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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

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 # 333-149617

 

NOVAGEN SOLAR, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   98-0471927
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification number)
     
9120 Double Diamond Pkwy Ste 2227, Reno, Nevada   89521

(Address of principal executive offices)

 

  (Zip Code)

 

Registrant's telephone number: 310-994-7988

 

Securities registered under Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company 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

 

As of November 14, 2012 the registrant had 48,075,001 shares of its Common Stock outstanding.

 

 
  

 

 

Part I -- Financial Information

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(Expressed in US Dollars)

(Unaudited)

 

      Predecessor
   Successor  Business
        
   September 30,  December 31,  December 31,
   2012  2011  2011
ASSETS               
                
CURRENT ASSETS               
Cash   108,332        2,729 
Other receivables   39,793         
Inventories   149,303        3,208 
TOTAL CURRENT ASSETS  $297,428   $   $5,937 
                
PROPERTY AND EQUIPMENT, net  $360,866   $   $3,191 
                
TOTAL ASSETS  $658,294   $   $9,128 
                
                
LIABILITIES AND STOCKHOLDERS' DEFICIT               
                
CURRENT LIABILITIES               
Accounts payable and accrued liabilities   98,188    267    6,926 
Notes payable   466,197        10,973 
TOTAL CURRENT LIABILITIES  $564,385   $267   $17,899 
                
STOCKHOLDERS' EQUITY               
Preferred stock,  $0.0001 par value, 50,000,000 shares authorized; no shares issued and outstanding, respectively            
Common stock,  $0.0001 par value, 100,000,000 shares authorized; 47,375,901 shares issued and outstanding, respectively (December 31, 2011: 43,675,900)   4,738    4,367    108 
Additional paid-in capital   698,759    516,330     
Accumulated other comprehensive income   519        144 
Accumulated deficit prior to current development stage   (520,964)   (520,964)    
Accumulated deficit during development stage   (89,143)       (9,023)
TOTAL STOCKHOLDERS' EQUITY  $93,909   $(267)  $(8,771)
                
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT  $658,294   $   $9,128 

 

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

 

2
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Expressed in US Dollars)

(Unaudited)

 

   Three months ended September 30,  Three months ended September 30,  Nine months ended September 30,  Nine months ended September 30,  Cumulative from January 1, 2012 (beginning of development stage) to September 30,
   2012  2011  2012  2011  2012
                
REVENUE                         
Sales   3,355        3,355        3,355 
Other   12        12        12 
TOTAL REVENUE  $3,367   $   $3,367   $   $3,367 
                          
                          
EXPENSES                         
Administration expenses   24,161        68,805    7,812    68,805 
Depreciation   24,309        29,125        29,125 
Professional fees   66,914    1,271    105,045    9,552    105,045 
Rent   16,449        46,438        46,438 
Travel   147        13,816        13,816 
Compensation related expenses   74,243        206,621        206,621 
Research & development   10,208        21,336        21,336 
TOTAL EXPENSES  $216,431   $1,271   $491,186   $17,364   $491,186 
                          
OTHER ITEMS                         
Gain on acquisition of subsidiary           398,676        398,676 
                          
NET PROFIT/(LOSS)  $(213,064)  $(1,271)  $(89,143)  $(17,364)  $(89,143)
                          
OTHER COMPREHENSIVE INCOME                         
Currency translation   (257)   63    519    63    519 
                          
NET COMPREHENSIVE PROFIT/(LOSS)  $(213,321)  $(1,208)  $(88,624)  $(17,301)  $(88,624)
                          
BASIC AND DILUTED NET LOSS PER SHARE  $(0.00)  $(0.00)  $(0.00)  $(0.00)     
                          
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   46,551,724    43,675,900    44,627,182    43,675,900      

 

 

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

 

3
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS

(Expressed in US Dollars)

(Unaudited)

 

   Nine months ended September 30  Nine months ended September 30,  Cumulative from January 1, 2012 (beginning of development stage) to September 30,
   2012  2011  2012
          
