ITEM 1.
BUSINESS
Alternative Energy Partners, Inc. (the “Company” or “AEGY”) is a development stage company. The Company was organized under the laws of the State of Florida on April 28, 2008. We formed our Company for the purpose of establishing renewable fuel sources initially within the State of Florida. Ethanol was our initial intended product and we intend to establish other alternative energy products and services including, but not limited to, solar-thermal energy production, energy management controls, and more. Our intended original products, while not technically difficult to produce, must meet all regulatory requirements prior to being marketed. Moreover, there are a multitude of competitive products already in the market place. Due to the competitive nature of the market and our continuing capital requirements, we expanded our initial plan to include solar and thermal projects, with the acquisition of Sunarias Corporation on May 18, 2010 and Shovon, LLC on July 9, 2010, and the acquisitions of SkyNet Energy Systems, Inc. a Nevada corporation in the business of financing and establishing domestic companies’ renewable energy projects in Central and Eastern Europe. In May, 2012, we acquired Clarrix Energy, LLC, which provides consultative and brokerage services to business of all sizes. The objective of these services is to decrease utility costs in as many ways as possible for every client. The company currently has agreements with energy suppliers in 10 states, and is in pursuit of additional supply partners.
Current Business of the Company
We are a development stage company in the business of energy production and management. Our business model of vertical integration recognizes that customers have unique energy needs, and by offering an array of energy services
we believe we can best provide customized, efficient energy solutions that will appeal to our markets. We believe our intended products and services could represent an important alternative for customers looking to lower their overhead costs or improve public image through efficient energy usage.
Initially, our largest target market will be the commercial energy market. In order to reach that market, we will market to industries with an interest in lowering their energy costs or increasing energy efficiency; these industries include healthcare and hospitality. In order to attract commercial markets, we must begin by establishing and proving that our energy systems are efficient and offer lower cost to use than traditional utilities or systems. For any alternative energy product, we intend to prove market viability prior to engaging in distribution.
ITEM 1A
ITEM 1A .
RISK FACTORS
You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.
Risks Relating to Our Business
OUR MANAGEMENT HAS LIMITED EXPERIENCE IN MANAGING AND OPERATING A PUBLIC COMPANY. ANY FAILURE TO COMPLY OR ADEQUATELY COMPLY WITH FEDERAL SECURITIES LAWS, RULES OR REGULATIONS COULD SUBJECT US TO FINES OR REGULATORY ACTIONS, WHICH MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our current management has limited experience managing and operating a public company and relies in many instances on the professional experience and advice of third parties including its attorneys and accountants. Failure to comply or adequately comply with any laws, rules, or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results of operation, or financial condition and could result in delays in the development of an active and liquid trading market for our stock.
IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING, OUR ABILITY TO ACCURATELY AND TIMELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD MAY BE ADVERSELY AFFECTED AND INVESTOR CONFIDENCE AND THE MARKET PRICE OF OUR COMMON STOCK MAY BE ADVERSELY IMPACTED.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. Under current SEC rules, our management may conclude that our internal controls over our financial reporting are not effective. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
THE LACK OF EXPERIENCED ACCOUNTING STAFF MAY LEAD TO MATERIAL WEAKNESS IN THE PREPARATION OF OUR FINANCIALS.
A material weakness may occur in the preparation of our financials due to insufficient resources in our accounting and finance department, resulting in (i) an ineffective review, monitoring and analysis of schedules, reconciliations and financial statement disclosures, and (ii) the misapplication of U.S. GAAP and SEC reporting requirements. Due to the effect of the lack of resources, including a lack of resources that are appropriately qualified in the areas of
U.S. GAAP and SEC reporting, this could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of the Company’s financial information.
THE DEVELOPMENT OF OUR PRODUCTS MAY BE SLOWER THAN PROJECTED.
The development of our products and services and the implementation of such products in customer environments may take longer than expected. The sales cycle for contemplated products is long and the adoption rates are unknown, thus it may take longer for us to achieve meaningful revenue or meet our projections.
OUR PLANNED EXPANSION COULD BE DELAYED OR ADVERSELY AFFECTED BY, AMONG OTHER THINGS, DIFFICULTIES IN OBTAINING SUFFICIENT FINANCING, TECHNICAL DIFFICULTIES, OR HUMAN OR OTHER RESOURCE CONSTRAINTS.
Our planned expansion could be delayed or adversely affected by, among other things, difficulties in obtaining sufficient financing, technical difficulties, or human or other resource constraints. Moreover, the costs involved in these projects may exceed those originally contemplated. Costs savings and other economic benefits expected from these projects may not materialize as a result of any such project delays, cost overruns or changes in market circumstances. Failure to obtain intended economic benefits from these projects could adversely affect our business, financial condition and operating performances.
WE ENCOUNTER SUBSTANTIAL COMPETITION IN OUR BUSINESS AND ANY FAILURE TO COMPETE EFFECTIVELY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
As described in the products section, for every product we sell, we encounter strong competitors. We anticipate that our competitors will continue to expand and seek to obtain additional market share with competitive price and performance characteristics. Aggressive expansion of our competitors or the entrance of new competitors into our markets could have a material adverse effect on our business, results of operations and financial condition.
OUR LIMITED OPERATING HISTORY MAY NOT SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.
Our limited operating history may not provide a meaningful basis for evaluating our business. We entered into its current line of business in May 2010. We cannot guarantee that we will maintain profitability or that we will not incur net losses in the future. We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:
· obtain sufficient working capital to support our expansion;
· expand our product offerings and maintain the high quality of our products;
· manage our expanding operations and continue to fill customers’ orders on time;
· maintain adequate control of our expenses allowing us to realize anticipated income growth;
· implement our product development, sales, and acquisition strategies and adapt and modify them as needed;
· successfully integrate any future acquisitions; and
· anticipate and adapt to changing conditions in the solar and thermal power industry resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.
If we are not successful in addressing any or all of the foregoing risks, our business may be materially and adversely affected.
WE NEED TO MANAGE GROWTH IN OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH AND ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO MANAGE GROWTH WILL CAUSE A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE REVENUES AT LEVELS WE EXPECT.
In order to maximize potential growth in our current and potential markets, we believe that we must expand our producing operations. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.
WE CANNOT ASSURE YOU THAT OUR GROWTH STRATEGY WILL BE SUCCESSFUL WHICH MAY RESULT IN A NEGATIVE IMPACT ON OUR GROWTH, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW.
One of our strategies is to grow through increasing our product lines. However, there are many obstacles to expand our product lines. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our products in any additional markets. Our inability to implement this sustainable growth strategy successfully may have a negative impact on our growth, future financial condition, results of operations or cash flows.
IF WE NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.
If adequate additional financing is not available on reasonable terms, we may not be able to carry out our corporate strategy and we would be forced to modify our business plans accordingly. There is no assurance that additional financing will be available to us.
In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, our securities can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. If we need additional funding we will, most likely, seek such funding in the United States and the market fluctuations affect on our stock price could limit our ability to obtain equity financing.
