2008 by Greg Chapman, a director of the Company. The Company
also had a related party loan of $34,000 which was due to Mr. Chapman for
funds advanced. The loan was forgiven by Mr. Chapman on November 4,
2008.
|
|
|
(v)
|
Our
Chief Executive Officer has loaned to us $83,000 as of November 10, 2009,
which monies have no set repayment terms. At June 30, 2009 there were
$162,687 due to related parties. Of this Stephen Squires, our
Chief Executive Officer, director and a shareholder, was owed $40,369,
comprised of $30,000 in unpaid wages, $7,869 in unreimbursed expenses and
$2,500 in advances paid to the
Company.
|
|
|
(vi)
|
At
the closing date of the Plan of Reorganization (i.e. November 4, 2008),
the following transactions occurred involving our
securities:
|
(a) Mr.
Chapman agreed to retire and cancel his 40,000,000 shares of common
stock.
(b) We issued
debentures to three non-affiliated persons in the principal amount of
$1,500,000, convertible at $.2667 per share. Exemption from registration is
claimed under Section 4(2) of the Securities Act of 1933, as
amended.
(c) We issued
41,250,000 shares of our common stock in exchange for the interests in Solterra
of Stephen Squires (35,550,000 shares), Phoenix Alliance Corp. (3,800,000
shares), Brian Lukian (1,000,000,shares), Barry Laughren (500,000 shares),
Adrienne Grody (20,000 shares), Lester Morse (190,000 shares) and Steven Morse
(190,000 shares). Exemption from registration is claimed under Rule 506 and/or
Section 4(2) of the Securities Act of 1933, as amended.
63
Item 14. Principal Accountant Fees
and Services.
Audit
Fees
During
fiscal 2009 and 2008, the aggregate fees billed for professional services
rendered by LBB & Associates LTD., LLP (the “Independent Auditors”) for the
2009 and 2008 audit of the Company's annual consolidated financial statements
totaled approximately $5,000 and $5,155, respectively.
Financial
Information Systems Design and Implementation Fees
During
2009 and 2008, there were $-0- in fees billed for professional services by
rendered by LBB & Associates LTD., LLP rendered in connection with, directly
or indirectly, operating or supervising the operation of its information system
or managing its local area network.
All
Other Fees
During
2009 and 2008, there were $17,330 and $6,100 in fees billed for professional
services rendered by LBB & Associates LTD., LLP, respectively, for review of
the Company’s quarterly filings and 8-K filings with the Securities and Exchange
Commission. The foregoing fees exclude expense reimbursements of approximately
$-0-.
Item 15.
Exhibits and Financial
Statement Schedules
|
(a)
|
Financial
Statements
|
The
following documents are filed under “Item 8. Financial Statements and
Supplementary Data,”commencing on page F-1 and are included as part of
this Form 10-K as the financial statements of the Company for the years ended
June 30, 2009 and 2008:
Reports
of Independent Registered Public Accounting Firms
Balance
Sheets
Statements
of Operations
Statement
of Stockholders’ Equity
Notes to
Financial Statements
64
|
(b)
|
Exhibits
|
The
following exhibits are all previously filed in connection with our Form 8-K
filed November 10, 2008, unless otherwise noted.
|
2.1
|
Agreement
and Plan of Merger and Reorganization, dated as of October 15, 2008, by
and among Hague Corp., Solterra Renewable Technologies, Inc., the
shareholders of Solterra and Greg Chapman, as
Indemnitor.
|
|
4.1
|
Form
of Securities Purchase Agreement dated as of November 4,
2008.
|
|
4.2
|
Form
of Security Agreement dated November 4, 2008.
|
|
4.3
|
Form
of Subsidiary Guarantee dated November 4, 2008.
|
|
4.4
|
Form
of Stock Pledge Agreement dated November 4, 2008.
|
|
4.5
|
Form
of Debenture-- MKM Opportunity Master Fund, Ltd.
|
|
4.6
|
Form
of Debenture.-- MKM SP1, LLC
|
|
4.7
|
Form
of Debenture-- Steven Posner Irrevocable Trust u/t/a Dated
06/17/65.
|
|
4.8
|
Form
of Escrow Agreement
|
|
4.9
|
Form
of Amended Waiver and Consent.
|
| 4.10 | Form of Registration Rights Agreement. |
| 4.11 | Standstill Agreement dated June 1, 2009. (Incorporated by reference to Form 8-K filed June 9, 2009) |
| 4.12 | Amended Standstill Agreement dated June 1, 2009.* |
| 4.13 | Extension of Standstill Agreement dated October 29, 2009.* |
|
10.1
|
License
Agreement by and between William Marsh Rice University and Solterra
Renewable Technologies, Inc. dated August 20, 2008.
|
|
10.2
|
Letter
dated October 2, 2008 from Rice University amending the License Agreement
contained in Exhibit 10.1
|
| 10.3 | Agreement with Arizona State University executed by ASU on October 8, 2008 and executed by Solterra on September 18, 2008. |
| 10.4 | Letters dated November 5, 2009 and November 5, 2009 amending Rice University Agreement.* |
| 10.5 | Consulting Agreement between Steven Posner, Oceanus Capital and The issuer* |
|
21.1
|
Subsidiaries
of Registrant listing state of incorporation*
|
|
31(a)
|
Rule
13a-14(a) Certification – Chief Executive Officer *
|
|
31(b)
|
Rule
13a-14(a) Certification – Chief Financial Officer *
|
|
32(a)
|
Section
1350 Certification – Chief Executive Officer *
|
|
32(b)
|
Section
1350 Certification – Chief Financial Officer *
|
____________
* Filed
herewith.
|
(c)
|
Financial
Statement Schedules
|
We are not filing any financial
statement schedules as part of this Form 10-K because such schedules are either
not applicable or the required information is included in the financial
statements or notes thereto.
65
SIGNATURES
Pursuant
to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
HAGUE
CORP.
|
|||
|
Date:
November 12, 2009
|
By:
|
/s/ Stephen Squires | |
| Name: Stephen Squires | |||
| Title: President and Chief Financial Officer | |||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
|
Signatures
|
Title
|
Date
|
|
Signature
|
Title
|
Date
|
||
|
/s/
Stephen Squires
|
Title:
President and Chief Financial Officer
|
Date:
November 12, 2009
|
||
|
Stephen
Squires
|
||||
|
/s/
Brian
Lukian
|
Title:
Acting Chief Financial Officer
|
Date:
November 12, 2009
|
||
|
Brian
Lukian
|
||||
|
/s/
Michael S. Wong
|
Title:
Director
|
Date:
November 12, 2009
|
||
|
Michael
S. Wong
|
|
/s/
Dr. Ghassan E. Jabbour
|
Title:
Director
|
Date:
November 12, 2009
|
||
|
Dr.
Ghassan E. Jabbour
|
||||
|
/s/
David
Doderer
|
Title:
Director
|
Date:
November 12, 2009
|
||
|
David
Doderer
|
||||
Stephen
Squires, Michael S. Wong, Dr. Ghassan E. Jabbour and David Doderer
represent all the current members of the Board of Directors.