During the nine months ended April 30, 2013, Asher Enterprises Inc. converted a total of $21,400 of principal into 81,871,980 shares of common stock. Although the first Asher Enterprises note matured May 9, 2013 and is now in default, Asher continues to convert the principal and accrued interest
During the nine months ended April 30, 2013, related and other parties converted a total of $13,167 of principal into 26,333,333 shares of common stock.
In May 2013, Novation sold its controlling interest in the Company and is no longer an affiliate or related party. Novation also transferred the note to an unrelated party as consideration for an acquisition, and no longer has any interest in the note.
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.
During the quarter ended April 30, 2013, the Company recognized new derivative liabilities of $90,143 as a result of convertible debt instruments having embedded conversion options.
As a result of conversion of notes payable described in Note 8, the Company recognized a loss of $18,800 on the settlement of derivatives liabilities and a gain on the change in fair value of $79,818.
On October 22, 2012, the Company entered into an Acquisition Agreement with its former 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. Although the transaction nominally closed in December 2012 and was announced at that time, the Company subsequently learned that Safford Acquisition 1 Corp. was not successfully formed, and in any event the share consideration for the acquisition has not yet been issued, pending the completion of the reverse split and the increase in the number of authorized common shares. The Board of Directors and majority shareholder approved a 1:100 reverse split of the common stock of the Company and an amendment to its Articles of Incorporation to increase the number of authorized shares of common stock to 600 million.
Due to confusion over the status of the transaction, the recently discovered fact that Safford Acquisition 1 Corp. had not been correctly formed, and the fact that the acquisition shares have not yet been issued, and the reverse split of the common stock has been delayed indefinitely by the Financial Industry Regulatory Association (FINRA) until a chill on the electronic trading of the shares imposed by the Depository Trust Company (DTC) has been lifted, the Board of Directors has concluded that the acquisition should not be completed.
The Company also entered into an agreement to acquire ownership of the operating assets of StarPoint USA, Inc. (
“
StarPoint
”
), a U.S. based vehicle distribution company that has a proven track record and that is not exclusive to any specific vehicle brand, which allows it to distribute a number of different automobile and truck brands and models in the U.S. market. That acquisition did not close and, due to the change in the business model and direction of the Company announced in May, 2013, the Board determined not to pursue the acquisition.
During the three months ended April 30, 2013, the Company converted $34,567 in notes into 108,205,313 shares of common stock.
In April 2013, Élan Energy and Water retired 40,000,000 common shares and will be reissued these shares when the next amendment is completed.
Item 2. Management
’
s Discussion and Analysis of Financial Condition and Results of Operation
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-Q and in
“
Item 1 - Our Business,
”
“
Item 7 - Management
’
s Discussion and Analysis,
”
and elsewhere in our most recent Form 10-K, filed with the United States Securities and Exchange Commission.
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 year ended July 31, 2012 and to date, we continued our business development activities with the acquisition of Clarrix Energy, LLC. Due to limited working capital, we have been unable to implement the planned activities or Shovon and Sunarias, and have decided to close those operations in order to concentrate our efforts and limited funds on Clarrix and the new acquisitions we have planned.
Current Business of the Company
We are a holding company engaged through our subsidiary, Clarrix Energy, LLC, 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.
In May, 2013, the Company agreed to acquire the PharmaJanes
TM
marketing operation from iEquity Corp. and will be changing its business model to focus purely in the medical marijuana marketing space. AEGY will be changing its name to PharmaJanes, Inc and will no longer move forward with the previously announced 1:100 reverse split.
PharmaJanes
™
is currently developing a web and phone application that allows individuals to place orders for medical marijuana through a website and smart phone application anywhere such a transaction is legal in the United
14
States. The purpose of PharmaJanes
™
is to give patients a simple ordering platform, while allowing local collectives to service the orders in compliance with state and local laws and ordinances. PharmaJanes
TM
will act solely as an expediter and processor of the orders, and the fulfillment function will be done entirely within the particular state of residence of the purchaser, by licensed collectives or other licensed medical marijuana providers in that state
PharmaJanes
™
currently has over $5M in annual marketing contracts in place for this service and will be the exclusive point-of sale for the collectives under contract. The Company also has signed an agreement with SK3 Group, Inc. to become the exclusive on-line and smart phone ordering platform for Collectives managed through the SK3 Group system. Members of the Collectives managed by SK3 Group will soon be able to order their medical cannabis needs through PharmaJanes
TM.
The Company has signed a definitive agreement in May 2013 to acquire the Simple Prepay
TM
merchant payment solution from iEquity Corp. The Simple Prepay
TM
system was developed to offer dispensaries, collectives, and delivery services of medical cannabis a convenient payment solution. Medical marijuana patients will be able to upload funds onto their Simple Prepay
TM
account
via a smart phone application or via a website, allowing them to purchase their medical cannabis needs with privacy and simplicity.