If we cannot obtain additional funding, we may be required to: (i) limit our expansion; (ii) limit our marketing efforts; and (iii) decrease or eliminate capital expenditures. Such reductions could materially adversely affect our business and our ability to compete.
Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are favorable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to the Units. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
NEED FOR ADDITIONAL EMPLOYEES.
The Company’s future success also depends upon its continuing ability to attract and retain highly qualified personnel. Expansion of the Company’s business and operation will require additional managers and employees with industry experience, and the success of the Company will be highly dependent on the Company’s ability to attract and retain skilled management personnel and other employees. There can be no assurance that the Company will be able to attract or retain highly qualified personnel. Competition for skilled personnel in the construction industry is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.
THE LOSS OF THE SERVICES OF OUR KEY EMPLOYEES, PARTICULARLY THE SERVICES RENDERED BY OUR SOLE OFFICER AND DIRECTOR, COULD HARM OUR BUSINESS.
Our success depends to a significant degree on the services rendered to us by our key employees. If we fail to attract, train and retain sufficient numbers of these qualified people, our prospects, business, financial condition and results of operations will be materially and adversely affected. In particular, we are heavily dependent on the continued services of our sole officer and director. The loss of any key employees, including members of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industry could harm our business.
WE ARE HIGHLY DEPENDENT ON TECHNOLOGY.
Our business and our results of operations is highly dependent on technology our business faces many technology related risks. Infringements of our intellectual property could adversely affect our ability to compete. Our patent applications may be rejected in whole or in part in the United States or in other jurisdictions around the world. We may have to defend ourselves against claims of intellectual property infringement, which could be very expensive for us and harm our business and financial condition. We may be a party to lawsuits in the course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, operating results, or financial condition.
THERE IS SUBSTANTIAL COMPETITION IN THE SOLAR AND THERMAL POWER INDUSTRY, MANY OF WHOM ARE MORE HIGHLY CAPITALIZED THAN US, WHICH COULD LIMIT OUR ABILITY TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.
There is substantial competition in the solar and thermal power industry. Existing and new competitors may continue to improve their products and to introduce new products with competitive price and performance characteristics. Our competitors have the advantage of established relationships within the industry and they may be more highly capitalized. In addition, we cannot assure that additional competitors will not enter our existing markets, or that we will be able to compete successfully against existing or new competition.
OUR FUTURE SUCCESS IS DEPENDENT ON INTELLECTUAL PROPERTY OWNED BY US.
The Company may not be able to protect unauthorized use of intellectual property licensed to us and take appropriate steps to enforce its rights. Although management does not believe that its services infringes on the intellectual rights of others, there is no assurance that the Company may not be the target of infringement or other claims. Such claims, even if not true, could result in significant legal and other costs associated and may be a distraction to management. We plan to rely on a combination of copyright, trade secret, trademark laws and non-disclosure and other contractual provisions to protect our proprietary rights. Because the policing of intellectual and intangible rights may be difficult and the ideas and other aspects underlying our business model may not in all cases be protectable under intellectual property laws, there can be no assurance that we can prevent competitors from marketing the same or similar products and services.
DIFFICULTIES IN ESTABLISHING A NEW PRODUCT
We are an early stage company, bringing to market an advanced and unproven technology. We may not be able to raise sufficient financing to effect our business plan and deliver products and services that are accepted by customers. If we cannot find adequate capital on reasonable terms, investors will face a significant risk of losing their investments in their entirety.
WE WILL INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS.
We will incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Risks Relating To Our Industry
There is substantial competition in the solar and thermal power industry. Existing and new competitors may continue to improve their products and to introduce new products with competitive price and performance characteristics. Our competitors have the advantage of established relationships within the industry and they may be more highly capitalized. In addition, we cannot assure that additional competitors will not enter our existing markets, or that we will be able to compete successfully against existing or new competition.
The Company may not be able to protect unauthorized use of intellectual property licensed to us and take appropriate steps to enforce its rights. Although management does not believe that its services infringes on the intellectual rights of others, there is no assurance that the Company may not be the target of infringement or other claims. Such claims, even if not true, could result in significant legal and other costs associated and may be a distraction to management. We plan to rely on a combination of copyright, trade secret, trademark laws and non-disclosure and other contractual provisions to protect our proprietary rights. Because the policing of intellectual and intangible rights may be difficult and the ideas and other aspects underlying our business model may not in all cases be protectable under intellectual property laws, there can be no assurance that we can prevent competitors from marketing the same or similar products and services.
Risks Related To Our Securities
OUR COMMON STOCK IS QUOTED ON THE OTC BULLETIN BOARD WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.
Our Common Stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
THERE IS LIMITED LIQUIDITY ON THE OTCBB.
When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of
our Common Stock, there may be a lower likelihood of one’s orders for shares of our Common Stock being executed, and current prices may differ significantly from the price one was quoted at the time of one’s order entry.
IN ORDER TO RAISE SUFFICIENT FUNDS TO EXPAND OUR OPERATIONS, WE MAY HAVE TO ISSUE ADDITIONAL SECURITIES AT PRICES WHICH MAY RESULT IN SUBSTANTIAL DILUTION TO OUR SHAREHOLDERS.
If we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of our common shares outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our common stock. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition.
OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.
Our articles of incorporation and applicable Florida law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s written promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we will be unable to recoup.
We have been advised that, in the opinion of the Securities and Exchange Commission (“SEC”), indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933, as amended (the “Securities Act”), and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
CURRENTLY, THERE IS A LIMITED PUBLIC MARKET FOR OUR SECURITIES, AND THERE CAN BE NO ASSURANCES THAT ANY SIGNIFICANT PUBLIC MARKET WILL EVER DEVELOP OR THAT OUR COMMON STOCK WILL NOT BE SUBJECT TO SIGNIFICANT PRICE FLUCTUATIONS.
We have a trading symbol for our common stock, AEGY, which permits our shares to be quoted on the OTCBB. However, our stock has been thinly traded since approval of our quotation on the over-the-counter bulletin board by FINRA in September, 2008. Consequently, there can be no assurances as to whether:
· any significant market for our shares will develop;
· the prices at which our common stock will trade; or
· the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these risk factors, investor perception of us and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
WE ARE NOT LIKELY TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate.
WE MAY NOT BE ABLE TO EFFECTIVELY CONTROL AND MANAGE OUR GROWTH.
If our business and markets grow and develop as we expect, it may be necessary for us to finance and manage expansion in an orderly fashion. In addition, we may face challenges in managing expanding product offerings. Such eventualities will increase demands on our existing management and facilities. Failure to manage this growth and expansion could interrupt or adversely affect our operations and cause production backlogs, longer product development time frames and administrative inefficiencies.
WE ARE SUBJECT TO THE PENNY STOCK RULES WHICH WILL MAKE OUR SECURITIES MORE DIFFICULT TO SELL.
