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EX-32 - CALA CORPexh322.htm
EX-31 - CALA CORPexh321.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

OR

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

COMMISSION FILE NUMBER: 000-15109

CALA CORPORATION

Exact Name of Company as Specified in Its Charter)

Oklahoma

73-1251800

(State or Other Jurisdiction of Incorporation)

(I.R.S. Employer or Organization Identification No.)



1314 Texas Street, Suite 400, Houston, TX 77002

(713) 236-1818

(Address of Principal Executive Offices

(Company’s Telephone Number)



Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes ­­ No X.

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

Large accelerated filer [ ]

Non-accelerated filer [ ]

Accelerated filed [ ]

Smaller reporting company [X]

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


As of June 15, 2011, the Company had 320,866,147 shares of common stock issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes ­­ No X.

Page 1


TABLE OF CONTENTS








Page

PART I: FINANCIAL INFORMATION






Item 1. Financial Statements


3

Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009 (audited)


3

Statements of Operations For the Three and Six Months ending June 30, 2010 and 2009 and from January 1, 2007 through June 30, 2010 (unaudited)


4

Statements of Cash Flows For the Three and Six Months Ended June 30 , 2010 and 2009 and from January 1, 2007 through June 30, 2010 (unaudited)


5

Notes to Financial Statements (unaudited)


6




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


11




Item 3. Quantitative and Qualitative Disclosures About Market Risk


17




Item 4T. Controls and Procedures


17




PART II: OTHER INFORMATION






Item 1. Legal Proceedings


18




Item 1A. Risk Factors


18




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


18




Item 3. Defaults upon Senior Securities


18




Item 4. [Remove and Reserve]


19




Item 5. Other Information


19




Item 6. Exhibits


19




Signatures


19




Page 2


CALA CORPORATION
(A Development Stage Company)
BALANCE SHEETS


June 30, 2010

December 31, 2009


(Unaudited)

(Audited)

ASSETS



Total current assets

$ --

$ --




Other assets



Website development costs-net of amortization $21,123



and $16,123, respectively

8,877

13,877

Total assets

$ 8,877

$ 13,877


LIABILITIES AND STOCKHOLDERS' DEFICIT


Current liabilities


Accounts payable and accrued expenses

$ 54,351

$ 48,935

Note payable

62,000

62,000

Due to related party

75,769

71,978

Accrued officers salary

583,600

433,600

Taxes payable

11,599

11,599

Total current liabilities

787,319

628,112




Total liabilities

787,319

628,112




Stockholders' deficit



Common stock



$0.005 par value; 400,000,000 shares authorized



Issued and outstanding: 320,866,147 and 294,916,147,



respectively

1,604,329

1,604,329

Additional paid-in capital

11,861,259

11,861,259

Accumulated deficit

(11,886,789)

(11,886,789)

Accumulated deficit during development stage

(2,356,125)

(2,191,918)

Treasury stock - 56,533 shares at cost

(1,116)

(1,116)

Total stockholders' deficit

(778,442)

(614,235)

Total liabilities and stockholders’ deficit

$ 8,877

$ 13,877

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

Page 3


CALA CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS

(Unaudited)


For three Months Ended June 30, 2010

For three Months Ended June 30, 2009



For Six Months Ended June 30, 2010



For Six Months Ended June 30, 2009

From January 1, 2007 through June 30, 2010 (Development Stage Period)

Income

$ --

$ --

$ --

$ --

$ --

General and administrative






expense

79,287

77,268

154,366

174,838

1,410,015

Impairment loss on assets





711,817

Loss on disposal of assets





121,560

Depreciation and amortization

2,500

4,765

5,000

9,531

72,765


Total operating expenses

81,787

82,033

159,366

184,369

2,316,157








Loss from operations

(81,787)

(82,033)

(159,366)

(184,369)

(2,316,157)








Other income (expense)





Other income

--

--

--

--

74,007

Interest expense

(2,464)

(3,938)

(4,841)

(6,953)

(97,322)

Other expense

--

--

--

--

(16,653)


Total other income (expense)

(2,464)

(3,938)

(4,841)

(6,953)

(39,968)