Combined with the PharmaJanes
™
on-line and smart phone ordering platform, medical marijuana patients will be able to order, process and pay for their authorized needs, in a simple, safe and secure ordering and payment interface. Local licensed collectives or other licensed medical marijuana providers in the home state of the end user, will then fulfill the orders provided through this new system, in full compliance with state and local laws and ordinances. The Company itself will act solely as a background ordering and payment service, and will not be cultivating, shipping, delivering, or otherwise handling the medical mariju8ana, all of which will be handled directly by collectives or other providers licensed and authorized in the state in which the delivery is both authorized and completed
PharmaJanes
TM
will act solely as an expediter and processor of the authorized orders, and Simple Prepay
TM
will provide the secure payment platform, while the actual fulfillment function will be done entirely within the particular
CLARRIX ENERGY, LLC
The company focuses on a creative online strategy to attract and manage clients. Management is developing a sales force in all areas their supply agreements allow. Management plans to technology and state-of-the-art web and social networking strategies to maximize lead generation and minimize advertising costs. The Company acquired Clarrix Energy, LLC from its sole member, Élan Energy & Water, Inc., for a total of forty million (40,000,000) common shares and 5,000,000 Series A Convertible Preferred Shares of the Company. The acquisition closed on May 30, 2012. The Series A Convertible Preferred Stock is a voting stock which votes on a par with the common shares except that the Series A Preferred always has a vote equal to 51 percent of the total votes eligible to vote on any matter, and is convertible at the election of the holder into 51% of the resulting common shares outstanding at the time of the election to convert. Élan Energy subsequently conveyed the preferred stock to its shareholders and liquidated.
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 several 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.
15
Employees
Mario Barrera currently is our Chairman, President and CEO and sole officer. He is not an employee of the company and is not paid as an employee. Our former sole officer and director, Michael Gelmon, resigned in May, 2013 when Novation Holdings, Inc. conveyed its control position to unrelated third parties. 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
During the quarter ended January 31, 2013, the Company announced the acquisition of Safford Acquisition 1 Corp. , which was to be formed solely for the purpose of acquiring certain mineral rights to 160 acres of land in Safford, Arizona under an acquisition agreement dated October 22, 2012 with Élan Energy & Water, Inc., a former control shareholder of the Company. Under the terms of the acquisition agreement, Élan Energy was to form Safford Acquisition, acquire the mineral rights in question in Safford Acquisition 1, and then transfer the ownership of Safford Acquisition 1 to the Company, in exchange for shares of common stock of the Company, to be issued following a reverse split of the common stock and an amendment to the articles of incorporation to increase the number of authorized shares of common stock.
On March 7, 2013, the Board of Directors of the Company and its control shareholder approved the 1:100 reverse split of the common stock and the amendment to increase the shares authorized to 500 million shares. That action was expected to become effective 20 days after the mailing of an Information Statement to all shareholders of record
on March 7, 2013, which mailing was anticipated to occur on or about March 19, 2013. Due to confusion over the status of the transaction, the recently discovered fact that Safford Acquisition 1 Corp. had not been correctly formed, and the fact that the acquisition shares have not yet been issued, the Company and the reverse split of the common stock has been delayed indefinitely by the Financial Industry Regulatory Association (FINRA) until a chill on the electronic trading of the shares imposed by the Depository Trust Company (DTC) has been lifted, the Board of Directors has concluded that the acquisition should not be completed.
The Company also entered into an agreement to acquire ownership of the operating assets of StarPoint USA, Inc. (
“
StarPoint
”
), a U.S. based vehicle distribution company that has a proven track record and that is not exclusive to any specific vehicle brand, which allows it to distribute a number of different automobile and truck brands and models in the U.S. market. That acquisition did not close and, due to the change in the business model and direction of the Company announced in May, 2013, the Board determined not to pursue the acquisition. Note 10
As noted above, we are changing our business plan and will be acting as a service provider for authorized users of medical marijuana products.
Results of Operations for the Three Months Ended April 30, 2013 and 2012.
For the three months ended April 30, 2013 and 2012, the Company had revenues of $1,112 and $0 respectfully. Since inception, the Company has earned $5,604 in revenues and has incurred cumulative net losses of $7,789,334. For the three months ended April 30, 2013 and 2012, we incurred operating expenses of $56,694 and $52,938, respectively, and we had net losses of $50,705 and $84,343, respectively. Our activities have been attributed primarily to start up and business development.
Results of Operations for the Nine Months Ended April 30, 2013 and 2012.
For the nine months ended April 30, 2013 and 2012, the Company had revenues of $3,380 and $0 respectfully. Since inception, the Company has earned $5,604 in revenues and has incurred cumulative net losses of $7,789,334. For the nine months ended April 30, 2013 and 2012, the Company had net losses of $664,016 and $386,034, respectively. Our activities have been attributed primarily to start up and business development.