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net profit/(loss) for the period  $(89,143)  $(17,301)  $(89,143)
Adjustments to reconcile net loss to net cash used by operating activities:               
Depreciation   29,125        29,125 
Non cash gain on acquisition   (398,676)       (398,676)
Changes in assets and liabilities:               
Inventory   (8,461)        (8,461)
Prepaid expense       7,833     
Receivables   (39,500)       (39,500)
Accounts payable and accrued liabilities   97,522    2,755    97,522 
Net cash used by operating activities  $(409,133)  $(6,713)  $(409,133)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Cash proceeds from acquisitions   168         168 
Purchase of property & equipment   (56,219)       (56,219)
Net cash used by investing activities  $(56,051)  $   $(56,051)
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
Due to related party       6,713     
Additional paid in capital   106,841        106,841 
Proceeds from  notes payable   466,197        466,197 
Net cash provided by financing activities  $573,038   $6,713   $573,038 
                
NET INCREASE (DECREASE) IN CASH   107,854        107,854 
Foreign currency translation gain   478        478 
                
CASH, BEGINNING OF PERIOD            
                
CASH, END OF PERIOD  $108,332   $   $108,332 
                
SUPPLEMENTAL CASH FLOW INFORMATION:               
Interest paid  $   $   $ 
Income taxes paid  $   $   $ 

 

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

 

4
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

PREDECESSOR BUSINESS

(Expressed in US Dollars)

(Unaudited)

 

   Predecessor Business
          
   Period  Three  Nine
   January 1,  months  months
   2012 to  ended  ended
   June 25,  September 30,  September 30,
   2012  2011  2011
          
REVENUE               
Sales   2,376        389 
Other   14         
TOTAL REVENUE  $2,390   $   $389 
                
                
EXPENSES               
Administration expenses   6,813    4,248    4,859 
Depreciation   9,097    436    627 
Professional fees   841        385 
Rent            
Travel            
Compensation related expenses            
Research & development   100,893         
TOTAL EXPENSES  $117,644   $4,684   $5,871 
                
NET PROFIT/(LOSS)  $(115,254)  $(4,684)  $(5,482)
                
OTHER COMPREHENSIVE INCOME               
Currency translation            
                
NET COMPREHENSIVE PROFIT/(LOSS)  $(115,254)  $(4,684)  $(5,482)
                

 

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

 

5
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS

PREDECESSOR BUSINESS

(Expressed in US Dollars)

(Unaudited)

 

   Predecessor Business
       
   Period   
   January 1,  Nine months
   2012 to  ended
   June 25,  September 30,
   2012  2011
       
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net profit/(loss) for the period  $(115,254)  $(5,482)
Adjustments to reconcile net loss to net cash used by operating activities:          
Depreciation   9,097    627 
Non cash gain on acquisition        
Changes in assets and liabilities:          
Inventory   (137,634)    
Prepaid expenses         
Receivables   (851)   (1,400)
Accounts payable and accrued liabilities   2,629     
Net cash used by operating activities  $(242,013)  $(6,255)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash proceeds from acquisitions        
Purchase of property & equipment   (337,370)   (4,070)
Net cash used by investing activities  $(337,370)  $(4,070)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Due to related party        
Additional paid in capital   554,840    100 
Proceeds from  notes payable   1,168    10,593 
Net cash provided by financing activities  $556,008   $10,693 
           
NET INCREASE (DECREASE) IN CASH   (23,375)   368 
Foreign currency translation gain   20,813    305 
           
CASH, BEGINNING OF PERIOD   2,729     
           
CASH, END OF PERIOD  $167   $673 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Interest paid  $   $ 
Income taxes paid  $   $ 

 

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

 

6
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Novagen Solar Inc. (referred to herein collectively with its subsidiaries as “Novagen” and the “Company”), was incorporated in the State of Nevada, U.S.A., on June 22, 2005 under the name of Pickford Minerals, Inc. The Company’s fiscal year end is December 31. On May 12, 2009, the Company changed its name to Novagen Solar Inc. The Company was originally engaged in the exploration of mineral deposits in Labrador, Newfoundland, but was unable to implement its exploration program. In April 2009, the Company began to pursue business opportunities relating to photovoltaic solar energy.

 

On December 7, 2011, there was a change in control of the Company when Twenty Second Trust, a trust organized under the laws of the State of Queensland, Australia acquired control of the Company by purchasing 67% of the issued and outstanding shares of the Company’s common stock from shareholders of the Company. Following the change in control, the board of directors determined that the Company should expand its business to include the development of environmentally sustainable energy solutions through innovative and eco-friendly products and technologies.