Net loss

$ (84,251)

$ (85,972)

(164,207)

(191,322)

$ (2,356,125)

Earnings per share:






Net loss per share- basic

$ (0.00)

$ (0.00)

$ (0.00)

$ (0.00)


Weighted average number of shares outstanding- basic

320,866,147

320,866,147



320,866,147



318,404,609


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

Page 4


CALA CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)





For Six Months Ended June 30, 2010

For Six Months Ended June 30, 2009

From January 1, 2007 through June 30, 2010(Development Stage Period)

CASH FLOWS FROM OPERATING ACTIVITIES





Net loss

$ (164,207)

$ (191,322)

$ (2,356,125)


Adjustments to reconcile loss from continuing




operations to net cash used in operating activities:







Impairment loss

--

--

711,818




Depreciation and amortization

5,000

9,531

72,762




Stock based compensation issued for services

--

22,000

354,000


Allowance for doubtful accounts

--

--

60,500


Financing cost

--

--

105,000


Loss on disposal of assets

--


121,560


Changes in operating assets and liabilities:





Increase in accounts receivable

--

--

(10,500)




Increase (decrease) in accounts payable and accrued expenses

5,416

(4,052)

48,963




Accrued officers salary

150,000

150,000

583,600




Increase(decrease) in taxes payable

--

--

(28)




Net cash used in operating activities

(3,791)

(13,843)

(308,450)








CASH FLOW FROM INVESTING ACTIVITIES




Payment for development costs

--

--

(70,001)

Web development cost




Disposal of fixed assets

--

--

4,832


Net cash used investing activities

--

--

(65,169)








CASH FLOW FROM FINANCING ACTIVITIES





Payments made on mortgage

--


(12,244)


Proceeds from notes payable

--

2,000

62,000


Proceeds from issuance of common stock

--

--

278,950


Proceeds from due to related party

3,791

11,843

8,814









Net cash provided by financing activities

3,791

13,843

337,520








NET CHANGE IN CASH

--

--

(36,099)








CASH AT BEGINNING OF PERIOD

--

--

36,099








CASH AT END OF PERIOD

$       --

$       --

$        --








SUPPLEMENTAL INFORMATION:





Interest paid

$  --

$ 991

$ 53,495


Shares issued for service classified as a capital cost

$ --

$ --

$ 268,000


Satisfaction of accounts payable with common stock

$ --

$ --

$ 30,000


Satisfaction of notes payable with common stock

$ --

$ --

$ 145,000


Satisfaction of notes payable – related parties with common stock

$ --

$ 10,000

$ 10,000

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

Page 5


CALA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2010
(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

Cala Corporation, (formerly Magnolia Foods, Inc.), (the “Company”) was incorporated on June 13, 1985 under the laws of the State of Oklahoma. The Company's sole industry segment was the business of owning, operating, licensing and joint venturing restaurants. The Company discontinued this line of business on December 31, 2006. The Company is in the development stage of building an underwater resort and casino. The Company became a Development Stage Company as of January 1, 2007 and is classified as a Development Stage Company under ASC Topic 915.

NOTE 2 - GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The aggregate accumulated deficit and accumulated deficit during the development stage of the Company is $14,242,915 ($11,886,789 and $2,356,125, respectively). The Company has not established revenues sufficient to cover its operating costs. This uncertainty raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company's plan. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation – The accompanying financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations under Regulation S-X of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments, (which include normal recurring adjustments) necessary for a fair presentation of the results for the interim periods have been made. The results for the six months ended June 30, 2010 are not necessarily indicative of results to be

Page 6


expected for the full fiscal year. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

B. Cash and cash equivalents - The Company considers all short-term, highly liquid investments that are readily convertible within three months to known amounts as cash equivalents. Currently, it has no cash equivalents.

C. Loss per share - Net loss per share is provided in accordance with Financial Statement Accounting Board Accounting Standards Codification 260 (ASC 260) "Earnings Per Share". Basic loss per share reflects the amount of losses for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as stock options and convertible securities. As of June 30, 2010, the Company had no issuable shares qualified as dilutive. Had there been dilutive securities they would be excluded from the loss per share calculation because their inclusion would be antidilutive.

D. Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

E. Stock Based Compensation -Stock based compensation is accounted for using ASC 718 “Stock-Based Compensation”, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

F. Shares Returned to Treasury – During 2005, 23,200 shares were repurchased to Treasury for $116. During 2006, 33,333 shares were repurchased to treasury for $1,000.

G. Revenue Recognition – The Company recognizes revenue upon shipment of a product to the customer or upon completion of the service the Company is providing. The Company did not have any revenue during the periods ending June 30, 2010 and 2009.

H. Property and Equipment - Property and equipment consisting of improvements, equipment and furniture and fixtures are recorded at cost and are depreciated using the straight-line method over the useful estimated life. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.

Page 7


I. The Company accounts for the underwater sea resort and ship development costs in accordance with ASC 360-10, “Property, Plant, and Equipment”. The Company reviews its long-lived assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair market value less costs to sell.

J. The accompanying financial statements have been prepared in accordance with ASC 915 "Development-Stage Entities". A development-stage entity is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenue there from. Development stage companies report cumulative costs from the enterprise's inception.

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS

The Company has evaluated the recent accounting pronouncements through ASU 2011-04 and believes that none of them will have a material effect on the Company’s financial statements.


NOTE 5 - RELATED PARTY TRANSACTIONS


During the six months period ending June 30, 2010, the Company accrued $150,000 for salary payable to an officer of the Company with a balance due from the Company of $583,600 which has been accrued and not paid. As of December 31, 2009, salary payable due to officer was $433,600.


During the six month period ending June 30, 2010, an officer advanced $3,791 to the Company for operating expenses and debt reduction for an outstanding balance of $75,769 as of June 30, 2010 and $71,978 as of December 31, 2009.


NOTE 6 - FIXED ASSETS


Fixed Assets at June 30, 2010 and December 31, 2009, consist of the following:


6/30/2010

12/31/09

Vehicles

45,308

45,308

Less accumulated depreciation

(45,308)

(45,308)


$ --

$--


Page 8


Depreciation expense for the six months ended June 30, 2010 was zero and $2,064 for the same period in 2009. Amortization expenses for the web site were $5,000 in both periods ending June, 30, 2010 and 2009.

NOTE 7- NOTE PAYABLE

In January 2007, the Company issued an unsecured note for $60,000 bearing interest at 10% on the principal and accrued interest compounding monthly. The Company renewed the note payable agreement in March 2008 thereby issuing a note for $60,000 bearing interest at 11% on the principal and accrued interest compounding annually. On November 1, 2009, the note holder made demand for payment by December 1, 2009. The note including principal and interest is in default and still outstanding. As June 30, 2010 and December 31, 2009, the outstanding principle balance of the note was $60,000 and $60,000 and had accrued interest of $27,083 and $22,480, respectively.


Additionally in June 2009, the Company received $2,000 in other advances to meet the day to day expenses of the Company. Such advances are non-interest bearing and due on demand. As of June 30, 2010 and December 31, 2009, the outstanding balance in advances was $2,000 and $2,000, respectively.

NOTE 8 – STOCKHOLDERS’ EQUITY

The Company did not have any issuances during the six months ending June 30, 2010.

NOTE 9 - COMMITMENTS & CONTINGENCIES

On January 9, 2006, the Company entered into a lease at 3160 Danville Blvd. Suite A, Alamo, CA consisting of 4,500 square feet for a restaurant. The duration of the lease is 10 years with a renewable option for 5 more years. The monthly rent on the space is $8,500 plus taxes and common area charges. Monthly rental may be adjusted on an annual basis. On August 1, 2006, the Company assigned the lease to a non-affiliated third party but the Company remains liable for the lease until it terminates on January 8, 2016.

