Item 2.  Management’s Plan of Operation

This Form 10-Q contains " forward-looking statements " relating to us which represent our current expectations or beliefs, including statements concerning our operations, performance, financial condition and growth.  For this purpose, any statement contained in this report that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as " may ", " anticipation ", " intend ", " could ", " estimate ", or " continue " or the negative or other comparable terminology are intended to identify forward-looking statements.

Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and those actual results may differ materially from those in the forward-looking statements.  Such risks and uncertainties include, without limitation: well-established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.

The following discussion should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Form 10-Q and our Form 10-K filed November 12, 2009 for the fiscal year ended June 30, 2009.  Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions.  The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear herein.  The Company's actual results could differ materially from those discussed here.

 

The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the period ended September 30, 2009 have been included.

Business Overview

 

Solterra   is a start-up solar technology and quantum dot manufacturing firm which was founded by Stephen Squires. Mr. Squires and our other officers and directors bring to us a large degree of experience in developing innovative technology, and commercializing high technology products.  We perceive an opportunity to acquire a significant amount of both quantum dot and solar photovoltaic market share by commercializing a low cost quantum dot processing technology and a low cost quantum dot based third generation photovoltaic technology/solar cell, pursuant to an exclusive license agreement with William Marsh Rice University (“Rice University” or “Rice”).  Our objective is for Hague to become the first bulk manufacture of high quality tetrapod quantum dots and for Solterra to be the first solar cell manufacturer to be able to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe, the Middle East and Asia.

 

Competitors are pursuing different nanotechnological approaches to developing solar cells, but the general idea is the same for all. When light hits an atom in a semiconductor, those photons of light with lots of energy can push an electron out of its nice stable orbital around the atom. The electron is then free to move from atom to atom, like the electrons in a piece of metal when it conducts electricity.  Using nano-size bits of semiconductor embedded in a conductive plastic maximizes the chance that an electron can escape the nanoparticle and reach the conductive plastic before it is "trapped" by another atom that has also been stripped of an electron. Once in the plastic, the electron can travel through wires connecting the solar cell to an electronic device. It can then wander back to the nanocrystal to join an atom that has a positive charge, which scientifically is called electron hole recombination.

 

A quantum dot solar cell typically uses a thin layer of quantum dot semiconductor material, rather than silicon chips, to convert sunlight into electricity. Quantum Dots, also known as nanocrystals, measure near one billionth of an inch and are a non-traditional type of semiconductor. Management believes that they can be used as an enabling material across many industries and that quantum dots are unparalleled in versatility and flexible in form.

Hague intends to design and manufacture solar cells using a proprietary thin film semiconductor technology that we believe will allow us to reduce our average solar cell manufacturing costs and be extremely competitive in this market. Hague will be one of the first companies to integrate non-silicon quantum dot thin film technology into high volume low cost production using proprietary technologies.  Our objective is to become one of the first solar module manufacturers to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in North America, Europe and Asia. Management believes that the manufacture of our thin film quantum dot solar cells can introduce a cost effective disruptive technology that can help accelerate the conversion from a fossil fuel dependent energy infrastructure to one based on renewable, carbon-neutral energy sources. We believe that our proposed products also can be a part of the solution to greenhouse gases and global warming.

 

Plan of Reorganization, Recent Financing and Change in Control

On November 4, 2008, the Company closed on an Agreement and Plan of Merger and Reorganization by and among Hague Corp. (the “Company”), Solterra Renewable Technologies, Inc. (“Solterra”), the shareholders of Solterra and Gregory Chapman as “Indemnitor” (the “Agreement”), which resulted in Solterra becoming a wholly-owned subsidiary of the Company. Pursuant to the Agreement, Mr. Chapman cancelled 40,000,000 shares of Common Stock of the Company owned by him and issued a general release in favor of the Company terminating its obligations to repay Mr. Chapman monies owed to him.

In accordance with the Agreement, the Company issued 41,250,000 shares of its Common Stock to the former stockholders of Solterra. Certain existing stockholders of the Company in consideration of Solterra and its shareholders completing the transaction, issued to the Company a Promissory Note in the amount of $3,500,000 due and payable on or before January 15, 2009, through the payment of cash or, with the consent of the Company, the cancellation of up to 12,000,000 issued and outstanding shares of the Company owned by them.  As of the filing date of the Form 10-Q, this note is in default and the Company has made demand for payment and is considering all legal options.