We may be subject in the future to the SEC’s “penny stock” rules if our securities sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction; the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for our securities. As long as our securities are subject to the penny stock rules, the holders of such securities may find it more difficult to sell their securities.
OUR CONTROLLING SHAREHOLDER MAY TAKE ACTIONS THAT CONFLICT WITH YOUR INTERESTS.
Élan Energy & Water, Inc. holds all of the issued shares of Series A Convertible Preferred Stock, which carries voting power equal to 51 percent of the total voting power of all classes of voting stock. In this case, all of our officers and directors may be elected by Élan Energy & Water, Inc. which will be able to exercise control over all matters requiring shareholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and they will have significant control over our management and policies. The directors elected by this shareholder will be able to significantly influence decisions affecting our capital structure. This control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in their best interest. For example, our controlling shareholder will be able to control the sale or other disposition of our operating businesses and subsidiaries to another entity.
ITEM 1B.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2.
PROPERTIES
We use a corporate office located at 1365 N. Courtenay Parkway, Suite A, Merritt Island, FL 32953 and our telephone number there is (321) 452-9091. This office space and telephone services are currently being provided free of charge by an affiliate of a major shareholder. There are currently no proposed programs for the renovation, improvement or development of the facilities currently used.
We do not currently have policies regarding the acquisition or sale of real estate assets primarily for possible capital gain or primarily for income. We do not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
ITEM 3
ITEM 3 .
LEGAL PROCEEDINGS
As of the date of this Report, neither we nor any of our officers or directors is involved in any litigation either as plaintiffs or defendants. As of this date, there is not any threatened or pending litigation against us or any of our officers or directors.
ITEM 4.
ITEM 4.
REMOVED AND RESERVED
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock has traded in the over-the-counter market on the OTC Bulletin Board system (“OTCBB”) under the symbol “AEGY.OB” The following table sets forth the range of high and low closing prices of the Common Stock as reported by the OTCBB for each fiscal quarter since trading commenced.
On July 31, 2012, the closing price of the Company’s Common Stock as reported by the OTCBB was $0.0009 and there were approximately 113 shareholders of record. These prices have been adjusted to reflect the July 20, 2010 4:1 forward stock split and the November, 2010 1:50 reverse stock split.
Dividends
We have not paid any cash dividends on our common stock and do not anticipate paying any such cash dividend in the foreseeable future. Earnings, if any, will be retained to finance future growth. We may issue shares of our
common stock in private or public offerings to obtain financing, capital or to acquire other businesses that can improve our performance and growth. Issuance and/or sales of substantial amounts of common stock could adversely affect prevailing market prices in our common stock.
Common Stock
As of December 6, 2012 there were approximately 119 beneficial owners of our common stock with 209,619,640 shares issued and outstanding.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
Not required.
ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes certain forward-looking statements within the meaning of the safe harbor protections of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that include words such as “believe,” “expect,” “should,” “intend,” “may,” “anticipate,” “likely,” “contingent,” “could,” “may,” or other future-oriented statements, are forward-looking statements. Such forward-looking statements include, but are not limited to, statements regarding our business plans, strategies and objectives, and, in particular, statements referring to our expectations regarding our ability to continue as a going concern, generate increased market awareness of, and demand for, our current products, realize profitability and positive cash flow, and timely obtain required financing. These forward-looking statements involve risks and uncertainties that could cause actual results to differ from anticipated results. The forward-looking statements are based on our current expectations and what we believe are reasonable assumptions given our knowledge of the markets; however, our actual performance, results and achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Factors within and beyond our control that could cause or contribute to such differences include, among others, our critical capital raising efforts in an uncertain and volatile economical environment, our ability to maintain relationship with strategic companies, our cash preservation and cost containment efforts, our ability to retain key management personnel, our relative inexperience with advertising, our competition and the potential impact of technological advancements thereon, the impact of changing economic, political, and geo-political environments on our business, as well as those factors discussed elsewhere in this Form 10-K and in “Item 1 - Our Business”.
Readers are urged to carefully review and consider the various disclosures made by us in this report and those detailed from time to time in our reports and filings with the United States Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that are likely to affect our business.
Our Business
Alternative Energy Partners, Inc. (the “Company” or “AEGY”) was organized under the laws of the State of Florida on April 28, 2008. We formed our Company for the purpose of establishing renewable fuel sources initially within the State of Florida. Ethanol was our initial intended product and we intend to establish other alternative energy products and services including, but not limited to, solar-thermal energy production, energy management controls, and more. Our intended original products, while not technically difficult to produce, must meet all regulatory requirements prior to being marketed. Moreover, there are a multitude of competitive products already in the market place. Due to the competitive nature of the market and our continuing capital requirements, we expanded our initial plan to include solar and thermal projects, with the acquisition of Sunarias Corporation on May 18, 2010 and Shovon, LLC on July 9, 2010. During the current fiscal year, we continued our business development with the
acquisition of Clarrix Energy, LLC.
Current Business of the Company
We are a holding company engaged through our subsidiaries in the business of energy production and management. Our business model of vertical integration recognizes that customers have unique energy needs, and by offering an array of energy services we believe we can best provide customized, efficient energy solutions that will appeal to our markets. We believe our intended products and services could represent an important alternative for customers looking to lower their overhead costs or improve public image through efficient energy usage.
Initially, our largest target market will be the commercial energy market. In order to reach that market, we will market to industries with an interest in lowering their energy costs or increasing energy efficiency; these industries include healthcare and hospitality. In order to attract commercial markets, we must begin by establishing and proving that our energy systems are efficient and offer lower cost to use than traditional utilities or systems. For any alternative energy product, we intend to prove market viability prior to engaging in distribution.
1. ENERGY MANAGEMENT
Complementing AEGY’s focus on energy production is its second sector, energy management. Through controllers, our energy management systems will allow consumers to customize their energy use, as well as reduce their costs significantly. The AEGY family of companies will be involved in traditional and innovative concepts in energy management and will assist each customer with energy efficiency advances. This will support our customers in realizing many energy efficiency rebates and incentives available through local utilities. Our acquisition of Clarix Energy, LLC will enhance our abilities and operations in this segment.
2. SECURITY AND MONITORING
In order to optimize performance, AEGY, where applicable, will provide security for its energy systems. AEGY may acquire or otherwise contract with security companies to provide security and monitoring services where appropriate. The incorporation of security cameras on installations would protect the systems from damage and theft while providing a monitoring hub for the system’s performance. Providing security and monitoring services would also allow for the dispatch of HVAC technicians should a system’s performance decline for any reason.
3. GASIFICATION
We have identified two gasification technologies to date and continue to explore opportunities in this area. Gasification includes multiple technologies that convert solids to gas that can be either burned or consumed to generate energy. The gasification technologies AEGY is exploring create byproducts which are useful in the Sunarias energy production systems. Specifically, gasification converts trash to an energy that is consumed to produce electricity generation with a heat byproduct. That heat byproduct is then captured and consumed in absorption chilling, the process used by Sunarias.
