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CALA ENERGY CORP. - 10-Q - MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 9, 2014

The following discussion of the results of our operations and financial condition should be read in conjunction with our financial statements and the related notes, which appear elsewhere in this report. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see "Forward Looking Statements."

Overview

Prior to July 13, 2012, through our subsidiaries we were engaged in design, marketing and selling of advanced lighting solutions which are designed to use less energy and have a longer life than traditional incandescent, halogen, fluorescent light sources. We were not able to generate profits from this business and, for the several years prior to July 13, 2012, we financed our operations primarily through funds provided by our officers and directors.

On July 13, 2012, pursuant to agreements with one of our former directors, we transferred the stock in our subsidiaries and our 35% ownership in an inactive company to the former director in exchange for cancellation of debt totaling $100,000. As a result of the transfer of the subsidiaries, we were no longer engaged in the lighting solutions business. We transferred the stock of the subsidiaries because we felt that, as a result of our continuing losses and our inability to develop the business as we had planned, it was not in our best interest to continue in this business.

Following the sale of our subsidiaries in the lighting solutions business, we were not engaged in any business activity. We had initially planned to focus on providing an internet based security system to companies that would like to replace security guards with video cameras that are monitored 24/7. Through February 28, 2013, we did not generate any revenue from this new proposed business, and we discontinued our efforts with respect to that business.

Subsequent to February we planned to provide enhanced oil recovery services and supplying materials to existing operators of oil fields in Indonesia. We cannot assure you that we will be able to enter this business, which is subject to numerous regulations and licensing requirements. It will be necessary for us to hire qualified marketing and skilled technical personnel who are familiar with the Indonesian market and the oil recovery business. This industry is highly competitive, and there are companies engaged in this business that are well capitalized and have relationships with oil field owners. There are significant other risks involved in this business. During September 2013, our board of directors approved the creation of subsidiary under the laws of Republic of Indonesia in which we will have a 95% interest. As of July 7, 2014, the application is still being reviewed by the Indonesian government. We cannot assure you that we will be able to develop this business in the manner which we plan or that, if we develop this business, we will be able to generate revenue or profits from its operations. We are also evaluating other potential business activities.

Significant Accounting Estimates and Policies

The discussion and analysis of our financial condition and results of operations is based upon our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of our products, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Our revenue recognition policies are in compliance with ASC 605. Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Discounts provided to customers by us at the time of sale are recognized as a reduction in sales as the products are sold. Sales taxes are not recorded as a component of sales.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes, which requires that we recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

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We adopted ASC 740-10-25, Income Taxes-Overall-Recognition, on January 1, 2007, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. We must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

Recent accounting pronouncements

We considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

RESULTS OF OPERATIONS

Three months Ended May 31, 2014 and 2013

We had no revenue for the three months ended May 31, 2014 or 2013. General and administrative expenses, which consisted primarily of professional fees and executive compensation, were approximately $48,000, for the quarter ended May 31, 2014, as compared with approximately $86,000 for the quarter ended May 31, 2013, a decrease of $38,000 or approximately 44.1%. Executive compensation was $30,000 for each of the quarters ended May 31, 2014 and 2013.

As a result of the foregoing, our net loss for the three months ended May 31, 2014 was approximately $48,000, or $0.00 per share (basic and diluted), as compared with a loss of approximately $86,000, or $0.00 per share (basic and diluted), for the three months ended May 31, 2013.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At May 31, 2014, we had a cash balance of approximately $18,000, representing the balance of the $300,000 proceeds from the sale of stock during the year ended February 28, 2014 after giving effect to the payment of a loan from the chief executive officer of $125,100 and other operating expenses. We had a working capital deficiency of $228,000 at May 31, 2014, as compared with a working capital deficiency of approximately $180,000 at February 28, 2014.

During the three months ended May 31, 2014, we used approximately $17,000 in our operations, which reflected our net loss of approximately $48,000, representing our general and administrative expenses, and an approximately $31,000 decrease in current liabilities. There was no cash flow from financing activities during the quarter ended May 31, 2014.

For the three months ended May 31, 2013, we used approximately $69,000 in our operations, which reflected our net loss of approximately $86,000, representing our general and administrative expenses, and an approximately $17,000 decrease in current liabilities. Cash flow from financing activities was approximately $75,000, consisting of $200,000 proceeds from the sale of stock, net of a payment of the loan to the chief executive officer of $125,100.

We believe that, if we engage in any significant business activities, we will require significant financing for our operations. Because of the absence of both operating activities and an actively traded stock, we may have difficulty raising additional funds through the sale of our equity or debt securities.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.


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Source: Edgar Glimpses


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