 

On November 4, 2008, the Company entered into a Securities Purchase Agreement, Debenture, Security Agreement, Subsidiary Guarantee Agreement, Registration Rights Agreement, Escrow Agreement, Stock Pledge Agreement and other related transactional documents (the “Transaction Documents”) to obtain $1,500,000 in gross proceeds from three non-affiliated parties (collectively hereinafter referred to as the “Lenders”) in exchange for 3,525,000 restricted shares of Common Stock of the Company (the “Restricted Shares”) and Debentures in the principal amount aggregating $1,500,000. Each Debenture has a term of three years maturing on November 4, 2011 bearing interest at the rate of 8% per annum and is prepayable by the Company at anytime without penalty, subject to the Debenture holders’ conversion rights. Each Debenture is convertible at the option of each Lender into the Company’s Common Stock (the “Debenture Shares”, which together with the Restricted Shares shall collectively be referred to as the “Securities”) at a conversion price of $.2667 per share (the “Conversion Price”).  The Registration Rights Agreement requires the Company to register the resale of the Securities within certain time limits and to be subject to certain penalties in the event the Company fails to timely file the Registration Statement, fails to obtain an effective Registration Statement or, once effective, to maintain an effective Registration Statement until the Securities are saleable pursuant to Rule 144 without volume restriction or other limitations on sale. The Debentures are secured by the assets of the Company and are guaranteed by Solterra as the Company’s subsidiary. In the event the Debentures are converted in their entirety, the Company would be required to issue and aggregate of 5,624,297 shares of the Company’s Common Stock, subject to anti-dilution protection for stock splits, stock dividends, combinations, reclassifications and sale of the Company’s Common Stock a price below the Conversion Price.  Certain changes of control or fundamental transactions such as a merger or consolidation with another company could cause an event of default under the Transaction .

Standstill Agreement

         On June 1, 2009, the Company and its Debenture Holders entered into a Standstill Agreement which provided for a 120-day standstill period pursuant to which the Debenture Holders would not exercise their rights under the Debentures, security agreements, guarantee, pledge agreement and other related “Transaction Documents.” In October 2009 by separate agreement, the Standstill Period was extended by the Debenture Holders through the close of business on December 1, 2009. The following is a summary of some of the material provisions of the Standstill Agreement:

 

·

The Debenture Holders received warrants to purchase 1,000,000 shares of Hague’s Common Stock, exercisable at $.25 per share over a period of 18 months together with cashless exercise provisions in the event no registration statement is effective at the time of exercise. Of the 1,000,000 warrants, the Debenture Holders assigned 175,000 warrants and 75,000 warrants to Isaac Horton and Richard Patton, respectively. Messrs. Horton and Patton served as directors of Hague in accordance with the Debenture Holders’ right to appoint two members to the Board of Directors. Warrants to purchase 2,000,000 shares exercisable at $.10 per share through October 31, 2014 were issued for an extension of the Standstill Agreement. These Warrants also contain cashless exercise provisions in the event that there is no current registration statement effective at the time of exercise.

·	Certain stockholders of the Company were to exchange up to 2,350,000 shares of free trading shares for restricted shares of Hague’s Common Stock.

·

The Company would seek to raise additional financing either in Hague or in Solterra. If the financing was in Solterra and at least $2,000,000 was raised, then the Debenture Holders would have the right to have Hague assign its Debenture obligation to Solterra and to permit the Debenture Holders to convert their indebtedness into Solterra Common Stock at a 25% discount to terms of the private placement offering. As of November 20, 2009, no additional equity financing has been raised by the Company.

 

 

·	Isaac Horton shall resign from Hague’s Board. The Debenture Holders may replace Mr. Horton with David Skriloff.  On November 12, 2009, Mr. Horton resigned from the Board.

·	Upon Hague’s receipt of $250,000 of financing, Hague has agreed to obtain directors and officer’s liability insurance and agree to maintain same for at least three years and to indemnify Mr. Skriloff to the fullest extent provided by Nevada law should he agree to join the Board.

·

On or before Solterra’s acceptance of any private financing, Solterra shall assign its license agreement with Rice University to Hague. Simultaneously, Hague shall grant Solterra the exclusive worldwide right under the Rice license agreement to purchase the quantum dots for solar purposes, including the right to grant sublicenses. The Company shall obtain the written permission of Rice University to accomplish the foregoing. Hague shall be the sole supplier of the quantum dots to Solterra and to its sublicensees.  Solterra shall pay a licensing fee to Hague in an amount necessary to retire the Company’s Notes (principal and accrued but unpaid interest) in full (unless the Noteholders agree to have Solterra assume these obligations from Hague and convert into common stock of Solterra), plus the sum of $1.0 million.  It is understood that Solterra will be the solar sub and Hague shall produce and sell the quantum dots and shall have the right to grant sublicenses for all other purposes. During the Standstill Period and thereafter, except as otherwise provided, Hague shall not transfer and/or sell any of its assets without the express prior written consent of the Noteholders, unless the Notes have been repaid or converted. Nothing contained herein shall be construed to prohibit Hague or Solterra from licensing its intellectual property or selling its quantum dots in a business unrelated to solar to third parties in arm’s-length transactions.