 

As part of the change in control and the incorporation of the new Australian subsidiaries, the Company entered into a new development stage for accounting purposes effective from January 1, 2012.

 

On January 3, 2012, the Company formed Novagen Pty Ltd under the laws of Australia, as a wholly owned operating subsidiary. All of the Company’s operations are currently conducted through Novagen Pty Ltd. On January 17, 2012, the Company formed Novagen Productions Pty Ltd. under the laws of Australia, as a wholly owned operating subsidiary. On March 2, 2012, the Company formed Novagen Finance Pty Ltd under the laws of Australia, as a wholly owned non-operating subsidiary.

 

On June 25, 2012 the Company acquired Renegade Streetwear Pty Ltd. (“Renegade”), under the laws of Australia as a wholly owned operating subsidiary. Prior to the acquisition of Renegade Streetwear Pty Ltd the Company was a shell company.

 

Under Securities and Exchange Commission rules, when a registrant succeeds to substantially all of the business of another entity and the registrant’s own operations before the succession appear insignificant relative to the operations assumed or acquired, the registrant is required to present financial information for the acquired entity (the “Predecessor”) for all comparable periods being presented before the acquisition.

 

We are therefore providing additional information in our financial statements regarding the predecessor business for periods prior to June 25, 2012. Renegade Streetwear Pty Ltd is considered the predecessor company. The financial information in this report that relates to the predecessor company is labeled “Predecessor Business” in the financial statements.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates that have been made using careful judgment. The financial statements have, in management’s opinion been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

 

Accounting Method

 

The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and reported in US Dollars.

 

7
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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 for the reporting period. The Company reviews its estimates on an ongoing basis. The estimates were based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from these estimates. The Company believes the judgments and estimates required in its accounting policies to be critical in the preparation of the Company’s financial statements.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. As at September 30, 2012 and December 31, 2011, there were no cash equivalents.

 

Property and Equipment

 

The Company has property and equipment being depreciated over the period between two to thirty-five years. Depreciation on property and equipment is provided on a straight line basis over their expected useful lives as follows:

 

Computer equipment 2 years straight line
Property improvements 10 to 35 years straight line
Plant & Equipment 7 years straight line
Motor Vehicles     7 years diminishing value
Office Furniture & Equipment 5 years straight line

 

Inventories

 

Inventories are measured at the lower of cost and net realizable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with high credit quality financial institutions in uninsured accounts.

 

Consolidation Policy

 

In January, March, June and September 2012, the Company incorporated three subsidiaries and acquired two wholly-owned subsidiaries, and as such, the consolidated financial statements include the accounts of Novagen Solar Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

 

Reclassifications

 

Certain financial statement amounts for the prior period have been reclassified to conform to the current period presentation. These reclassifications had no effect on the net loss or accumulated deficit as previously reported.

 

8
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

Foreign Currency Translations

 

Novagen maintains its accounting records in US Dollars. The Company’s subsidiaries are located and operating outside of the United States of America. They maintain their accounting records in Australian Dollars. For reporting purposes the Company reports its financial information in US Dollars.

 

Transactions in a currency other than the functional currency are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recorded in the statements of income and comprehensive income.

 

Assets and liabilities of the Company and its subsidiaries are translated into the U.S. dollars at exchange rates at the balance sheet date, equity accounts are translated at historical exchange rate and revenues and expenses are translated by using the average exchange rates. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statements of stockholders’ equity.

 

Fair Value of Financial Instruments

 

The Company's financial instruments as defined by Accounting Standards Codification (“ASC”) 825, "Disclosures about Fair Value of Financial Instruments," include accounts payable and accrued liabilities and notes payable. Fair values were assumed to approximate carrying value for these financial instruments, except where noted. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The Company is operating outside the United States of America and has significant exposure to foreign currency risk due to the fluctuation of currency in which the Company operates and U.S. dollars.

 

Long-lived assets impairment

 

Long-lived assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets.

 

Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.

