Attached files
Exhibit 99.1
MAGNOLIA
SOLAR, INC.
(A
DEVELOPMENT STAGE COMPANY)
INDEX
TO FINANCIAL STATEMENTS
Financial
Statements:
| Report of Independent Registered Public Accounting Firm | 1 |
| Balance Sheet as of December 31, 2008 | 2 |
| Statements of Operations For the Period January 8, 2008 (Inception) through December 31, 2008 | 3 |
| Statements of Changes in Stockholders’ Equity (Deficit) For the Period January 8, 2008 (Inception) through December 31, 2008 | 4 |
| Statements of Cash Flows For the Period January 8, 2008 (Inception) through December 31, 2008 | 5 |
| Notes to Financial Statements | 6 |
Report
of Independent Registered Public Accounting Firm
To the
Directors of
Magnolia
Solar, Inc.
We have
audited the accompanying balance sheet of Magnolia Solar, Inc. (the "Company")
(a development stage company) as of December 31, 2008, and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the period January 8, 2008 through December 31, 2008. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with 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. We were
not engaged to perform an audit of the Company’s 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 includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Magnolia Solar, Inc. (a development
stage company) as of December 31, 2008, and the results of its statements of
operations, changes in stockholders’ equity (deficit), and cash flows for the
period January 8, 2008 (Inception) through December 31, 2008 in conformity with
U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company is in process of executing its business plan and
expansion. The Company has not generated significant revenue to this point,
however, has been successful in raising funds in their private placement. The
lack of profitable operations and the need to continue to raise funds raise
significant doubt about the Company’s ability to continue as a going concern.
Management’s plans in this regard are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/KBL,
LLP
New York,
NY
July 17,
2009, except Note 8 which is dated December 15, 2009
1
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MAGNOLIA
SOLAR, INC.
|
||||
|
(A
DEVELOPMENT STAGE COMPANY)
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BALANCE
SHEET
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||||
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DECEMBER
31, 2008
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ASSETS
|
||||
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CURRENT
ASSETS
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||||
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Cash
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$ | 9,970 | ||
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Total
current assets
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9,970 | |||
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OTHER
ASSETS
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||||
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License,
net of accumulated amortization
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332,733 | |||
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Total
other assets
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332,733 | |||
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||||
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TOTAL
ASSETS
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$ | 342,703 | ||
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LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
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||||
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CURRENT
LIABILITIES
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||||
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Accounts
payable and accrued expenses
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$ | 107 | ||
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Loan
payable - related party
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20,000 | |||
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Total
current liabilities
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20,107 | |||
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TOTAL
LIABILITIES
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20,107 | |||
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STOCKHOLDERS'
EQUITY (DEFICIT)
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||||
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Preferred
stock, $0.0001 par value, 10,000,000 shares authorized,
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||||
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0
shares issued and outstanding
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- | |||
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Common
stock, $0.0001 par value, 100,000,000 shares authorized,
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||||
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21,330,000
shares issued and outstanding
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2,133 | |||
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Additional
paid in capital
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359,367 | |||
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Deficit
accumulated during the development stage
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(38,904 | ) | ||
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Total
stockholders' equity (deficit)
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322,596 | |||
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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$ | 342,703 | ||
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The
accompanying notes are an integral part of these financial
statements.
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2
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MAGNOLIA
SOLAR, INC.
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(A
DEVELOPMENT STAGE COMPANY)
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STATEMENT
OF OPERATIONS
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FOR
THE PERIOD JANUARY 8, 2008 (INCEPTION) THROUGH DECEMBER 31,
2008
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JANUARY
8, 2008
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(INCEPTION)
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THROUGH
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||||
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DECEMBER
31, 2008
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REVENUE
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$ | - | ||
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COST
OF REVENUES
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- | |||
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GROSS
PROFIT
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- | |||
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OPERATING
EXPENSES
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||||
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Professional
fees
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15,000 | |||
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Amortization
expense
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23,767 | |||
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General
and administrative
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30 | |||
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Total
operating expenses
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38,797 | |||
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NON-OPERATING
EXPENSES
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||||
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Interest
expense
|
107 | |||
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Total
non-operating expenses
|
107 | |||
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NET
(LOSS)
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$ | (38,904 | ) | |
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WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
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19,085,738 | |||
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NET
(LOSS) PER SHARE
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$ | (0.00 | ) | |
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The
accompanying notes are an integral part of these financial
statements.
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3
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MAGNOLIA
SOLAR, INC.