4. FUEL CELL ENERGY PRODUCTION
Alternative Energy Partners’ fourth sector is fuel cell energy production. Currently, fuel cell energy production is considered a future technology that will be feasible within a five year window. The fuel cell energy market is currently experiencing high market demand that it is unable, through its two major manufacturers, to satisfy. This indicates a limit of manufacturing capacity that Alternative Energy Partners will exploit. Fuel Cells can be placed wherever electricity is consumed, within some limitations. This point of use feature reduces demand on the grid. A major consumer market for fuel cells is hospitals, larger schools and colleges, manufacturing facilities and even small communities.
Plan of Operation
We are in the business of providing commercial buildings with advanced solar thermal energy production, allowing
businesses to use alternative energy sources. Initially we market advanced solar thermal energy production, support, monitoring and related services to commercial businesses in the southern United States.
SHOVON, LLC
Whether one is an individual consumer or operating a large facility, using Shovon hardware will allow optimized, controlled energy consumption, resulting in reduced ongoing costs. Shovon products offer the ultimate convenience of being able to access facilities and view relevant events or statuses (down to the appliance level) online. This remote monitoring can be enabled from anywhere in the world by using a PC or cell phone.
Our Product
Shovon’s advanced control systems are appropriate for use with the Sunarias product. At present, Shovon’s design engineers are working on improvements to the Sunarias controller to allow better access through web based monitoring, maintenance by remote systems management, predictive maintenance items without site visit costs and, a key component of the Sunarias model, measurement of energy consumed for billing purposes.
Shovon has a very large potential market in energy management and automation. This is in addition to its use in the Sunarias’ product line and would be useful in commercial buildings for additional services like managing lighting, occupancy responses for air conditioning, security, process controls and event scheduling. In keeping with AEGY’s vertical integration model, Sunarias will use the modified Shovon controller to measure the actual performance and consumed offset energy. The monthly billing to the customers will include the energy used, the offset costs which the utility would have charged, and the comparison from the previous period and year.
CLARRIX ENERGY, LLC
Clarrix Energy, LLC provides consultative and brokerage services to business of all sizes. The objective of these services is to decrease utility costs in as many ways as possible for every client. The company currently has agreements with energy suppliers in 10 states, and is in pursuit of additional supply partners.
Clarrix Energy was founded in 2011 by a management team composed of a diverse group of highly skilled executives with broad base of skills medicine, finance, web development, and retail. The company’s initial source of revenue is from commissions generated by saving businesses from 1 to 25% on their utility bills. Management will be diligently searching for products and services for clients, including solar, surge protection, lighting and more.
The deregulation of energy by the federal government has created multiple opportunities in the energy sector. Multiple states allow businesses and consumers to select the supplier of their commodity (gas or electricity). This, of course, is intended to give business the opportunity to save on their utility costs.
The company will be focusing on a creative online strategy to attract and manage clients. Management is developing a sales force in all areas where their supply agreements allow. Management plans to implement technology and state-of-the-art web and social networking strategies to maximize lead generation and minimize advertising costs.
Employees
As of September 15, 2011, Hong-Shin Pan has been our Chairman, President and CEO and sole officer and director. He is not an employee of the company and is not paid as an employee. Our former sole officer and director, Gary Reed, resigned for personal reasons in September, 2011. He was also not an employee of the Company and was not paid as an employee.
Currently, we have no paid employees, full or part-time, and rely on paid consultants to provide necessary services.
Acquisitions
We are pursuing acquisitions of other alternative energy products in the areas of solar and biodiesel, fuel cell technology and renewable water technologies, and energy management, as well as in other related or unrelated fields.
Results of Operations for the Years Ended July 31, 2012 and 2011.
For the years ended July 31, 2012 and 2011, the Company had minimal revenues. Since inception, the Company has earned $2,224 in revenues and has incurred cumulative net losses of $7,125,318. For the years ended July 31, 2012 and 2011, the Company had net losses of $794,300 and $6,164,097, respectively. Our activities have been attributed primarily to start up and business development.
For the years ended July 31, 2012 and 2011, we incurred operating expenses of $496,084 and $6,043,175, respectively. The decreases relate primarily to consulting expenses, impairment loss, and administrative fees.
Liquidity and Capital Resources
As shown in the accompanying financial statements, for the years ended July 31, 2012 and 2011 and since April 28, 2008 (date of inception) through July 31, 2012, the Company has had net losses of $794,300, $6,164,097 and $7,125,318, respectively. As of July 31, 2012, the Company had not emerged from the development stage. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed its activities principally from issuances of convertible notes payable and the sale of public equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources.
As previously mentioned, since inception, we have financed our operations largely from the sale of common stock and issuance of convertible notes. From inception through July 31, 2012 we raised cash of $114,450 through private placements of common stock financings. During November 2008, our Form S-1 Registration Statement became effective and we raised $100,000 through common stock sales. The proceeds from the sale of this common stock have been used for general and administrative expenses. In addition, since inception of the Company, we have received $408,000 in proceeds from issuances of convertible notes.
We have incurred significant net losses and negative cash flows from operations since our inception. As of July 31, 2012, we had an accumulated deficit of $7,125,318 and a working capital deficit of $546,851.
We anticipate that cash used in product development and operations, especially in the marketing, production and sale of our products, will increase significantly in the future.
If we are unable to secure additional financing to cover our operating losses until breakeven operations can be achieved, there is no assurance that we will be able to continue as a going concern.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our financial statements.
The Company has incurred deferred offering costs in connection with raising additional capital through the sale of its common stock. These costs are capitalized and charged against additional paid-in capital when common stock is issued. If there is no issuance of common stock, the costs incurred are charged to operations.
Research and development costs are charged to operations when incurred and are included in operating expenses.
Contractual Obligations
The Company had consulting agreements with companies for various advisement services. Crystal Falls Investments, LLC has provided acquisition and related services under an agreement calling for payment of $10,000 per month for a 24 month period ended September 30, 2012. As of July 31, 2012, a total of $70,000 in accounts payable was accrued under this agreement, and the balance was converted to convertible promissory notes.
The Company entered into a consulting agreement with Lin-Han Equity Corp. to provide services and assistance in locating, identifying and assisting with due diligence in strategic acquisitions, as well as for the introduction of potential investor sources. The consulting agreement was executed on May 1, 2011 and called for a fixed monthly fee of $15,000 commencing May 1, 2011 through November 2011. A total of $60,000 has been charged as expenses related to this agreement in the year ended July 31, 2012, and a total of $45,000 in fees owed is included in accounts payable. Lin-Han Equity Corp. is also a minor shareholder of the Company..