 

Going Concern

 

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America applicable to a going concern which assumes that the Company will realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2011, the Company has incurred accumulated losses of $520,964 since inception and has not generated any revenue. In the first nine months of fiscal 2012 the Company had incurred a loss of $89,143. The future of the Company is dependent upon its ability to develop profitable sales and distribution operations. These factors create doubt as to the ability of the Company to continue as a going concern. Realization values may be substantially different from the carrying values as shown in these financial statements should the Company be unable to continue as a going concern. Management is in the process of identifying sources for additional financing, or will provide the necessary financial support, to fund the ongoing development of the Company's businesses.

 

Stock-Based Compensation

 

The Company adopted ASC 718, "Share-Based Payment", to account for its stock options and similar equity instruments issued. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period. ASC 718 requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. The Company did not grant any stock options during the year ended December 31, 2011 or the nine months ended September 30, 2012.

 

9
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

Comprehensive Income

 

The Company adopted ASC 220, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity and its Statements of Operations and Comprehensive Income. The Company’s comprehensive income consists of net earnings for the period and currency translation adjustments.

 

Income Taxes

 

The Company has adopted ASC 740, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

Basic and Diluted Loss Per Share

 

In accordance with ASC 260 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At September 30 2011, the basic loss per share was equal to diluted loss per share as there were no dilutive instruments.

 

Business Combinations

 

ASC 805 applies the acquisition method of accounting for business combinations established in ASC 805 to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

 

Development Stage Enterprise

 

With the control change in December 2011, the Company entered into a new development stage prior to establishing profitable operations. During the development stage all equity transactions, operations and cash flows will be reported on a cumulative basis until sales are recognized in the normal course of the Company’s planned business. Losses accumulated in prior exploration stage and development stage activities are accumulated separately and reported on the balance sheet as a separate component of stockholders’ equity.

 

10
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

Fair Value Measurement and Disclosures

 

The Company adopted ASC 820 Fair Value Measurements and Disclosures (“ASC 820”). As defined in ASC 820, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3: Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

 

The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, payroll withholding payable, and notes payable. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

 

New Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

 

NOTE 3: PROPERTY AND EQUIPMENT

 

The Company has property and equipment being depreciated over period between two to thirty-five years. Depreciation on property and equipment is provided on a straight line basis over their expected useful lives.

 

  

Cost

$

 

Accumulated amortization

$

 

Net book
value

$

          
September 30, 2012               
Property Improvements   3,707    (193)   3,514 
Plant & Equipment   81,552    (7,969)   73,583 
Motor Vehicles
Office Furniture & Equipment
   

281,060

29,934

    

(24,977)

(2,248)

    

256,083

27,686

 
    396,253    (35,387)   360,866 
December 31, 2011               
Property Improvements
Plant & Equipment
            
Motor Vehicles            
Office Furniture & Equipment            
             

 

11
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

NOTE 4: NOTES PAYABLE

 

The Company entered into four notes payable at the end of March 2012, with subsequent increases to the amounts borrowed in the September 2012 quarter. As at September 30, 2012 the notes total $433,752 Australian Dollars ($466,197 US Dollars). These notes are demand notes with no guarantee, no stated maturity date bearing 5% annual interest on un-matured amounts and 10% on matured, unpaid amounts. As demand notes these notes are considered current liabilities. No interest was accrued as of September 30, 2012 and the reported balance owing in US Dollars was $466,197. These loans were from officers and affiliates of the Company.

 

NOTE 5: PREFERRED AND COMMON STOCK

 

The Company has 50,000,000 shares of preferred stock authorized and none issued. The Company has 100,000,000 shares of common stock authorized, of which 47,375,901 shares are issued and outstanding. All shares of common stock are non-assessable and non-cumulative, with no preemptive rights.

 

NOTE 6: RELATED PARTY TRANSACTIONS

 

On December 7, 2011, a former director of the Company released the Company from all debt owing to him for disbursements incurred on behalf of the Company. As a result of the release, $13,395 was forgiven and recorded in additional paid in capital. Also during the year ended December 31, 2011, a company related to an officer of the Company forgave $5,000 used to pay for outstanding bills and the amount was recorded in additional paid in capital.

 

On September 27, 2012, the Company acquired all the issued and outstanding shares of Y Engine Developments Pty Ltd, a development stage Australian company (hereunder “Y Engine Developments”), from Michael Nugent, who is also the President and a director of the Company. The Company issued one common share to Mr. Nugent as the total aggregate consideration for Y Engine Developments.