Then following is a schedule by year of the future minimum rental payments required under the operating lease that has non-cancelable lease terms in excess of one year as of June 30, 2010:


2010

$ 51,000

2011

102,000

2012

102,000

2013

102,000

2014

102,000

2015

102,000

2016

2,267

Total

$ 563,267

Page 9


On April 10, 2006, the Company entered into a lease consisting of approximately 2,450 square feet for a restaurant at 500 Bollinger Canyon Way, Roman CA. The duration of the lease is 10 years. On August 1, 2006, the Company discontinued its operations in the restaurant business. As a result, the Company assigned the lease to a non-affiliated third party on a sub lease basis. The Company is still fully obligated to the terms of this lease. However, the non affiliated party will assume all payments. Under the terms of the agreement, the sub-lessee pays the monthly lease of $5,400 per month for the duration of the lease plus an additional 60 equal monthly installments of $1,500 to the Company. The sub-lessee terminated payment of the $1,500 in August 2008.

The following is a schedule by year of the future minimum rental payments required under the operating lease that has non-cancelable lease terms in excess of one year as of June 30, 2010:

2010

36,148

2011

74,574

2012

76,812

2013

79,113

2014

81,492

2015

83,937

2016

21,138

Total

$453,314

NOTE 10- LEGAL MATTERS

On January 20, 2009, a complaint was filed against the Company in the Superior Court of California case # CIVWS09-0049 terminating the lease at 500 Bollinger Canyon Way, San Roman, CA due to subleasing the premises without consent of the landlord. A judgment was entered giving the landlord possession of the premises with no monetary amount awarded.

On February 18, 2009, the Company received a letter demanding payment on the deficiencies of two notes the Company issued totaling $125,000. Subsequent to this, an action was originated in the District Court of Jefferson County Texas (case # A-183,766). The Plaintiff contends the Company has not paid the principal or interest on the promissory notes issued in 2004. In 2005, the Company issued stock of 3,400,000 and 2,500,000 shares to the plaintiff in full payment of the outstanding notes and interest. As of June 30, 2010, the Company maintains the notes and interest were paid in full by the issuance of Company stock for payment of the notes and the Company has no further liability.

Page 10


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

The following discussion and analysis of the Company’s financial condition and results of operations is based upon, and should be read in conjunction with its unaudited financial statements and related notes included elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.

Overview

The Company is in the planning and development stage of building the first UnderSea Resort & Casino, the first Undersea Residence, and the first Residence Fractional Ownership. The development will be the residence and the fractional ownership, and the project will be financed from pre-selling individual units. The Company estimates that the resort and casino will include a 50,000 square foot world class Spa by Pevonia and a 200,000 square foot convention center. The development should generate approximately $600 million of revenue from the sale of the units while the total development cost should be approximately $460 million. The Company is in discussions with leaders in the hospitality, gambling, spa and convention industry to explore the possibility of a partnership or contractual arrangement with the Company. The undersea resort ships have the ocean available without the limitations of land. If and when the Company locates a business opportunity, management of the Company will give consideration to the dollar amount of that entity's profitable operations and the adequacy of its working capital in determining the terms and conditions under which the Company would consummate such an acquisition.  Potential business opportunities, no matter which form they may take, will most likely result in substantial dilution for the Company’s shareholders due to the issuance of stock to acquire such an opportunity.

The Company also intends to take advantage of any reasonable business proposal presented which management believes will provide the Company and its stockholders with a viable business opportunity and fits within the objectives of the Company and its business development.  The board of directors will make the final approval in determining whether to complete any acquisition, and unless required by applicable law, the articles of incorporation or bylaws or by contract, stockholders' approval will not be sought.

Along with the development of the Undersea Resort and Casino, the investigation of specific business opportunities and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and will require the Company to incur costs for payment of accountants, attorneys, and others.  If a decision is made not to participate in or complete the acquisition of a specific business opportunity, the costs incurred in a related

Page 11


investigation will not be recoverable.  Further, even if an agreement is reached for the participation in a specific business opportunity by way of investment or otherwise, the failure to consummate the particular transaction may result in the loss to the Company of all related costs incurred.

Results of Operations

(a) Revenues.

The Company reported no revenues for the six months periods ended June 30, 2010 and 2009.

(b) General and Administrative Expenses

The Company incurred general and administrative expenses of $79,287 for the three months and $154,366 for the six months ended June 30, 2010 as compared to $77,268 for the three months and $174,838 for the six months ended June 30, 2009. There was little change from period to period mainly due to the inactivity of the Company in both 2010 and 2009.

