ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is quoted on the Over the Counter Bulletin Board under the symbol “SLRE” Trading in the common stock in the over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The high and low bid prices for the common stock for each quarter of the years ended December 31, 2007 and 2006 are as follows:
Capital Stock
The following is a summary of the material terms of the Company’s capital stock. This summary is subject to and qualified by our articles of incorporation and bylaws.
Common Stock
As of April 14, 2008, there were 460 shareholders of record holding a total of 21,923,309 shares of fully paid and non-assessable common stock of the 50,000,000 shares of common stock, par value $0.0001, authorized. The board of directors believes that the number of beneficial owners is substantially greater than the number of record holders because a portion of our outstanding common stock is held in broker “street names” for the benefit of individual investors. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
The Company has no authorized shares of preferred stock
Warrants
As of April 14, 2008, the Company had 1,781,500 outstanding warrants to purchase shares of our common stock.
Stock Options
As of April 14, 2008, the Company had 500,000 outstanding stock options to purchase shares of our common stock.
Convertible Securities
As of April 14, 2008, the Company had no outstanding securities, other than warrants and options, convertible into shares of the Company’s stock.
Dividends
The Company has not declared any cash dividends since inception and does not anticipate paying any dividends in the near future. The payment of cash dividends is within the discretion of the board of directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Company's ability to pay cash dividends on its common stock other than those generally imposed by applicable state law.
Transfer Agent and Registrar
Our transfer agent is Michael Ajzernman at Madison Stock Transfer Agency, 1688 East 16th Street, Suite 7, Brooklyn, NY 11229 (718) 627-4453.
Purchases of Equity Securities made by the Issuer and Affiliated Purchasers
None.
Recent Sales of Unregistered Securities
On October 1, 2007, the Company authorized the issuance of 100,000 units, each unit comprised of one common share and one purchase warrant with an exercise price of $0.40 for a period of 24 months to Zmax Capital Corporation, pursuant to exemptions from registration provided by Section 4(2) and Regulation S of the Securities Act of 1933 in exchange for cash consideration of $25,000 or $0.25 per unit. No commissions were paid in connection with this transaction.
The Company complied with Section 4(2) based on the following factors: (1) the issuance was an isolated private transaction that did not involve a public offering; (2) there was one offeree who was issued the stock for cash consideration; (3) the offeree stated an intention not to resell the stock; (4) there were no subsequent or contemporaneous public offerings of the stock; (5) the stock was not broken down into smaller denominations; and (6) the negotiations that lead to the issuance of the stock took place directly between the offeree and the Company.
Regulation S provides generally that any offer or sale that occurs outside of the United States is exempt from the registration requirements of the Securities Act, provided that certain conditions are met. Regulation S has two safe harbors. One safe harbor applies to offers and sales by issuers, securities professionals involved in the distribution process pursuant to contract, their respective affiliates, and persons acting on behalf of any of the foregoing (the “issuer safe harbor”), and the other applies to resales by persons other than the issuer, securities professionals involved in the distribution process pursuant to contract, their respective affiliates (except certain officers and directors), and persons acting on behalf of any of the forgoing (the “resale safe harbor”). An offer, sale or resale of securities that satisfied all
conditions of the applicable safe harbor is deemed to be outside the United States as required by Regulation S. The distribution compliance period for shares sold in reliance on Regulation S is one year.
The Company complied with the requirements of Regulation S by having no directed selling efforts made in the United States, by selling only to an offeree who was outside the United States at the time of the offering, and ensuring that the entity to whom the stock was issued was a non-U.S. person with an address in a foreign country.
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
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this current report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this current report. Our fiscal year end is December 31.
Discussion and Analysis
The Company is a research and development incubator with no revenues. We have been funded since inception from public or private debt or equity placements or by major shareholders in the form of loans. All of our projects have been experimental in nature and virtually all of the capital raised to date has been allocated for research and the development activities with related administrative costs.
The Company does not expect to receive revenues within the next twelve months.
Results of Operations
During the year ended December 31, 2007, the Company was involved in developing innovative processes tied to the sequestration of CO2 and technologies related to replicating the energy produced from cold fusion. We also completed several private placements to fund this research and development, explored new business opportunities, and satisfied continuous public disclosure requirements.
Net Losses
For the period from January 5, 1994 to December 31, 2007 the Company recorded a net loss of $15,344,225. Net losses for the year ended December 31, 2007 were $3,229,524 as compared to $1,608,683 for the year ended December 31, 2006. The increase in net losses in the current period can be primarily attributed to the loss from discontinued operations (to $1,624,310 from $0).
General and administrative expenses include accounting expenses, professional fees consulting fees and costs associated with the preparation of public disclosure documentation. Vessel operating costs are related to expenses incurred by Planktos in refitting the Weatherbird II research ship. Research and development
expenses include costs associated with our experiments with cold fusion and the sequestration of CO2 in marine and terrestrial environments.
The Company expects to continue to operate at a loss through fiscal 2008 due to research and development costs in addition to administrative expenses.
Income Tax Expense (Benefit)
The Company has a prospective income tax benefit resulting from a net operating loss carryforward and start up costs that will offset any future operating profit.