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(A
DEVELOPMENT STAGE COMPANY)
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STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
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FOR
THE PERIOD JANUARY 8, 2008 (INCEPTION) THROUGH DECEMBER 31,
2008
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Deficit
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Accumulated
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Additional
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During
the
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| Preferred Stock | Common Stock |
Paid-In
|
Development | |||||||||||||||||||||||||
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Shares
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Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Total
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||||||||||||||||||||||
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Balance
- January 8, 2008
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
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Common
shares issued to founders for cash
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- | - | 14,200,000 | 1,420 | 3,580 | - | 5,000 | |||||||||||||||||||||
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Common
shares issued for license
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- | - | 7,130,000 | 713 | 355,787 | - | 356,500 | |||||||||||||||||||||
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Net
loss for the period
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- | - | - | - | - | (38,904 | ) | (38,904 | ) | |||||||||||||||||||
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Balance
- December 31, 2008
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- | $ | - | 21,330,000 | $ | 2,133 | $ | 359,367 | $ | (38,904 | ) | $ | 322,596 | |||||||||||||||
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The
accompanying notes are an integral part of these financial
statements.
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4
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MAGNOLIA
SOLAR, INC.
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(A
DEVELOPMENT STAGE COMPANY)
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STATEMENT
OF CASH FLOW
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FOR
THE PERIOD JANUARY 8, 2008 (INCEPTION) THROUGH DECEMBER 31,
2008
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JANUARY
8, 2008
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(INCEPTION)
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THROUGH
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DECEMBER
31, 2008
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
(loss)
|
$ | (38,904 | ) | |
|
Adjustments
to reconcile net (loss)
|
||||
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to
net cash used in operating activities:
|
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Amortization
expense
|
23,767 | |||
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Change
in assets and liabilities
|
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Increase
in accounts payable and accrued expenses
|
107 | |||
|
Total
adjustments
|
23,874 | |||
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Net
cash (used in) operating activities
|
(15,030 | ) | ||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Issuance
of stock for cash
|
5,000 | |||
|
Proceeds
received from loan payable - related party
|
20,000 | |||
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Net
cash provided by financing activities
|
25,000 | |||
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NET
INCREASE IN CASH AND CASH EQUIVALENTS
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9,970 | |||
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CASH
AND CASH EQUIVALENTS - BEGINNING OF PERIOD
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- | |||
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CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
$ | 9,970 | ||
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SUPPLEMENTAL
CASH FLOW INFORMATION:
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Cash
paid during the period for:
|
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Interest
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$ | - | ||
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NON-CASH
SUPPLEMENTAL INFORMATION:
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||||
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Stock
issued for license
|
$ | 356,500 | ||
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The
accompanying notes are an integral part of these financial
statements.
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5
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
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NOTE
1-
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ORGANIZATION AND BASIS
OF PRESENTATION
|
On
January 8, 2008, Magnolia Solar, Inc. (the “Company”) was incorporated in the
State of Delaware.
The
Company was formed to be a provider of terrestrial photovoltaic cells for both
civilian and military applications. The Company is pioneering the development of
thin film, high efficiency solar cells for applications such as power generation
for electrical grids as well as for local applications, including lighting,
heating, traffic control, irrigation, water distillation, and other residential,
agricultural and commercial uses.
The
Company’s technology takes multiple approaches to bringing cell efficiencies
close to those realized in silicon based solar cells while also lowering
manufacturing costs. The technology uses a different composition of materials
than those used by competing thin film cell manufacturers; incorporates
additional layers of material to absorb a wider spectrum of light; uses
inexpensive substrate materials, such as glass and polymers lowering the cost of
the completed cell compared to silicon based solar cells; and is based on
non-toxic materials that do not have adverse environmental effects.
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies
the Company will continue to realize its assets and discharge its liabilities in
the normal course of business. The Company has not generated revenues since
inception and has generated losses totaling $38,904 in their initial period, and
needs to raise additional funds to carry out their business plan. The
continuation of the Company as a going concern is dependent upon the continued
financial support from its shareholders, and the ability of the Company to
obtain necessary equity financing to continue operations. The Company has had
very little operating history to date. These financial statements do not include
any adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. These factors raise
substantial doubt regarding the ability of the Company to continue as a going
concern.
Besides
generating revenues from proposed operations, the Company may need to raise
additional capital to expand operations to the point at which the Company can
achieve profitability. The terms of equity that may be raised may not be on
terms acceptable by the Company. If adequate funds cannot be raised outside of
the Company, the Company’s officers and directors may need to contribute funds
to sustain operations.