The Company also has entered into a consulting agreement with CFOs to Go, Inc., a financial and legal consulting firm, to provide financial, accounting, legal, administrative, HR, supply chain management, corporate governance, SEC compliance and similar services to the Company for a monthly fee of $10,000. CFOs to Go also provides contract principal accounting officer and corporate counsel services to the Company under its agreement and also provides telephone, office address, access to software and servers owned by CFOs to Go, and related office support. We maintain our corporate offices at the Florida offices of CFOs to Go under this arrangement. CFOs to GO is a wholly-owned subsidiary of Lin-Han Century Corp., which is the parent of Élan Energy & Water, Inc.
Recent Accounting Pronouncements:
In September 2011, the FASB issued an amendment to Topic 350, Intangibles-Goodwill and Other, which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment under the two-step process as described under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company is currently evaluating whether early adoption is necessary.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCOLSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS
Alternative Energy Partners, Inc.
(A Development Stage Company)
Financial Statements
July 31, 2012 and 2011
CONTENTS
Page(s)
Report of Independent Registered Certified Public Accounting Firm
Consolidated Balance Sheets - As of July 31, 2012 and 2011
Consolidated Statements of Operations -
For the years ended July 31, 2012 and 2011
and the period from April 28, 2008 (inception)
through July 31, 2012
Consolidated Statements of Changes in Stockholders’ Equity
19-20
For the period from April 28, 2008
(inception) to July 31, 2012
Consolidated Statements of Cash Flows -
For the years ended July 31, 2012 and 2011
and for the period from April 28, 2008
(inception) to July 31, 2012
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders ofAlternative Energy Partners, Inc.
We have audited the accompanying consolidated balance sheets of Alternative Energy Partners, Inc. and subsidiaries (a development stage company) as of July 31, 2012 and 2011 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended and for the period from April 28, 2008, inception, to July 31, 2012. Alternative Energy Partners, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alternative Energy Partners, Inc. and subsidiaries as of July 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended and for the period from April 28, 2008, inception, to July 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the company is in the development stage, has had minimal operations to date, has an accumulated deficit, and negative working capital. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Moss, Krusick & Associates, LLC
Winter Park, Florida
December 6, 2012
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Stock issued for services ($4.5/share)
330,000
-
-
1,484,670
-
-
1,485,000
Stock issued for services ($4.5/share)
222,220
-
-
999,778
(1,000,000)
-
-
Common stock related to RLP Mechanical Contractors, Inc.
1,120,000
1,120
-
-
(1,120)
-
-
-
Proceeds from the issuance of common stock ($3.50/share)-SkyNet Energy Inc.
600,000
-
-
2,099,400
-
-
2,100,000
Stock issued for services ($1.17/share)
600,000
-
-
702,900
-
-
703,500
Stock issued for services ($0.63/share)
500,000
-
-
314,500
-
315,000
Issuance of notes payable with beneficial conversion feature
-
-
-
-
294,925
-
-
294,925
Common stock related to Xnergy, Inc.
2,000,000
2,000
-
-
(2,000)
-
-
-
Common stock from conversion of notes ($0.12/share)
867,020
-
-
103,152
-
-
104,019
Common stock from conversion of notes ($0.12/share)
446,429
-
-
9,554
-
-
10,001
Common stock from conversion of notes ($0.0172/share)
581,395
-
-
9,419
-
-
10,000
Consulting fees
-
-
-
-
-
1,000,000
-
1,000,000
Net loss for the year ended July 31, 2011
-
-
-
-
-
-
(6,164,097)
(6,164,097)
Balance - July 31, 2011
12,835,480
$ 12,836
-
$ -
$ 6,231,010
$ -
$ (6,331,018)
$ (87,172)
Common stock from conversion of notes ($0.01048-$0.013/share)
123,727,089
123,727
-
-
94,371
-
-
218,098
Issuance of stock for Clarrix acquisition
40,000,000
40,000
5,000,000
5,000
256,254
-
301,254
Issuance of notes payable with beneficial conversion feature
-
-
-
-
141,245
-
-
141,245
Common stock issued to HOTI to maintain proper ownership
189,720
-
-
(189)
-
-
-
Net loss for the year ended July 31, 2012
-
-
-
-
(794,300)
(794,300)
Balance - July 31, 2012
176,752,289
$176,752
5,000,000
$ 5,000
$ 6,722,691
$ -
$ (7,125,318)
$(220,875)
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Note 1 Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Alternative Energy Partners, Inc. (the “Company”) was incorporated in the State of Florida on April 28, 2008.
The Company is involved in the alternative energy sector. In addition to its existing subsidiaries, the Company is searching to acquire emerging growth companies to meet growing demands worldwide in the alternative energy sector.
Principles of Consolidation
The accompanying consolidated financial statements include Alternative Energy Partners, Inc. and its wholly-owned subsidiaries, Sunarias Corporation, Shovan, LLC, and Clarrix, Energy, LLC which was acquired in May 2012. All intercompany balances and transactions have been eliminated in consolidation.
Development Stage
The Company's financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include equity based financing and further implementation of the business plan. The Company has not generated any revenues since inception.
Risks and Uncertainties
The Company operates in an industry that is subject to rapid technological change. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks associated with a development stage company, including the potential risk of business failure.
Use of Estimates
The preparation of financial statements in conformity with U.S. 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 during the reporting period. A significant estimate in 2012 and 2011 included a 100% valuation allowance for deferred tax assets arising from net operating losses incurred since inception.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ materially from estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. At July 31, 2012 and 2011, respectively, the Company had no cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At July 31, 2012 and 2011, respectively, there were no balances that exceeded the federally insured limit.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Earnings per Share
In accordance with accounting guidance now codified as Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)Topic 260, “Earnings per Share,” Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive. The computation of basic and diluted loss per share for the period from April 28, 2008 (inception) to July 31, 2012, is equivalent since the Company has had continuing losses. The Company also has no common stock equivalents.
Stock-Based Compensation
Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights, are measured at their fair value on the awards’ grant date, and based on the estimated number of awards that are ultimately expected to vest. The expense resulting from share-based payments is recorded as a component of consulting and general and administrative expense.
Non-Employee Stock Based Compensation
Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the estimated remaining life in measuring whether the assets are recoverable. If it is determined that an impairment loss has occurred based on expected cash flows, such loss is recognized in the statement of operations.
Income Taxes
The Company accounts for income taxes under the FASB ASC No. 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets may not be realized.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Income Taxes (continued)
The Company records and reviews quarterly its uncertain tax positions. The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company measures a tax position that meets the more-likely-than-not recognition threshold as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. In its measurement of a tax position that meets the more-likely-than-not recognition threshold, the Company considers the amounts and probabilities of the outcomes that could be realized upon settlement using the facts and circumstances and information available at the reporting date.
Intangible Asset
As part of the acquisition of Sunarias Corporation on May 18, 2010, the Company acquired a solar generation technology asset which was identified as a definite-lived intangible asset. The Company recorded this technology asset as an allocation of purchase price based on the fair value. The intangible asset is amortized on a straight-line basis over an estimated 10 year life. The Company evaluates for impairment when events and circumstances warrant in accordance with ASC Topic 350-30, Intangibles: Goodwill and Other, and an impairment loss will be recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset will be its new accounting basis. The Company performed its impairment test as of 7/31/12 and determined that the remaining amortized cost as of 7/31/12 was impaired and should be written off. The balance of the intangible asset, net of accumulated amortization of $12,500, was $85,000 at July 31, 2011. Amortization expense was $10,000 for each of the years ended July 31, 2012 and 2011, respectively.