Impact of Inflation
The Company believes that inflation has had a negligible effect on operations over the past three years.
Capital Expenditures
The Company expended no significant amounts on capital expenditures for the period from inception to December 31, 2007 except in connection with Planktos’ purchase of the Weatherbird II research vessel during 2007 for $800,000, which vessel was subsequently sold in February 2008 for $1,000,000.
Liquidity and Capital Resources
As of December 31, 2007, the Company had current assets totaling $72,355 and a working capital deficit of $1,311,728. The current assets consist solely of cash on hand. Net stockholders' deficit in the Company was $680,892 at December 31, 2007. The Company is in the development stage and, since inception, has experienced significant changes in liquidity, capital resources and shareholders’ equity.
Cash flow used in operating activities was $8,176,923 for the period from inception to December 31, 2007. Cash flow used in operating activities for the year ended December 31, 2007 was $3,494,696 as compared to $1,570,992 for the year ended December 31, 2006. The increase in cash flow used in operating activities in the current year was due primarily to an increase in net losses from discontinued operations and financing costs from warrants granted in
Cash flow provided by financing activities was $6,209,533 for the period from inception to December 31, 2007. Cash flow provided by financing activities for the year ended December 31, 2007 was $1,186,261 as compared to $1,584,330 for the year ended December 31, 2006. Cash flow provided by financing activities in the current period can be attributed to proceeds received from related party loans, advances, and sales of our equity.
Cash flow provided by investing activities was $2,039,745 for the period from inception to December 31, 2007. Cash flow provided by investing activities for the year ended December 31, 2007 was $2,176,878 as compared to $2,445 used by investing activities for the year ended December 31, 2006. The recognition of cash flows used by investing activities is a result of the cash acquired from Planktos.
The Company’s current assets are insufficient to conduct our plan of operation over the next twelve (12) months and we will have to seek debt or equity financing to fund operations. The Company has no current commitments or arrangements with respect to, or immediate sources of funding. Further, no assurances can be given that funding is available or available to the Company on acceptable terms. The Company’s shareholders would be the most likely source of new funding in the form of loans or equity placements though none have made any commitment for future investment and we have no agreement formal or otherwise. The Company’s inability to obtain funding has had a material adverse affect on our plan of operation and will continue to diminish our ongoing businesses.
Subsequent to the year ended December 31, 2007, the Company’s majority owned subsidiary, Planktos, sold its research vessel the Weatherbird II to Sperc Explorer, Inc. for a sale price of $1,000,000. The Company has no current plans for the purchase or sale of any plant or equipment.
The Company currently has no employees and has no plans to hire any employees in the near future.
Off Balance Sheet Arrangements
As of December 31, 2007, the Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to stockholders.
Critical Accounting Policies
In the notes to the audited consolidated financial statements for the year ended December 31, 2007 included in the Company’s Form 10-K, the Company discussed those accounting policies that are considered to be significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America.
The preparation of financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, warranty obligations, product liability, revenue, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.
Minority Interests
The company owns 53% of Planktos Corp. The 47% minority in the subsidiary is owned by various unrelated parties. The minority holders are not expected to make additional capital contributions.
Going Concern
The Company’s audit expressed substantial doubt as to the Company’s ability to continue as a going concern as a result of recurring losses, lack of revenue-generating activities and an accumulated deficit of $15,344,225 as of December 31, 2007. The Company’s ability to continue as a going concern is subject to our ability to obtain funding from outside sources. Management’s plan to address our ability to continue as a going concern, include: (i) obtaining funding from private placement sources; (ii) obtaining additional funding from the sale of our securities; (iii) generating revenues from the commercialization of its research and development projects; and (iv) obtaining loans and grants from various financial institutions, where possible. Although management believes that it will be able to obtain the necessary funding to allow us to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled “Results of Operations” and “Description of Business”, with the exception of historical facts, are forward looking statements. A safe-harbor provision may not be applicable to the forward looking statements made in this current report Forward looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:
•
the sufficiency of existing capital resources;
•
our anticipated financial performance;
•
our ability to raise additional capital to fund cash requirements for future operations;
•
uncertainties related to the development of our technologies;
•
the volatility of the stock market; and
•
general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated, including the factors set forth in the section entitled “Risk Factors” included elsewhere in this report. We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than is required by law.
Stock-Based Compensation
On January 1, 2006, we adopted SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. We use the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation. We have elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006, the first day of our fiscal year 2006. Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro forma provisions of SFAS No. 123.
Prior to the adoption of SFAS No 123R, we measured compensation expense for our employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. We applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, as if the fair-value-based method had been applied in measuring compensation expense. Under APB Opinion No. 25, when the exercise price of our employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized.
We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force (“EITF”) in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS 160, “Noncontrolling interests in Consolidated Financial Statements - an amendment of ARB No. 51”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted. Management is currently evaluating the effects of this statement, but it is not expected to have any impact on the Company’s financial statements.
In January 2007, we adopted FIN 48. FIN 48 clarifies the accounting for uncertain taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise's tax return. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure related to uncertain income tax positions.