·

Upon conversion of the Noteholders’ Notes into Solterra common stock or the repayment of the Notes in full, the following shall occur: (i) all security interests, registration rights and other such rights and obligations of the Noteholders (as noteholders only and in no other capacity) shall be terminated, (ii) if elected Mr. Skriloff, shall resign from the Board of Directors of Hague, and (iii) the Noteholders, Hague and Solterra shall exchange general releases which shall pertain to all past actions of the Noteholders, as Noteholders, stockholders or security holders in Hague or Solterra, as the case may be.

·

The Hague Board shall agree to hold board meetings no less frequently than monthly, until the completion of the Private Offering and/or grants of at least $2.0 million. It is further agreed that Hague shall adopt a “Directors Manual: Public Corporation Governance and Guidelines,” which includes a Code of Business Ethics, in the form customarily adopted by smaller public companies and comply with all applicable provisions of the Sarbanes-Oxley Act of 2002.

·

Upon the completion of Solterra’s financing efforts, it will endeavor to become an independent public entity through a self-directed offering and the following actions would occur: Solterra’s Board would be expanded to include additional directors. Mr. Squires would remain Chief Executive Officer of one of these two companies with a new Chief Executive Officer to be identified and hired on commercially reasonable terms to run the other company. Mr. Squires would serve as Chairman of the Board of Directors of the company in which he is Chief Executive Officer and he would serve as a director of the other company. In the interim, until a new Chief Executive Officer is found for the company in which he chooses not to serve as Chief Executive Officer, he will serve as interim Chief Executive Officer until his replacement is hired.

·

The provisions of the Standstill Agreement (except as otherwise provided therein) shall automatically terminate and be of no further force and effect ab initio, as if this agreement never took place or upon the happening of one of the following events of default: (a) the entry of an order for relief against Hague or Solterra (or equivalent thereof) in any case under title 11 of the United States Code (or in connection with any case or proceeding involving Hague or Solterra under any state or federal insolvency law, (b) if Hague or Solterra fails to make any required payments, under the terms of its agreements with Rice University or Arizona State University, but only where either university notifies Hague or Solterra that it is in default and that all opportunities to cure the default have past, or (c) upon a material default (breach) of the Standstill Agreement by Hague or Solterra and after being given written notice of such default and at least five business days opportunity to cure the default.

 

 

 

Plan of Operation

Since November 4, 2008, the Company is executing its business plan as follows:  

Scale up Quantum Dot Production by   applying proprietary technology licensed from Rice University for our quantum dot synthesis process. This licensed technology enables Solterra to produce the highly desirable CdSe tetrapod quantum dots at a cost savings of greater than 50% compared to competing suppliers, and will organically supply Solterra’s requirements for quantum dots for its solar cells. Additionally, Solterra will market these Q-Dots through various existing supply channels into various markets, including but not limited to medical diagnostics and printed electronics. The initial pilot scale up will take place at or near Rice University in Houston, Texas. The staff there will include one post doctorate, Professor Michael Wong the inventor of the technology and our Vice President in charge of quantum dot commercialization David Doderer. Following initial proof of scale production, the commercial production of quantum dots will likely be consolidated in a purpose built facility in Phoenix, Arizona, adjoining the proposed solar cell production line.

Initiate scaled manufacturing of tetrapod quantum dots, based in part on technology licensed from William H. Marsh Rice University, and building on continued research.  Planning includes the implementation of one or more Solterra owned mini-batch lines for quantum dot conjugation and quality control studies, as well as a pilot line based on outcomes of collaboration with Access2Flow, an advanced flow chemistry consortium based in the Netherlands.  The design of the pilot line is intended such that the initial target output of the line, at approximately one kilogram per day, can be further scaled at least by an order of magnitude to 1,000 grams per day in 2010.  The output of the tetrapod quantum dots manufacturing will be used for Solterra’s quantum dot solar cells as well as stand-alone sales into the biomedical research fields and to third party developers of quantum dot products such as displays, memory and computer and consumer electronics.

Fabricate solar cells and optimize the performance of solar cells based on a blend of a suitable conjugated polymer and CdSe quantum dots (QDs).  The aim is to invest our best efforts to demonstrate and scale up production of low cost quantum dot solar cells having peak efficiency of greater than 6%. The efficiency of solar cells is the electrical power it puts out as percentage of the power in incident sunlight. Within the photovoltaic market, cell pricing and peak efficiency are key benchmarks for consumers in the decision for system selection and installation. The design and manufacture of Solterra's quantum dot based solar cells is projected to allow for the conversion of sunlight into usable electricity at a combination of efficiencies and cell cost at a very low "cents per kilowatt-hour" rate. This work is expected to be accomplished on site at the Arizona State University labs where we also maintain our corporate offices. The staff there includes three post doctorates three undergraduates, our Chief Science Officer, Professor Ghassan Jabbour and our CEO, Stephen Squires.