Goodwill
Goodwill represents the excess of the cost of an acquired business over the net amounts assigned to assets acquired and liabilities assumed. The Company recorded goodwill in conjunction with its acquisitions of Shovon, LLC in July 2010, Skynet Energy Systems in October 2010, and Clarrix Energy, LLC in May 2012. As required, the Company will perform its goodwill impairment test at least annually or more frequently if there is an indication of impairment. The Company expects to perform its first goodwill impairment test in July 2013 for the Clarrix Energy, LLC acquisition.
In September 2011, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance amending the method an entity uses to test its goodwill for impairment, Accounting Standards Update (“ASU”) 2011-08, Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for Impairment . In accordance with ASU 2011-08, the Company will first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative factors include macroeconomic conditions, industry and market considerations, overall financial performance, cost factors, and entity-specific events such as changes in strategy, management, key personnel, or customers. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it performs the two-step impairment test. Under ASU 2011-08, the Company has an option to bypass the qualitative assessment described above for any reporting unit in any period and proceed directly to performing the first step of the goodwill impairment test.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Goodwill (continued)
In the first step, the fair value of each reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the carrying value of that unit, goodwill is not impaired and no further testing is required. If the carrying value of the reporting unit exceeds the fair value of that unit, then a second step must be performed to determine the implied fair value of the reporting entity’s goodwill. The second step of the goodwill impairment analysis requires the allocation of the fair value of the reporting unit to all of the assets and liabilities of that reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded as a separate line item within income from operations. Significant estimates and judgments are involved in this assessment and include the use of valuation methods for determining the fair value of goodwill assigned to each of the reporting units and the applicable assumptions included in those valuation methods such as financial projections, discount rates, tax rates and other related assumptions.
Fair Value of Financial Instruments
All financial instruments, including derivatives, are to be recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired.
The carrying amounts of the Company’s other short-term financial instruments, including accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these instruments. The Company does not utilize financial derivatives or other contracts to manage commodity price risks. Fair value is 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 (exit price).
The fair value of the Company's financial assets and liabilities reflects the Company's estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company's assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies.
Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Derivatives
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Binomial pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the consolidated statement of operation. Inputs into the Binomial pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk-free interest rate and the estimated life of the financial instruments being fair valued.
If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Recently Issued Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. There were no recently issued accounting pronouncements during the quarter impacting the company’s business.
In September 2011, the FASB issued an amendment to Topic 350, Intangibles-Goodwill and Other, which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment under the two-step process as described under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company is currently evaluating whether early adoption is necessary.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 2 Going Concern
As reflected in the accompanying financial statements, the Company has not yet emerged from the development stage, has a net loss of $794,300 and net cash used in operations of $100,917 for the year ended July 31, 2012; and negative working capital of $546,851 and an accumulated deficit of $7,125,318 at July 31, 2012.
These factors, among others, raise doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
In response to these problems, management has taken the following actions:
·
the Company is seeking third party debt and/or equity financing;
·
the Company is cutting operating costs, and
·
as described in Notes 6 and 7, the Company has been involved in numerous acquisitions with the intent of beginning operations and achieving a level of profitability
Note 3 Income Taxes
The Company recognized deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards. The Company will establish a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has a net operating loss carryforward for tax purposes totaling approximately $7,125,318 at July 31, 2012, expiring through 2028. There is a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally greater than a 50% change in ownership). Temporary differences, which give rise to a net deferred tax asset, are as follows:
Significant deferred tax assets at July 31, 2012 and 2011 are as follows:
The valuation allowance at July 31, 2011 was approximately $2,382,362. The net change in valuation allowance during the year ended July 31, 2012 was an increase of approximately $298,895. In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of July 31, 2012.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 3 Income Taxes (continued)
The actual tax benefit differs from the expected tax benefit for the periods ended July 31, 2012 and 2011 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes and 5.5% for State income taxes, a blended rate of 37.63%) as follows:
Note 4 Loans Payable to Affiliates
During the quarter ended April 30, 2010, the Company recorded two separate loans payable to an affiliate, McDowell, LLC, totaling $12,500, and both remained payable as of July 31, 2012 and 2011. The managing member of McDowell, LLC is Jack Stapleton, who was also sole officer and director of the Company at the time the two promissory notes were executed. The loans are represented by two promissory notes signed by Mr. Stapleton, bear interest at 8% per annum with principal and interest and are due on demand by the holder of the notes. As of July 31, 2012 and 2011, accrued interest payable was $2,425 and $1,425, respectively. On December 3, 2010, Mr. Stapleton, as Managing Member of McDowell, LLC, issued a written demand for payment of the notes and subsequently filed suit to collect on the two notes. A judgment has been entered in favor of McDowell, LLC.
Note 5 Lease Agreement
The Company currently occupies office space in Merritt Island, Florida sub-leased from a consultant which also provides financial, accounting, compliance and other support services to the Company on a three year consulting agreement. The rent payable under the consulting agreement is not separately stated and is included in the monthly consulting fee payable for the services agreed. The services include use of office equipment, software, servers, and office personnel of the consultant, as well as use of the consultant’s offices as the mailing address for the Company.
Note 6 Acquisitions
On May 18, 2010, the Company acquired from Healthcare of Today, Inc., all of the outstanding stock of Sunarias Corporation, a development stage entity, in exchange for 5,000,000 common shares (20,000,000 shares reflective of the 4:1 stock split on July 19, 2010). The transaction was valued at $97,500 which approximates both the carrying value at the time of acquisition, and the fair value of the technology asset acquired. No other assets or liabilities were acquired, resulting in the entire purchase price being allocated to the technology asset. The Company determined that the asset was impaired at July 31, 2012 and recorded an impairment charge of $75,000.
On July 9, 2010, the Company also acquired from Healthcare of Today, Inc., all the outstanding stock of Shovan, LLC (“Shovon”), a development stage entity, in exchange for 18,750,000 common shares (75,000,000 shares reflective of the 4:1 stock split on July 19, 2010). As Shovon had no assets or liabilities, the transaction was valued at par value of the Company’s shares, or $1,875. Consequently, this purchase price was allocated to goodwill.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 6 Acquisitions (continued)
On October 27, 2010, the Company also acquired from Healthcare of Today, Inc., all the outstanding stock of Skynet Energy Systems (“Skynet”), a development stage entity, in exchange for 600,000 common shares (30,000,000 common shares pre-split). The transaction was valued at $2,100,000 which was the fair value of the shares at the time of acquisition. No other assets or liabilities were acquired, resulting in the entire purchase price being allocated to goodwill. The Company determined that the goodwill was impaired at July 31, 2011 and recorded an impairment charge of $2,099,000.
