Quarterly report pursuant to Section 13 or 15(d)

Unaudited Condensed Consolidated Financial Statements

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Unaudited Condensed Consolidated Financial Statements
6 Months Ended
Jun. 30, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Condensed Financial Statements
1. Unaudited Condensed Consolidated Financial Statements
 
The accompanying unaudited condensed consolidated balance sheet as of June 30, 2013, the audited condensed consolidated balance sheet as of December 31, 2012, the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2013 and 2012, and the unaudited condensed statements of cash flows for the six months ended June 30, 2013 and 2012 represent our financial position, results of operations and cash flows as of and for the periods then ended. In the opinion of our management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting only of normal recurring items, considered necessary to present fairly our financial position at June 30, 2013 and December 31, 2012, the results of our operations for the three and six months ended June 30, 2013 and 2012, and our cash flows for the six months ended June 30, 2013 and 2012, respectively.
 
The accompanying unaudited condensed financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our recent report on Form 8-K for the fiscal year ended December 31, 2012.
 
Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted.
 
Recent Accounting Pronouncements
 
In February 2013, FASB issued authoritative guidance on reporting of amounts reclassified out of accumulated other comprehensive income. In addition to the current requirements for reporting net income or other comprehensive income in financial statements, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance is effective for us for the fiscal year beginning on April 1, 2013 and did not have material impact on our unaudited financial statements.
 
Reclassification
 
Certain amounts in the prior period have been reclassified to conform to the current period financial statement and footnote presentation. These reclassifications did not affect our net income as previously reported.
 
Description of Business
 
Ener-Core, Inc. (the “Company”), a Nevada corporation, was formed on April 29, 2010 as Inventtech, Inc. On July 1, 2013, the Company acquired Ener-Core Power, Inc., a Delaware corporation formerly known as Flex Power Generation, Inc. (“Ener-Core Power” or “Successor”). The stockholders of Ener-Core Power are now the majority stockholders of the Company and the management of Ener-Core Power is now the management of the Company. Therefore, the acquisition is treated as a “reverse merger” and the financial statements of the Company are those of Ener-Core Power. All equity amounts presented have been retroactively restated to reflect the reverse merger as if it had occurred on November 12, 2012.
 
As provided in the Contribution Agreement dated November 12, 2012 (the “Contribution Agreement”), by and among Ener-Core Power, FlexEnergy, Inc. (“FlexEnergy” or “Parent”), and FlexEnergy Energy Systems, Inc. (“FEES”), Ener-Core Power was spun-off from FlexEnergy as a separate corporation. As a part of that transaction, Ener-Core Power received all assets (including intellectual property) and certain liabilities pertaining to the Gradual Oxidizer business (which was “carved out” of FlexEnergy). Ownership of Ener-Core Power was not distributed pro rata among the equity owners of FlexEnergy. The assets and liabilities were transferred to Ener-Core Power and recorded at their historical carrying amounts since the transaction was a transfer of net assets between entities under common control.
 
The Company designs, develops and manufactures products and technologies that expand power generation into previously uneconomical markets.
 
The Company’s research and development of “clean” power generation from extremely low quality gases has resulted in the development of the Ener-Core Powerstation FP250 (the “FP250”). The FP250 is an integrated system consisting of the Company’s designed and patented Gradual Oxidizer, integrated with a gas turbine and generator. The FP250 is able to generate electric power using low energy content gas or vapor while emitting low levels of atmospheric pollutants and has applications in landfills, oil and gas production and coal mining.
 
Basis of Presentation
 
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Ener-Core Power. All significant intercompany transactions and accounts have been eliminated in consolidation.
 
Prior to November 12, 2012, Ener-Core Power did not operate as a separate legal entity. As a result, the historical financial information for the three and six months ended June 30, 2012, has been “carved out” of the financial statements of FlexEnergy, Such financial information is limited to Ener-Core Power related activities, assets and liabilities only.
 
The carved-out financial information includes both direct and indirect expenses. The historical direct expenses consist primarily of the various costs of direct operations. Indirect costs represent expenses that were allocable to the business. The indirect expense allocations are based upon: (1) estimates of the percentage of time spent by FlexEnergy employees working on or supporting Ener-Core Power business matters; and (2) allocations of various expenses associated with the employees, including salary, benefits, travel and entertainment, rent associated with the employees’ office space, accounting and other general and administrative expenses.
 
Management believes the assumptions and allocations underlying the carve-out financial information are reasonable, although they are not necessarily indicative of the costs the Gradual Oxidizer Business would have incurred if it had operated on a standalone basis or as an entity independent of FlexEnergy. Accordingly, the financial position, operating results and cash flows may have been materially different if the Ener-Core Power business had operated as a stand-alone entity during the periods presented.