(c) Depreciation and amortization

Depreciation and amortization for the three and six months periods ended June 30, 2010 was $2,500 and $5,000 and $4,765 and $9,531 for the same periods ending June 30, 2009, respectively. The depreciation is attributable to a vehicle owned by the Company and the amortization of the Company’s web site.

(d) Interest Expense

The Company incurred interest charges of $2,464 and $4,841 during the three and six months ended June 30, 2010 and $3,938 and $6,953 for the respective periods in 2009.

(e) Net Loss

The Company reported a net loss of $84,251 and $164,207 for the three and six months ended June 30, 2010 as compared to a net loss of $85,972 and $191,322 for the same periods ended June 30, 2009. The decreased loss for the periods in 2010, however minimal was primarily attributable to lower cost legal and accounting and other expenses.

Factors That May Affect Operating Results

The operating results of the Company can vary significantly depending upon a number of factors, many of which are outside its control. General factors that may affect the Company’s operating results include:

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  • market acceptance of and changes in demand for products and services;

  • a small number of customers account for, and may in future periods account for, substantial portions of the Company’s revenue, and revenue could decline because of delays in customer orders or the failure to retain customers;

  • gain or loss of clients or strategic relationships;

  • announcement or introduction of new services and products by the Company or by its competitors;

  • price competition;

  • the ability to upgrade and develop systems and infrastructure to accommodate growth;

  • the ability to introduce and market products and services in accordance with market demand;

  • changes in governmental regulation; and

  • reduction in or delay of capital spending by clients due to the effects of terrorism, war and political instability.

Key Personnel

The Company’s success is largely dependent on the personal efforts and abilities of its senior management. The loss of the Company’s senior management, including the Company’s chief executive officer, chief financial officer and chief technical officer, could have a material adverse effect on the Company’s business and prospects.

Operating Activities

The net cash used in operating activities was $3,791 for the six months period ending June 30, 2010 compared to net cash used of 13,843 for the six months ended June 30, 2009. This decrease is due primarily to the lower net loss and depreciation and amortization plus increased accounts payable and accrued interest in 2010 compared to the same period in 2009.

Investing Activities

Net cash used in investing activities was zero for the six months period ending June 30, 2010 and zero for the same period ending June 30, 2009.

Page 13


Financing Activities

Net cash provided by financing activities was $3,791 for the six month period ending June 30, 2010 and $13,843 for the same period ending June 30, 2009. Financing activities for the period ending June 30, 2010 were lower due to less activity in the period compared to the period ended June 30, 2009.

Liquidity and Capital Resources

As of June 30, 2010, the Company had total current assets of zero and total current liabilities of $787,319, resulting in net working capital deficit of $787,319. During the six months ended June 30, 2010 and 2009, the Company incurred losses of $164,207 and $191,322, respectively. The aggregate accumulated deficit and accumulated deficit during the development stage of the Company is $14,242,914 ($11,886,789 and $ 2,356,125, respectively). These factors raise substantial doubt as to the Company’s ability to continue as a going concern. In fact, the Company’s independent accountants’ audit report included in the Form 10-K for the year ended December 31, 2009 includes a substantial doubt paragraph regarding the Company’s ability to continue as a going concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the ability of the Company to continue as a going concern on a longer-term basis will be dependent upon its ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately attain profitability.

Our current cash flow will not be sufficient to maintain our capital requirements for the next twelve months. Accordingly, the Company will need to continue raising capital through either debt or equity instruments. The Company believes it will need to raise additional capital to continue executing the business plan. Whereas the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to the Company. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of our planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:

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  • curtail operations significantly;

  • sell significant assets;

  • seek arrangements with strategic partners or other parties that may require the Company to relinquish significant rights to products, technologies or markets; or

  • explore other strategic alternatives including a merger or sale of the Company.

To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders.

Off Balance Sheet Arrangements

The Company does not engage in any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Inflation

The impact of inflation on our costs and the ability to pass on cost increases to customers over time is dependent upon market conditions. We are not aware of any inflationary pressures that have had any significant impact on our operations over the past quarter, and the Company does not anticipate inflationary factors will have a significant impact on future operations.