16
For the nine months ended April 30, 2013 and 2012, we incurred operating expenses of $531,337 and $206,787, respectively. The increases relate primarily to consulting fees and an impairment loss due to the write-off of goodwill.
Liquidity and Capital Resources
As shown in the accompanying financial statements, for the nine months ended April 30, 2013 and 2012 and since April 28, 2008 (date of inception) through April 30, 2013, the Company has had net losses of $664,016, $386,034 and $7,789,334, respectively. As of April 30, 2013, 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 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.
We have incurred significant net losses and negative cash flows from operations since our inception. As of April 30, 2013, we had an accumulated deficit of $7,789,334 and a working capital deficit of $629,940.
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 has had consulting agreements with companies for various advisement services. Crystal Falls Investments, LLC 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. Prior to December 10, 2012, the Company had issued a total of six convertible promissory notes totaling $206,780 in principal amount, to Crystal Falls Investments, LLC, in return for conversion of accounts payable for services rendered by Crystal Falls under the consulting agreement, and for cash investments in the Company. By an Assignment and Modification Agreement dated December 10, 2012, Crystal Falls assigned all of the remaining notes to CF Consulting, LLC, an unrelated party, in the amount of $39,030 in principal, and to Indian River Financial Services, LLC, also an unrelated party, in the principal amount of $167,750, in payment of unrelated debts owed to them by Crystal Falls. As part of the assignment, the parties agreed to modify the conversion terms to a fixed conversion rate of $0.005 per share, the market price at the time of the re-statement of the notes. Accordingly, no debt discount has been calculated for these notes. In addition, the maturity date was extended to December 31, 2013.
17
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 for a period of one year. A total of $45,000 was charged as expenses related to this agreement for the six months ended October 31, 2011, and a total of $45,000 in fees owed was included in accounts payable. Lin-Han Equity Corp. is not a shareholder or affiliate of the Company. On December 1, 2011, a total of $30,000 in accrued payable amounts under this agreement was converted into a convertible promissory note due in two years. The consulting agreement was terminated by mutual agreement in December 2011. On November 1, 2012, the Company consolidated the existing $30,000 promissory note payable to Lin-Han Century Corp. with several other obligations, and reissued a new note for $11,754 including interest accrued on the old note of $1,381, with no beneficial conversion features. The new note is due December 31, 2014.
We also entered into a consulting agreement effective August 1, 2010 with CFOs to Go, Inc., a financial and legal consulting firm, to provide financial, accounting, legal, and 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 provided contract principal accounting officer and corporate counsel services to the Company under its agreement and also provided telephone, office address, access to software and servers owned by CFOs to Go, and related office support. We maintained our corporate offices at the Florida offices of CFOs to Go under this arrangement. As of December 10, 2012, a total of $164,547 had accrued as consulting fees under this agreement. By agreement dated December 31, 2012, Novation Holdings, Inc., the former controlling parent of the Company, acquired a portion of the administration, financial and legal consulting business formerly operated by CFOs to Go, Inc., so that Novation could thereafter manage and control its own administrative, financial and legal consulting business, and provide similar services to other companies. As part of that agreement, to which the Company was not a party, Novation acquired certain outstanding receivables of CFOs owed by certain of its clients, including the Company, which owed CFOs to Go a total of $164,547. The payable amount was then converted to a promissory note in the same principal amount dated December 31, 2012, payable at 5 percent interest at maturity on December 31, 2104 and convertible at $0.0005 per share, the market price at the time. The previous consulting agreement with CFOs to Go, Inc. also was cancelled effective December 31, 2012 and replaced by a consulting agreement with Novation Services, Inc., which remains in effect.
In May 2013, Novation Holdings, Inc. sold its controlling interest in the Company to iEquity Corp., an unrelated party, and we re-located out offices to Boca Raton, Florida. The consulting agreement with Novation Services, Inc. remains in effect.
Recent Accounting Pronouncements
In August 2012, the FASB issued ASU 2012-03, "Technical Amendments and Corrections to SEC Sections" ("ASU 2012-03"), which provides amendments to certain paragraphs pursuant to SEC Staff Accounting Bulletin No. 114, technical amendments to SEC Release No. 33-9250 and corrections related to FASB ASU 2010-22. ASU 2012-03 is effective for the Company for annual and interim periods ending October 31, 2012.
In January 2013, the FASB issued ASU 2013-01, "
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities" ("ASU 2013-01"), the amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement.
The Company has adopted the amendments for its fiscal year beginning after January 1, 2013, and interim periods within those annual periods. The Company does not believe the adoption of ASU 2013-01 will have a material impact on its consolidated financial statements.