On May 30, 2012, the Company also acquired from Elan Energy & Water, Inc., all the net assets of Clarrix Energy, LLC (“Clarrix”), a development stage entity, in exchange for 40,000,000 shares of common stock and 5,000,000 shares of Series A Convertible Preferred Stock. The transaction was valued at $301,254 which was the fair value of the shares at the time of acquisition. As the net assets received were minimal, the majority of the purchase price was allocated to goodwill. This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company conducted initial assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions were expensed as incurred. The initial accounting for the business combinations is not complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition date.
Note 7 Stockholders’ Equity
On January 15, 2012, the Company amended its articles of incorporation to increase authorized common stock to 250,000,000 shares and authorize 5,000,000 in preferred shares.
In September 2011, the Company converted $27,000 of notes into 2,187,031 shares of common stock (See Note 8).
In October 2011, the Company converted $14,000 of notes into 3,742,528shares of common stock (See Note 8).
In November 2011, the Company converted $65,820 of notes into 8,735,380 shares of common stock (See Note 8).
In December 2011, the Company converted $11,800 of notes into 6,393,056 shares of common stock (See Note 8).
In January 2012, the Company converted $41,250 of notes into 24,991,751 shares of common stock (See Note 8).
In February 2012, the Company converted $18,290 of notes into 20,778,680 shares of common stock (See Note 8).
In March 2012, the Company converted $6,050 of notes into 7,961,573 shares of common stock (See Note 8).
In April 2012, the Company converted $12,332 of notes into 18,400,994 shares of common stock (See Note 8).
In May 2012, the Company converted $10,678 of notes into 22,134,900 shares of common stock (See Note 8).
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 7 Stockholders’ Equity (continued)
In May 2012, the Company issued 40,000,000 common shares and 5,000,000 preferred shares to acquire Clarrix, Inc. (See Note 6). The preferred stock is a voting, convertible preferred stock (i) having at all times the right to cast votes in all matters in which the holders of common stock of the Company are entitled to vote, equal to 51% of the total vote of all classes of stock from time to time outstanding; (ii) convertible into common stock of the Company equal to 51 percent of the resulting total common interests issued and outstanding on a fully diluted basis at the election of the holder or holders at any time after one year from the closing of the transactions; and (iii) having a liquidation preference equal to 51 percent of the assets available on a liquidation distribution over the Company’s Common Interests. Additionally, the former owners of Clarrix are entitled to receive a royalty payment payable monthly equal to ten percent of the gross income of Clarrix for a period of 30 calendar months commencing February 1, 2012. No royalties were earned during the year ended July 31, 2012.
In July 2012, the Company converted $4,000 of notes into 8,400,742 shares of common stock (See Note 8).
The Company additionally issued approximately 190,000 shares to HOTI to maintain proper ownership
As a result of these transactions, there were 176,752,289 common shares issued and outstanding and 5,000,000 preferred shares issued and outstanding at July 31, 2012.
Note 8 Notes Payable
The following details the significant terms and balances of convertible notes payable, net of debt discounts:
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 8 Notes Payable (continued)
July 31, 2012
July 31, 2011
On March 4, 2011, the Company issued its promissory note in the amount of $35,000 to an unrelated third party for additional working capital. The note was due December 7, 2011 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 58 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option became effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The carrying amount of the debt discount was $0 and $25,345, respectively. The note was fully converted at July 31, 2012.
-
9,655
On June 13, 2011, the Company issued a promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note was due March 15, 2012 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 58 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option became effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The carrying amount of the debt discount was $0 and $23,534, respectively. This note was fully converted at July 31, 2012.
-
8,966
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 8 Notes Payable (continued)
July 31, 2012 (unaudited)
July 31, 2011 (unaudited)
On February 7, 2012, the Company issued a promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note is due November 9, 2012 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 55 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As of July 31, 2012, no derivative liability or debt discount has been recorded as instrument is not yet convertible.
32,500
-
On March 8, 2012, the Company issued a promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note is due December 12, 2012 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 55 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As of July 31, 2012, no derivative liability or debt discount has been recorded as instrument is not yet convertible.
32,500
-
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 8 Notes Payable (continued)
July 31, 2012
July 31, 2011
On April 26, 2012, the Company issued a promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note is due January 30, 2013 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after six months, at the election of the Holder, at 55 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As of July 31, 2012, no derivative liability or debt discount has been recorded as instrument is not yet convertible.
32,500
-
Crystal Falls Investments:
On June 30, 2011, the Company issued a promissory note in the amount of $50,000 to an unrelated third party for additional working capital. The note is due December 31, 2012 and carries interest at 2 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at $0.013 per share. The carrying amount of the debt discount was $7,361 and $45,695, respectively.
42,639
4,305
On July 31, 2011, the Company issued six (6) promissory notes totaling $60,000 to an unrelated third party for additional working capital. The notes are due December 31, 2012 and carries interest at 2 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at $0.013 per share. The carrying amount of the debt discount was $3,280 and $59,782, respectively.
-
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 8 Notes Payable (continued)
Note 9 Derivative Liabilities
The Company has various convertible instruments outstanding more fully described in Note 8. Because the number of shares to be issued upon settlement cannot be determined under these instruments, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other of its share-settleable instruments. As a result, under ASC 815-15 “Derivatives and Hedging”, all other share-settleable instruments must be classified as liabilities.
Embedded Derivative Liabilities in Convertible Notes
During the year ended July 31, 2012, the Company recognized new derivative liabilities of $105,977 as a result of convertible debt issuances having embedded conversion options. The fair value of these derivative liabilities exceeded the principal balance of the related notes payable by $43,969, and was recorded as a loss on derivatives for the year ended July 31, 2012.
As a result of conversion of notes payable described in Note 8, the Company reclassified $164,399 of derivative liabilities to equity and the change in fair value of derivatives was $58,422.
As all of the convertible debt with embedded conversion options had been fully converted as of July 31, 2012, the fair value of the Company’s derivative liabilities was $0 and $58,422 was recognized as a gain on derivatives due to change in fair value of the liability during the year ended July 31, 2012.
The following table summarizes the derivative liabilities included in the consolidated balance sheet:
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 9 Derivative Liabilities (continued)
The following table summarizes the derivative gain or loss recorded as a result of the derivative liabilities above:
The fair values of derivative instruments were estimated using the Binomial pricing model based on the following weighted-average assumptions:
Note 10. Subsequent Events
During August to October 2012, a total of $8,200 of notes payable have been converted into 32,867,351 shares of common stock detailed below.
Holder
Note Date
Principal
Shares
Asher Enterprises, Inc.
August 16, 2012
$ 2,600
8,125,000
Asher Enterprises, Inc.
September 19,2012
2,200
8,148,148
Asher Enterprises, Inc.
October 1, 2012
1,900
8,260,870
Asher Enterprises, Inc.