6
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
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NOTE
2-
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SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Development Stage
Company
The
Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
Development Stage Enterprises”. The Company has devoted substantially all
of its efforts to the corporate formation, the raising of capital and attempting
to generate customers for the sales of the Company’s products.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash and Cash
Equivalents
The
Company considers all highly liquid debt instruments and other short-term
investments with maturity of three months or less, when purchased, to be cash
equivalents.
The
Company maintains cash and cash equivalent balances at one financial institution
that is insured by the Federal Deposit Insurance Corporation.
Fixed
Assets
Although
the Company does not have any fixed assets at this point. Any fixed
assets acquired in the future will be stated at cost, less accumulated
depreciation. Depreciation will be provided using the straight-line method over
the estimated useful lives of the related assets. Costs of maintenance and
repairs will be charged to expense as incurred.
Recoverability of Long-Lived
Assets
Although
the Company does not have any long-lived assets at this point, for any
long-lived assets acquired in the future the Company will review their
recoverability on a periodic basis whenever events and changes in circumstances
have occurred which may indicate a possible impairment. The assessment for
potential impairment will be based primarily on the Company’s ability to recover
the carrying value of its long-lived assets from expected future cash flows from
its operations on an undiscounted basis. If such assets are determined to be
impaired, the impairment recognized is the amount by which the carrying value of
the assets exceeds the fair value of the assets. Fixed assets to be disposed of
by sale will be carried at the lower of the then current carrying value or fair
value less estimated costs to sell.
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NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
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Fair Value of Financial
Instruments
The
carrying amount reported in the balance sheets for cash and cash equivalents,
accounts payable, and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial instruments. The Company
does not utilize derivative instruments.
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of
accounting. Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
Revenue
Recognition
The
Company will generate revenue from the sales in accordance with Staff Accounting
Bulletin 101. The criteria for recognition are as follows:
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1)
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Persuasive
evidence of an arrangement exists;
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2)
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Delivery
has occurred or services have been
rendered;
|
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3)
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The
seller’s price to the buyer is fixed or determinable,
and
|
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4)
|
Collectable
is reasonably assured.
|
7
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
(Loss) Per Share of Common
Stock
Basic net
loss per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share (EPS) include
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock
equivalents are not included in the computation of diluted earnings per share
when the Company reports a loss because to do so would be anti-dilutive for
periods presented. The following is a reconciliation of the computation for
basic and diluted EPS:
|
December
31,
|
||||
|
2008
|
||||
|
Net
loss
|
$ | (38,904 | ) | |
|
Weighted-average
common shares
|
||||
|
outstanding
(Basic)
|
19,085,738 | |||
|
Weighted-average
common stock
|
||||
|
Equivalents
|
||||
|
Stock
options
|
- | |||
|
Warrants
|
- | |||
|
Weighted-average
common shares
|
||||
|
outstanding
(Diluted)
|
19,085,738 | |||
Uncertainty in Income
Taxes
In July
2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
Uncertainty in Income Taxes.” This interpretation requires recognition and
measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. Management has adopted FIN 48 for 2007, and they evaluate their tax
positions on an annual basis, and has determined that as of December 31, 2008,
no additional accrual for income taxes is necessary.
8
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Issued Accounting
Standards
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a material impact
on the financial statements.
In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115”, (“FAS 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment.
SFAS 160
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. Management is determining the impact that the adoption of SFAS
No. 160 will have on the Company’s financial position, results of operations or
cash flows.
9
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Issued Accounting
Standards (Continued)
In
December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS
141R”), which replaces FASB SFAS 141, Business
Combinations. This Statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control. SFAS
141R will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total
allocated cost of the acquisition. SFAS 141R will require an entity
to recognize the assets acquired, liabilities assumed, and any non-controlling
interest in the acquired at the acquisition date, at their fair values as of
that date. This compares to the cost allocation method previously
required by SFAS No. 141. SFAS 141R will require an entity to
recognize as an asset or liability at fair value for certain contingencies,
either contractual or non-contractual, if certain criteria are
met. Finally, SFAS 141R will require an entity to recognize
contingent consideration at the date of acquisition, based on the fair value at
that date. This Statement will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption of this standard is not permitted
and the standards are to be applied prospectively only. Upon adoption
of this standard, there would be no impact to the Company’s results of
operations and financial condition for acquisitions previously
completed. The adoption of SFAS No. 141R is not expected to have a
material effect on the Company’s financial position, results of operations or
cash flows.