 

Also see Note 4.

 

NOTE 7: BUSINESS COMBINATIONS

 

On June 25, 2012, the Company acquired all of the issued and outstanding shares of Renegade Streetwear Pty Ltd., an Australian company (“Renegade”), for consideration of 400,000 shares of common stock in Novagen Solar Inc. As a result of the acquisition, Renegade is a wholly owned operating subsidiary of the Company. The estimation of fair value of the assets and liabilities obtained as a result of the acquisition is as follows:

 

   Fair Value
   $
Purchase consideration     
Equity issued (400,000 shares of common stock)   76,000 
      
Fair value of assets and liabilities obtained     
Cash and cash equivalents   168 
Receivables   293 
Inventories   140,842 
Property, plant and equipment   333,772 
Payables   (399)
Identifiable assets and liabilities acquired   474,676 
      
Gain recognized on bargain purchase   398,676 

 

12
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

On September 27, 2012, the Company acquired all of the issued and outstanding shares of Y Engine Developments Pty Ltd from a director of the Company for one share of its common stock. The preliminary estimation of the fair value of the assets and liabilities obtained as part of this transaction is $1. See also Note 6.

 

NOTE 8: SEGMENT INFORMATION

 

Identification of reportable segments

 

The Company has identified its operating segments based on the internal reports that are reviewed and used by the chief operating decision makers in assessing performance and determining the allocation of resources.

 

Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics and are also similar with respect to the following:

 

·the products sold and/or services provided by the segment;
·the manufacturing process;
·the type or class of customer for the products or services;
·the distribution method; and
·any external regulatory requirements.

 

Types of products and services by segment

 

(i) Development of environmentally sustainable energy solutions

 

The key segment of the Company is the development of environmentally sustainable energy solutions utilizing innovative and eco-friendly products and technologies.

 

(ii) Manufacture and distribution

 

The Company’s subsidiary, Renegade Streetware Pty Ltd., is in the business of design, manufacture and distribution of V-Twin engines, custom motorcycles and related urban clothing under the Renegade brand.

 

All segment activities occur in Australia.

 

Basis of accounting for purposes of reporting by operating segments

 

(a) Accounting policies adopted

 

All amounts reported to the Company’s board of directors, being the chief operating decision makers with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Company.

 

(b) Intersegment transactions

 

There are no intersegment transactions

 

13
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

(c) Segment assets

 

Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of the economic value from the asset. In most instances, segment assets are clearly identifiable on the basis of their nature and physical location.

 

(d) Segment liabilities

 

Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Company as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings.

 

(e) Segment information

 

(i) Segment revenue and expenses

 

The manufacturing and distribution segment was acquired on June 25, 2012 and did not generate any revenue or incur any expenditure from the acquisition date to June 30 2012. As a result this segment has not earned any revenue or incurred any expenditure in prior periods. All revenues and expenditure recorded by the group in prior periods are related to the development of environmentally sustainable energy solutions. All revenue earned in the period and year to date is from external customers.

 

The Company’s reportable segments, energy solutions and manufacturing and distribution services, are organized in separate business units with different customers, technologies and services.

 

Presented below are summarized operating results and certain financial position data of the Company’s reportable continuing business segments for the three months ended September 30, 2012.

 

Three Months Ended September 30 2012  Energy Solutions  Manufacture
& Distribution
  Consolidated
Net revenues       3,355    3,355 
Cost of revenues   (2,655)   (7,548)   (10,203)
Gross profit   (2,655)   (4,193)   (6,848)
Selling, general and administrative expenses   172,647    33,569    206,216 
Income (loss) from operations   (175,302)   (37,762)   (213,064)
Other expense, net             
Income (loss) before income taxes   (175,302)   (37,762)   (213,064)
Income tax expense            
Income from continuing operations   (175,302)   (37,762)   (213,064)
Amortization of purchased intangibles            
Depreciation and other amortization   1,798    22,511    24,309 

 

Presented below are summarized operating results and certain financial position data of the Company’s reportable continuing business segments for the nine months ended September 30, 2012.