Critical Accounting Policies

The Securities and Exchange Commission (“SEC”) has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”); suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include: (a) use of estimates in the preparation of financial statements; (b) non-cash compensation arrangements; and

Page 15


(c) revenue recognition. The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results the Company reports in its financial statements.

(a) Use of Estimates in the Preparation of Financial Statements

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

(b) Stock-Based Compensation Arrangements

The Company may issue shares of common stock to various individuals and entities for management, legal, consulting and marketing services. These issuances will be valued at the fair market value of the services provided and the number of shares issued is determined, based upon the open market closing price of common stock as of the date of each respective transaction. These transactions will be reflected as a component of selling, general and administrative expenses in the Company’s statement of operations.

(c) Revenue Recognition

Sales are recognized when the product or service is delivered to the customer.

Forward Looking Statements

Information in this Form 10-Q contains “forward looking statements” within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended. When used in this Form 10-Q, the words “expects,” “anticipates,” “believes,” “plans,” “will” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements regarding our adequacy of cash, expectations regarding net losses and cash flow, our need for future financing, our dependence on personnel, and our operating expenses.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above as well as risks set forth above under “Factors That May Affect Our Results.” These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required under this Item.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer, to allow timely decisions regarding required disclosure.

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, will be or 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, and/or by management override of the control. The design of any 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 goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected.

Within the 90 days prior to the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). This evaluation was done under the supervision and with the participation of the Company’s president. Based upon that evaluation, he concluded that the Company’s disclosure controls and procedures are not effective in gathering, analyzing and disclosing information needed to satisfy the Company’s disclosure obligations under the Exchange Act.

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Changes in Disclosure Controls and Procedures

There were no significant changes in the Company’s disclosure controls and procedures, or in factors that could significantly affect those controls and procedures, since their most recent evaluation.

PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

On February 18, 2009, the Company received a letter demanding payment on the deficiencies of two notes the Company issued totaling $125,000. Subsequent to this, an action was originated in the District Court of Jefferson County Texas (case # A-183,766). The Plaintiff contends the Company has not paid the principal or interest on the promissory notes, issued in 2004. In 2005, the Company issued stock of 3,400,000 and 2,500,000 shares to the plaintiff in full payment of the outstanding notes and interest. The Company maintains the position the notes and interest were paid in full by the issuance of stock to the plaintiff and the Company has no liability.

On January 20, 2009, a complaint was filed against the Company in the Superior Court of California case # CIVWS09-0049 terminating the lease at 500 Bollinger Canyon Way, San Roman, CA due to subleasing the premises without consent of the landlord. A judgment was entered giving the landlord possession of the premises with no monetary amount awarded.

ITEM 1A: RISK FACTORS

There have been no material changes to the Company’s risk factors as previously disclosed in our most recent 10-K filing for the year ending December 31, 2009.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No shares were issued during the period that had not been reported in the previous 10-Q.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

In January 2007, the Company issued an unsecured note for $60,000 bearing interest at 10% on the principal and accrued interest compounding monthly. The Company renewed the note payable agreement in March 2008 thereby issuing a note for $60,000 bearing interest at 11% on the principal and accrued interest compounding annually. As of June 30, 2010, the outstanding principle balance of the note was $60,000 and had accrued interest of $27,083. The note including principal and interest is in default and still outstanding.

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ITEM 4: REMOVE AND RESERVE

ITEM 5: OTHER INFORMATION

NONE

ITEM 6: EXHIBITS.

31 Rule 13a-14(a)/15d-14(a) Certification of Joseph Cala.

32 Section 1350 Certification of Joseph Cala.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Cala Corporation.


Dated: June 15, 2011 By: /s/ Joseph Cala

Joseph Cala, President

Principal Executive Officer and Chief Financial Officer



EXHIBIT INDEX


Number

Description

31

Rule 13a-14(a)/15d-14(a) Certification of Joseph Cala (filed herewith).

32

Section 1350 Certification of Joseph Cala (filed herewith).


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