In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of
Share Options” (“SAB 110”). SAB 110 expresses the current view of the
staff that it will accept a company’s election to use the simplified method
discussed in Staff Accounting Bulletin 107, Share Based Payment, (“SAB
107”), for estimating the expected term of “plain vanilla” share options
regardless of whether the company has sufficient information to make more
refined estimates. SAB 110 became effective for the Company on
January 1, 2008. The adoption of SAB 110 is not expected to have a
material impact on the Company’s financial position.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”).
SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging
activities. These enhanced disclosures will discuss: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations; and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company does not believe that SFAS 161 will have an impact on
their results of operations or financial position.
10
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Issued Accounting
Standards (Continued)
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. The Company was required to adopt FSP 142-3 on October 1, 2008. The
guidance in FSP 142-3 for determining the useful life of a recognized intangible
asset shall be applied prospectively to intangible assets acquired after
adoption, and the disclosure requirements shall be applied prospectively to all
intangible assets recognized as of, and subsequent to, adoption. The Company
does not believe FSP 142-3 will materially impact their financial position,
results of operations or cash flows.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162). SFAS 162 makes the hierarchy of generally
accepted accounting principles explicitly and directly applicable to preparers
of financial statements, a step that recognizes preparers’ responsibilities for
selecting the accounting principles for their financial statements. The
effective date for SFAS 162 is 60 days following the U.S. Securities and
Exchange Commission’s approval of the Public Company Accounting Oversight
Board’s related amendments to remove the GAAP hierarchy from auditing standards,
where it has resided for some time. The adoption of SFAS 162 will not have an
impact on the Company’s results of operations or financial
position.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of SFAS No. 60” (SFAS 163). SFAS 163
prescribes accounting for insures of financial obligations, bringing consistency
to recognizing and recording premiums and to loss recognition. SFAS 163 also
requires expanded disclosures about financial guarantee insurance contracts.
Except for some disclosures, SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. The adoption of SFAS
163 will not have an impact on the Company’s results of operations or financial
position.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
|
NOTE
3-
|
STOCKHOLDERS’ EQUITY
(DEFICIT)
|
The
Company was established with two classes of stock, common stock – 100,000,000
shares authorized at a par value of $0.0001; and preferred stock – 10,000,000
shares authorized at a par value of $0.0001.
11
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
3-
|
STOCKHOLDERS’ EQUITY
(DEFICIT) (CONTINUED)
|
During
2008 the Company issued 14,200,000 shares of common stock to the Company’s
founders at inception for $5,000 cash; and on April 30, 2008, the Company
entered into a 10-year renewable, exclusive license agreement (see Note 5) for
the issuance of 7,130,000 shares that were issued to shareholders, option
holders and warrant holders of a related entity at a value of $356,500 ($.05 per
share) determined to be the fair value of the license agreement.
As of
December 31, 2008, the Company has these 21,330,000 shares of common stock
issued and outstanding.
The
Company has not issued any preferred stock, options or warrants to
date.
|
NOTE
4-
|
LOAN PAYABLE – RELATED
PARTY
|
|
|
The
Company has an unsecured, loan payable outstanding with Magnolia Optical
Technologies, Inc., (“Optical”) a related party through common ownership.
Optical provided necessary working capital for the Company in their
initial period to assist them in the payment of certain consulting
expenses. Optical advanced $20,000 to the Company from September 2008
through December 2008.
|
These
amounts accrue interest at three and one-half percent (3.50%) per annum.
Interest for the period ended December 31, 2008 amounted to $107 and is
reflected in the financial statements.
|
NOTE
5-
|
LICENSE
AGREEMENT
|
The
Company has entered into a 10-year, renewable, exclusive license with Optical on
April 30, 2008 for the exclusive rights of the patented technology related to
the application of Optical’s solar cell technology. The Company in return for
this license issued to the shareholders 7,130,000 shares of its common stock
(see Note 3).
The
Company is amortizing the license fee over the 120 month term of the Agreement.
Amortization expense through December 31, 2008 amounted to $23,767. The Company
anticipates amortizing $35,650 per year. The Company’s management has determined
that the fair value of the license exceeds the book value and thus no further
impairment or amortization is necessary as of December 31, 2008.
The net
value of the license of $332,733 is reflected on the Balance Sheet at December
31, 2008.
12
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
6-
|
PROVISION FOR INCOME
TAXES
|
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
As of
December 31, 2008, there is no provision for income taxes, current or
deferred.
|
Net
operating losses
|
$ | 13,227 | ||
|
Valuation
allowance
|
(13,227 | ) | ||
| $ | - |
At
December 31, 2008, the Company had a net operating loss carry forward in the
amount of $38,904, available to offset future taxable income through
2028. The Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of the utilization of
the operating losses in future periods.