 

Nine Months Ended September 30 2012  Energy Solutions  Manufacture
& Distribution
  Consolidated
Net revenues       3,355    3,355 
Cost of revenues   (12,527)   (7,548)   (20,075)
Gross profit   (12,527)   (4,193)   (16,720)
Selling, general and administrative expenses   38,854    33,569    72,423 
Income (loss) from operations   (51,381)   (37,762)   (89,143)
Other expense, net            
Income (loss) before income taxes   (51,381)   (37,762)   (89,143)
Income tax expense            
Income from continuing operations   (51,381)   (37,762)   (89,143)
Amortization of purchased intangibles            
Depreciation and other amortization   6,614    22,511    29,125 

 

14
 

 

NOVAGEN SOLAR INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

 

(ii) Segment assets

 

   Energy Solutions  Manufacture
& Distribution
  Total
   September 30, 2012  September 30, 2012  September 30, 2012
          
Segment Net Assets   (350,685)   444,594    93,909 
Other unallocated amounts            
Consolidated total  $(350,685)   444,594    93,909 

 

NOTE 9: SUBSEQUENT EVENTS, COMMITMENTS AND CONTINGENCIES

 

On October 12th, 2012, the Company issued 500,000 shares of common stock to Hong Kong Alliance Fund Limited for investment banking and public relations services to be rendered over a six month period.

 

On October 9, 2012, the Company entered into a material definitive agreement (the “Agreement”) to acquire all the issued and outstanding shares of Omanson Precision Engineering, Inc. (the “Shares”) from Judith A. Omanson and Dwight A. Omanson (the “Vendors”). The aggregate consideration to be received by the Vendors for the Shares will consist of: (i) 200,000 shares in the Common Stock of the registrant; (ii) cash in the amount of $750,000; (iii) the cash in hand in bank at settlement; and (iv) the receivable cash, minus payable inventory cost as at date of settlement. The acquisition of the Shares will complete on before December 19, 2012. Omanson Precision Engineering, Inc. is a company existing under the laws of the State of California, with operations based in Torrance, California.

 

Operating Leases

 

Rental expense for facilities operating leases was $46,438 for the period ended September 30, 2012. Future minimum rental commitments under non-cancellable facilities operating leases in place as of September 30, 2012 are as follows:

 

   
Period Ending September 30  
2013 $58,842
2014 $58,842
2015 $34,325
Thereafter -
Total $152,009

 

15
 

 

Item 2. Management's Discussion and Analysis or Plan of Operations

 

The following discussion and analysis of our plan of operation should be read in conjunction with the financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors.

 

Overview

 

Novagen Solar Inc. (hereinafter, the “Company”), was incorporated in the State of Nevada, U.S.A., on June 22, 2005 under the name of Pickford Minerals, Inc. The Company’s fiscal year end is December 31. On May 12, 2009, the Company changed its name to Novagen Solar Inc. The Company was originally engaged in the exploration of mineral deposits in Labrador, Newfoundland, but was unable to implement its exploration program. In April 2009, the Company began to pursue business opportunities relating to photovoltaic solar energy.

 

On December 7, 2011, there was a change in control of the Company when Twenty Second Trust, a trust organized under the laws of the State of Queensland, Australia acquired control of the Company by purchasing 67% of the issued and outstanding shares of the Company’s common stock from shareholders of the Company. Following the change in control, the board of directors determined that the Company should expand its business to include the development of environmentally sustainable energy solutions through innovative and eco-friendly products and technologies.

 

On January 3, 2012, the Company formed Novagen Pty Ltd. under the laws of Australia, as a wholly owned operating subsidiary. Novagen Pty Ltd is engaged in the manufacture and distribution of products for commercialization in the area of solar energy and other clean technologies including low carbon emission engines. Novagen Pty Ltd operates from leased premises situated at Helensvale, Queensland for use as a workshop and employs seven full time employees, including qualified mechanics, machinists, a draughtsman and administrative support.

 

On January 17, 2012, the Company formed Novagen Productions Pty Ltd under the laws of Australia, as a wholly owned non-operating subsidiary.

 

On March 2, 2012, the Company formed Novagen Finance Pty Ltd under the laws of Australia as a wholly owned operating subsidiary. Novagen Finance Pty Ltd operates as an internal finance company for Novagen Solar Inc. and its wholly owned subsidiaries.