Continue to develop and characterize the Quantum Dot Solar Cell product; moving towards pilot proof line for solar cells and leading to high throughput print line ultimately capable of yearly solar cell output near gigawatt range. Target cell efficiencies are 6% within one year, 10% within 2 years and greater than 20% within five years.  Coupled within cell cost per watt decreasing below $1.00/Watt, we intend to pursue initial product sales in late 2010 with significant increases in 2011.

Liquidity and Capital Resources

At September 30, 2009 the Company had a working capital deficit of $1,496,344.  The Company has been in the development stage since inception. As a result, the Company has relied on financing through the issuance of common stock and a convertible debenture as well as advances from a director shareholder as well as employees wages being accrued but not paid.

 

 

The Company is aggressively seeking additional financing; however, no agreements for additional financing have been received and the Company cannot provide any assurance that additional funding will be available to finance our operations on acceptable terms in order to enable us to complete our new plan of operations.  If we are unable to achieve the financing necessary to continue our new plan of operations, then our stockholders may lose their entire investment in the Company.

We expect to run at a loss for at least the next twelve months. Certain existing stockholders of the Company in consideration of Solterra and its shareholders completing the transaction, issued to the Company a Promissory Note in the amount of $3,500,000 due and payable on or before January 15, 2009, through the payment of cash or, with the consent of the Company, the cancellation of up to 12,000,000 issued and outstanding shares of the Company owned by them.  As of the filing date of this Form 10-Q, this Note has not been paid. We have demanded payment on the Note of $3,500,000 or the cancellation of the 12,000,000 shares. We are prepared to take all corporate legal actions against the obligors of the Note.  We can provide no assurances that a successful resolution of this matter will occur.

 

Statement of operations – September 30, 2009

General and administrative expenses

During the three months ended September 30, 2009 the Company incurred $197,448 of general and administrative expenses compared to the $35,462 recorded for the three months ended September 30, 2008.  The increase of $161,986 is attributed to the fact the Company was not operational at September 30, 2008.  The Company became operational after the financing was received in November 2008.  Included in the expenses for the current quarter wages were of $135,000, license maintenance costs of $25,489, legal and audit of $17,070, corporate expense of $2,005, office expenses of $11,973, travel expense of $4,608 and amortization of furniture and equipment of $1,303.  General and administrative expenses for the three months ended September 30, 2008 included wages of $15,000, moving expense of $7,614, office expense of $6,545, travel expense of $5,218 and insurance of $1,085.

Research and development expenses.

Research and development expenses of $155,000 were incurred per an agreement to a major university to optimize the printing process of solar cells.  A further $30,473 of expenses were recorded for the period ended September 30, 2009 to another major university for the development of the continuous batch production of the Company’s proprietary Quantum Dots.  There were no development costs incurred in the period ending September 30, 2008.

 

Amortization of convertible debenture discount

The convertible debenture discount of $1,500,000 is being amortized over the term of the 36 month term of the debenture using the effective interest method.  The debenture was issued on November 4, 2008.  Amortization recorded for the period ended September 30, 2009 was $39,363.  The amortized balance of the discount at September 30, 2009 is $1,366,282 resulting in the convertible debenture value on the balance sheet net of the discount $133,718.  At September 30, 2008 this account did not exist.

 

 

Amortization of deferred finance cost

 

This amount relates to the $315,000 of expenses associated with the $1,500,000 convertible debenture financing raised in November 2008.  The deferred financing cost is being amortized using the effective interest method over the thirty-six month life of the debenture.  Amortization recorded for the period ended September 30, 2009 was $26,250.  At September 30, 2008 this account did not exist.

 

Interest expense on the convertible debenture

This amount relates to the 8% interest associated with the $1,500,000 convertible debenture issued in November 2008. Interest expense recorded for the period ended September 30, 2009 was $30,000.  According to the provisions of the Convertible Debenture agreement the Company has elected to issue shares of the Company’s Stock to pay accrued interest on the debentures.  In March 2009 the Company issued 506,493 shares of the Company’s restricted Common Stock to pay $39,000 of accrued interest.  In November 2009 the Company issued 843,674 shares of the Company’s restricted Common Stock to pay $60,000 of accrued interest.  There was no interest for the period ended September 30, 2008 as the debenture was issued after this date.

Cash Flow

 

During the period ended September 30, 2009, cash was used in operations of $3,848.  During this period the Company received proceeds on disposal of furniture and equipment of $3,848.  These changes resulted in no change in the cash position from the year ended June 30, 2009.  The opening cash at June 30, 2009 was nil,and the closing balance at September 30, 2009 was also nil.

 

Off-balance sheet arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.