A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the period January 8, 2008
(inception) through December 31, 2008 is summarized below.
|
Federal
statutory rate
|
(34.0 | )% | ||
|
State
income taxes, net of federal benefits
|
0.0 | |||
|
Valuation
allowance
|
34.0 | |||
| 0 | % |
13
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
7-
|
FAIR VALUE
MEASUREMENTS
|
On
January 1, 2008, the Company adopted SFAS 157. SFAS 157 defines fair value,
provides a consistent framework for measuring fair value under generally
accepted accounting principles and expands fair value financial statement
disclosure requirements. SFAS 157’s valuation techniques are based on observable
and unobservable inputs. Observable inputs reflect readily obtainable data from
independent sources, while unobservable inputs reflect our market assumptions.
SFAS 157 classifies these inputs into the following hierarchy:
Level 1
inputs: Quoted prices for identical instruments in active markets.
Level 2
inputs: Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3
inputs: Instruments with primarily unobservable value drivers.
The
following table represents the fair value hierarchy for those financial assets
and liabilities measured at fair value on a recurring basis as of December 31,
2008:
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Cash
|
9,970 | - | - | 9,970 | ||||||||||||
|
Total
assets
|
9,970 | - | - | 9,970 | ||||||||||||
|
Loan
payable - related parties
|
- | - | - | - | ||||||||||||
|
Total
liabilities
|
- | - | - | - | ||||||||||||
|
NOTE
8-
|
SUBSEQUENT
EVENTS
|
The
Company in May 2009, entered into a Memorandum of Understanding (“MOU”) with
Here Enterprises, Inc. (“Here”). Based on the proposed terms of the MOU, Here
and the Company upon due diligence by both parties, will enter into a definitive
agreement whereby the Company shall acquire a majority interest in the issued
and outstanding common stock of Here for $300,000 (”Purchase Price”). The
Purchase Price is to be raised as part of an anticipated minimum $1,500,000
funding as part of a private placement memorandum for the sale of a minimum of
15 units ($100,000 per unit), each unit consisting of 50,000 shares of common
stock and 50,000 warrants. In accordance with the agreement with Here, the
Company paid a deposit of $20,000 to Here for the purpose of Here to complete
their audits to consummate the transaction. Should the transaction close, this
payment will be applied to the purchase of the controlling interest of the
outstanding stock of Here.
14
MAGNOLIA SOLAR, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
|
NOTE
8-
|
SUBSEQUENT EVENTS
(CONTINUED)
|
Should
the transaction not be completed for reasons not related to the Company’s doing,
this amount will be returned within 10 days, and if the transaction should fail
to close for reasons related to the Company, this fee will be treated as a
“break-up” fee.
On June
17, 2009, the Company entered into a Note Purchase Agreement with a lender in
the amount of $25,000. The Promissory Note is due the earlier of: a) June 17,
2010; b) the date at which the Company consummates a subsequent financing (see
prior paragraph); or c) the date the Company consummates a reverse merger
transaction.
The
Promissory Note bears interest at 8% per annum, commencing August 17,
2009.
The
lender shall have the option to exchange all or a portion of the face amount of
the Promissory Note, plus any accrued and unpaid interest thereon, into the
applicable dollar amount of any other securities issued by the Company in
connection with the subsequent financing, at a conversion price equal to 50% of
the subsequent financing offering price. In accordance with EITF 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,” Case 2 which deals exclusively with
instruments containing a fixed percentage conversion feature dependent on a
future event, the Company has calculated the intrinsic value of the beneficial
conversion feature at June 17, 2009 (the “commitment date”), however, this
amount will only be recorded at the date the Company enters into the subsequent
financing arrangement.
On
October 15, 2009, the Company was funded an additional $15,000 to cover
additional costs as noted above. The $15,000 accrued interest at 8% commencing
immediately.
As of
December 14, 2009, the MOU has expired and the Company has chosen not to renew
the agreement.
On
December 15, 2009, the Company entered into an Agreement of Merger and Plan of
Reorganization (“Agreement”) with Mobilis Relocation Services Inc. (“MBVS”), a
Nevada corporation, and Magnolia Solar Acquisition Corp., a Delaware
corporation, which is a wholly-owned subsidiary of MBVS. The merger is
conditioned on a minimum capital raise of $750,000 to a maximum of $3,000,000 in
the form of newly issued convertible notes, purchased at 50% of the face amount
of the notes. The notes are to mature in 24 months, pay no interest, and may
convert at any time into common stock of the MBVS at $1.00 per share. Upon the
merger with MBVS, the shareholders of the Company will be issued a majority of
the shares in the merged entity.