 

On June 25, 2012, the Company acquired all the outstanding capital stock of Renegade Streetwear Pty Ltd, an Australian corporation ("Renegade"), for an aggregate of 400,000 shares of the Company’s common stock. Renegade is in the business of design, manufacture and distribution of V-Twin engines, custom motorcycles and related urban clothing under the Renegade brand. Management believes that the acquisition of Renegade will enable the Company to accelerate its development of products and services that provide clean technology solutions for today’s global challenges.

 

On September 27, 2012, the Company acquired all the issued and outstanding shares of Y Engine Developments Pty Ltd, a development stage Australian company (hereunder “Y Engine Developments”), from Michael Nugent, who is also the President and a director of Novagen. Y Engine Developments owns all rights in and to an opposing piston divaricate cylinder twin crank journal reciprocating piston engine. Y Engine Developments will continue to operate as a wholly owned subsidiary of Novagen, developing engines utilizing advances in bio fuel technologies.

 

On October 9, 2012, the registrant entered into a material definitive agreement (the “Agreement”) to acquire all the issued and outstanding shares of Omanson Precision Engineering, Inc. (the “Shares”) from Judith A. Omanson and Dwight A. Omanson (the “Vendors”). The aggregate consideration to be received by the Vendors for the Shares will consist of: (i) 200,000 shares in the Common Stock of the registrant; (ii) cash in the amount of $750,000; (iii) the cash in hand in bank at settlement; and (iv) the receivable cash, minus payable inventory cost as at date of settlement. The acquisition of the Shares is intended to complete on before December 19, 2012. Omanson Precision Engineering, Inc. is a company existing under the laws of the State of California, with operations based in Torrance, California.

 

16
 

 

As part of the change in control and the incorporation and acquisition of new Australian subsidiaries, the Company has effectively entered into a new development stage for accounting purposes which commenced on January 1, 2012.

 

Our currently available capital and cash flow has been generated through share subscriptions and loans from management and non-affiliated third parties and it is our management’s intention that this will continue until the Company earns sufficient revenue to be self-sustaining.

 

Our ultimate success will depend upon our ability to raise capital including joint venture projects and debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.

 

Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the renewable energy industry, and the fact that we have not been profitable, which could impact the availability or cost of future financings.

 

Results of Operations

 

We recorded a net loss of $213,321 for the three months ended September 30, 2012 (net loss of $88,624 for the nine months ended September 30, 2012), compared with a net loss of $1,271 for the three months ended September 30, 2011 (net loss of $17,301 for the 9 months ended September 30, 2011).

 

Total expenses amounted to $216,431 for the three months ended September 30, 2012 ($491,186 for the nine months ended September 30, 2012) compared with $1,208 for the three months ended September 30, 2011 ($17,364 for the 9 months ended September 30, 2011).

 

Expenses for the three months ended September 30, 2012 compared with the three months ended September 30, 2011 included:

 

 • Administration expenses $24,161 ($NIL)
 • Depreciation $24,309 ($NIL)
 • Professional fees $66,914 ($1,271)
 • Rent $16,449 ($NIL)
 • Travel $147 ($NIL)
 • Compensation related expenses $74,243 ($NIL)
 • Research & development $10,208 ($NIL)

 

Expenses for the nine months ended September 30, 2012 compared with the nine months ended September 30, 2011 included:

 

 • Administration expenses $68,805 ($7,812)
 • Depreciation $29,125 ($NIL)
 • Professional fees $105,045 ($9,552)
 • Rent $46,438 ($NIL)
 • Travel $13,816 ($NIL)
 • Compensation related expenses $206,621 ($NIL)
 • Research & development $21,336 ($NIL)

 

17
 

 

Liquidity and Capital Reserves

 

As at September 30, 2012 the Company had total assets of $658,294 including:

 

 • Inventory - engines $119,088
 • Inventory – bike parts $27,058
 • Plant & Equipment at cost $73,583
 • Motor Vehicles $256,083
 • Office Furniture & Equipment $27,687
 • Property Improvements $3,514

 

The above reflects an increase in the value of our total assets from $nil as at December 31, 2011.