October 11,2012
1,500
8,333,333
$ 8,200
32,867,351
As a result of these transactions, there were 209,619,640 common shares outstanding at December 6, 2012.
On October 22, 2012, the Company entered into an Acquisition Agreement with Élan Energy & Water, Inc., Inc., its majority shareholder, to acquire Safford Acquisition I, Corp., an Arizona corporation (“SAC”), in exchange for 100,000,000 shares of post-reverse split common stock. The Board of Directors of AEGY also approved a 1:100 reverse split of the common stock, by undertaking a reduction in capital under Florida law, pursuant to which the number of shares of common stock issued and outstanding will be reduced by a factor of 100 simultaneously with the reduction in the authorized shares of common stock from 250,000,000 to 2,500,000 shares. Under Florida law, a capital reduction does not require vote of or approval by the shareholders. The capital reduction will be effective as soon as the regulatory requirements have been met, including review of a Notification of Corporate Action by FINRA. The effective date is the later of 21 days from October 22, 2012 or the date approved by FINRA, which will announce the effective date.
Alternative Energy Partners, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
July 31, 2012 and 2011
Note 10. Subsequent Events (continued)
SAC is a newly formed acquisition company which will acquire the mineral interests in 160 acres of land located near Safford, Arizona. The in-ground mineral on the site has been valued independently at approximately $650,000,000, based on assays for precious metals on the property. In addition to the stock in AEGY, valued at $5,000,000 using the closing market price of Registrant’s common stock on October 22, 2012 of $0.0005 per share, AEGY also has agreed to provide the funding necessary to complete the extraction, transportation, refining and marketing of the precious metals on the site; to engage the previous owner of the site, from which Élan has agreed to acquire the mineral leases, to manage the operations and development of the site for one-third of the net profits from the minerals extracted and sold; and to pay Élan a running royalty of ten percent of the net profit from the minerals extracted and sold, after taking into account the amounts due on the operating consulting agreement.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A,
CONTROLS AND PROCEDURES
The Company’s Chief Executive Officer and consulting principal accounting officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal year ending July 31, 2012 covered by this Annual Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer and consulting principal accounting officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management, under the supervision of the Company’s Chief Executive Officer and consulting principal accounting officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of July 31, 2012 under the criteria set forth in the Internal Control-Integrated Framework.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that material weaknesses exist due to the lack of an independent Audit Committee Chair, as well as a lack of segregation of duties, inadequate staffing with our accounting department, lack of consistent accounting policies and procedures, inadequate monitoring of controls, and lack of staff with SEC reporting experience all resulting from the Company’s limited resources.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the year ended July 31, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B
ITEM 9B
OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below is certain information concerning the directors and executive officers of the Company as of July 31, 2012:
Biographies
Hong-Shin Pan
Gary Reed served as Chief Executive Officer and Chairman of the Board at July 31, 2011 and until September, 2011, when he resigned for personal reasons. Mr. Reed is a seasoned executive, with management experience at a number of chemicals and products companies including Essex Specialty Products, a subsidiary of DOW Chemical. In these positions he has worked closely with an extensive client list including US and Foreign governments. Most recently, Reed served as a Director for a collegiate program in California, directing a $180M construction budget and overseeing innovative energy projects. Reed is LEED AP certified.
Hong-Shin Pan was appointed as Mr. Reed’s successor effective September 15, 2011.
AUDIT COMMITTEE
The Company has not, as of the date of this Report, assembled an Audit Committee because of its current status. The Company at an appropriate time will institute an Audit Committee.
CODE OF ETHICS
We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrong doing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethic.
ITEM 11.
ITEM 11.
EXECUTIVE C OM PENSATION
The following table sets forth information concerning the aggregate compensation paid or to be paid by the Company to its executive officers.
SUMMARY COMPENSATION TABLE
Name and Principal Position
Year
Salary ($)
Bonus ($)
Stock Awards ($)
Option Awards ($)
Non-equity Incentive Plan Compensation ($)
Nonqualified Deferred Compensation ($)
All Other Compensation ($)
Total ($)
Hong-Shin Pan, Chairman of the Board
OUTSTANDING EQUITY AWARDS AT JULY 31, 2012
None
DIRECTOR COMPENSATION
Directors receive no compensation for serving on the Board.
The following table summarizes compensation paid to all of our non-employee directors:
Name
Fees
Earned
or Paid
in
Cash
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
Total
($)
not applicable
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of July 31, 2012, with respect to the beneficial ownership of our common stock by each beneficial owner of more than 5% of the outstanding shares of common stock of the Company, each director, each executive officer named in the “Summary Compensation Table” and all executive officers and directors of the Company as a group, and sets forth the number of shares of common stock owned by each such person and group. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares.
Name of Beneficial Owner
Number of
Shares
Beneficially
Owned
Percentage
of
Outstanding
Common
Stock
Owned
Gary Reed, former CEO
33,335
--
%
Hong-Shin Pan
-
-
All Directors and executive officers as a group (1 person)
-
-
%
-
Elan Energy & Water, Inc.(1)
-
-
%
(1)
Elan Energy & Water, Inc. also holds 5 million shares of preferred stock having voting power equal to 51 percent of the total voting power of all classes of stock entitled to vote and therefore may be considered to be in control of the Company. It holds no common shares.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
During the years ended, July 31, 2012 and 2011, we were billed by our then independent registered public accounting firm, Moss, Krusick and Associates, LLC approximately $24,500 and $32,580 for audit and review fees associated with our 10-K and 10-Q filings.
Tax Fees
During the years ended, July 31, 2012 and 2011, our independent registered public accounting firm, Moss, Krusick and Associates, LLC, did not perform any tax services for the Company.
All Other Fees
During the years ended, July 31, 2012 and 2011, our independent registered public accounting firm, Moss, Krusick and Associates, LLC, did not perform any other work.
Board of Directors Pre-Approval Process, Policies and Procedures
Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Board of Directors. Our principal auditors have informed our Board of Directors of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Board of Directors prior to commencing such services.
During the years ended, July 31, 2012 and 2011, we were billed by our then independent registered public accounting firm, Moss, Krusick and Associates, LLC approximately $24,500 and $32,580 for audit and review fees associated with our 10-K and 10-Q filings.
Tax Fees
During the years ended, July 31, 2012 and 2011, our independent registered public accounting firm, Moss, Krusick and Associates, LLC, did not perform any tax services for the Company.
All Other Fees
During the years ended, July 31, 2012 and 2011, our independent registered public accounting firm, Moss, Krusick and Associates, LLC, did not perform any other work.
Board of Directors Pre-Approval Process, Policies and Procedures
Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Board of Directors. Our principal auditors have informed our Board of Directors of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Board of Directors prior to commencing such services.
(1)
Incorporated by reference to the exhibits filed with the registrant’s registration statement on Form S-1, file no. 333-154894, filed on October 31, 2008.
(2)
Incorporated by reference to the exhibits filed with
*
Previously filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.