 

As at September 30, 2012, the Company’s total liabilities amounted to $564,385 which reflects an increase of the value of total liabilities from $267 as at December 31, 2011. The increase was primarily due to $466,197 in notes payable.

 

The Company entered into four notes payable at the end of March 2012, with subsequent increases to the amounts borrowed in the September 2012 quarter. As at September 30, 2012 the notes total $433,752 Australian Dollars ($466,197 US Dollars). These notes are demand notes with no guarantee, no stated maturity date bearing 5% annual interest on un-matured amounts and 10% on matured, unpaid amounts. As demand notes these notes are considered current liabilities. No interest was accrued as of September 30, 2012 and the reported balance owing in US Dollars was $466,197. These loans were from officers of the Company and its affiliates.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of September 30, 2012. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

 

Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective.

 

Changes in Disclosure Controls and Procedures

 

As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2012, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

18
 

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

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.

 

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

 

On October 12, 2012, the Company issued 500,000 shares of its common stock to Hong Kong Alliance Fund Ltd, a Hong Kong limited liability company for investment banking and public relations services to be rendered over a six month period. The issuance of our common stock was exempt from registration under Regulation S promulgated under the Securities Act of 1933.

 

On October 9, 2012, the Company issued 200,000 shares of its common stock to unaffiliated persons resident in the United States, in exchange for all the issued and outstanding shares of Omanson Precision Engineering Inc., a California company. The issuance of our common stock was exempt from registration under section 4(2) of the Securities Act of 1933.

 

On September 28, 2012, the Company issued one share of its common stock to Michael Nugent, its President and a director, in exchange for all the issued and outstanding shares of Y Engine Developments Pty Ltd., an Australian company. The issuance of our common stock was exempt from registration under Regulation S promulgated under the Securities Act of 1933.

 

On July 25, 2012, the Company issued 1,500,000 shares of its common stock to Wakabayashi Fund LLC, a Japanese limited liability company, for investment banking and public relations services to be rendered over a six month period. The issuance of our common stock was exempt from registration under Regulation S promulgated under the Securities Act of 1933.

 

On July 24, 2012, the Company issued 1,800,000 shares of its common stock to acquire 28 acres of farmland in Beerwah, Queensland, Australia , from unaffiliated person not resident in the United States. The issuance of our common stock was exempt from registration under Regulation S promulgated under the Securities Act of 1933.

 

On June 30, 2012, the Company issued 400,000 shares of its common stock to acquire all the issued and outstanding shares of Renegade Streetwear Pty Ltd., an Australian company, from unaffiliated persons not resident in the United States. The issuance of our common stock was exempt from registration under Regulation S promulgated under the Securities Act of 1933.

 

Item 3. Default Upon Senior Notes

 

Not applicable.

 

Item 5. Other Information

 

None.

 

19
 

 

Item 6. Exhibits

 

Exhibit Description
   
   
10.1 Agreement For Sale & Purchase of Shares, dated June 1, 2012, between Novagen Solar Inc. and the shareholders of Renegade Streetwear Pty Ltd. (1)
   
10.2 Agreement For Sale & Purchase of Share dated July 5, 2012 between Novagen Solar Inc. and Micheal Peter Nugent (2)
   
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
   
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
   
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS XBRL Instance Document
   
101.SCH XBRL Schema Document
   
101.CAL XBRL Calculation Linkbase Document
   
101.DEF XBRL Definition Linkbase Document
   
101.LAB XBRL Label Linkbase Document
   
101.PRE XBRL Presentation Linkbase Document
   

 

(1) Filed as an exhibit to the Company’s Form 8-K filed with the SEC on July 16, 2012, and incorporated herein by reference.

(2) Filed as an exhibit to the Company’s Form 8-K filed with the SEC on October 1, 2012, and incorporated herein by reference.

 

 

 

Signatures

 

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NOVAGEN SOLAR INC.
   
Date: November 16, 2012

By: /s/ Micheal P. Nugent

Micheal P. Nugent

Chief Executive Officer, President,

Chief Financial Officer and

Principal Accounting Officer

   
   
Date: November 16, 2012

By: /s/ Michael Norton-Smith

Michael Norton-Smith

Chief Financial Officer and

Principal Accounting Officer

 

 

20