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 creates a fair value option allowing an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 also requires an entity to report those financial assets and financial liabilities measured at fair value in a manner that separates those reported fair values from the carrying amounts of assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value on those instruments selected for the fair value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Company is continuing to evaluate SFAS 159 and to assess the impact on our results of operations and financial condition if an election is made to adopt the standard.
Not required.
Our audited financial statements for the years ended December 31, 2007 and 2006 are attached hereto as through.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Consolidated Financial Statements
December 31, 2007
Board of Directors
Solar Energy Limited
Vancouver, British Columbia
CANADA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheet of Solar Energy Limited (a development stage company) as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solar Energy Limited (a development stage company) as of December 31, 2007 and 2006, and the results of its operations, stockholders deficit and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s significant operating losses and negative working capital raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding the resolution of this issue are also discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
April 12, 2008
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Net cash used by operating activies (3,494,696) (1,570,992) (8,176,923)
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 1 - DESCRIPTION AND HISTORY OF BUSINESS AND BASIS OF PRESENTATION
Solar Energy Limited (“the Company”) is in the development stage according to Financial Accounting Standards Board Statement No. 7 and is currently focusing its attention on raising capital in order to pursue its goals.
The Company was originally incorporated as Taurus Enterprises, Inc. under the laws the State of Delaware on January 5, 1994. In August of 1996, the Company merged with Salvage World, Inc., a private company, changed its name to “Salvage World, Inc.” and reincorporated in the state of Nevada. On December 17, 1997, the Company merged with Solar Energy Limited (“Solar”) a Delaware corporation organized on July 24, 1997 and changed the name to “Solar Energy Limited.” The surviving corporation is a Delaware corporation and the authorized shares were changed to 50,000,000 par value $0.0001.
On January 1, 1998, the Company acquired 100% of Hydro-Air Technologies, Inc. (“Hydro”) a New Mexico corporation organized June 18, 1997. Hydro owns various rights to patented intellectual property called Hydro-Air Renewable Power System ("HARPS"), and developed a prototype system to generate electricity from the evaporation of water. Hydro has since ceased operations.
In January 1999 the Company issued 35,000 shares of stock for the acquisition of 100% of Renewable Energy Corporation (“RECO”) a New Mexico corporation organized November 30, 1998. RECO owns various rights to patented intellectual property associated with the solar recycling of CO2 to fuel. On June 30, 2000, the Company sold 100% of its interest in RECO to Jade Electronic, Inc., who changed its name to Renewable Energy Limited (“REEL”) for 63% of the outstanding stock of REEL and cash of $180,000. At the point of sale REEL had no assets and no liabilities, thus RECO became its only assets, liabilities and operations at June 30, 2000. Because the Company essentially sold 37% of its interest in RECO for cash of $180,000, the Company recorded minority of interest of $162,800 and a gain of $17,200.
In April 2000, the Company acquired all of the outstanding common stock of Holisticom.com Limited for $14,500. Holisticom.com Limited was incorporated in April 2000 and subsequently changed its name to “Sunspring, Inc.” in August 2000. Sunspring, Inc. was involved in the development of new technologies but has since ceased operations.
On April 27, 2004, the Company entered into a stock purchase agreement for RECO with Los Alamos Renewable Energy, LLC, (“LARE”) a limited liability company for which two of the Company’s former officers and directors act as managing members. Pursuant to the agreement, an additional 99,900 shares of common stock of RECO were issued to the Company and an additional 200,000 shares of RECO were issued to LARE. In effect, the transaction resulted in the Company owning a 21% interest in RECO and using the equity method of accounting instead of the consolidation method. The Company has also forgiven debt due from RECO. At December 31, 2004, a gain of $56,138 was recognized due to the recapture of prior year losses.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 1 - DESCRIPTION AND HISTORY OF BUSINESS AND BASIS OF PRESENTATION - CONTINUED
On August 10, 2005, the Company entered into a stock purchase agreement with Mr. Russ George to acquire 100% of the issued and outstanding stock of Planktos, Inc. (“Planktos”) for the purchase price of $1,500,000 by issuing a 5 year term convertible debenture bearing an interest rate of 5%. The proprietary greenhouse emission technology acquired as a result of this acquisition is focused on taking advantage of the Kyoto Protocol which enables companies and governments to offset regulated greenhouse emission restrictions by investing in CO2 reduction programs in exchange for certified emission reduction (“CER”) credits. These CER credits are traded much like commodities and have their own market of which they are listed for sale. In determining the purchase price, consideration was given to previous amounts invested in developing this technology up to the point of acquisition. On November 21, 2005, Mr. George converted the debenture for 1,500,000 of the Company’s restricted common shares.
On August 17, 2005, the Company and its wholly owned subsidiary, Planktos Inc. (“Planktos”), executed an Iron-Fertilization Prove-Out and Purchase Agreement with Diatom Corporation (“Diatom”) whereby Diatom committed to assist the Company in providing developmental funding for a marine “iron-fertilization” prove out program in exchange for exclusive marketing and intellectual property rights to Planktos’s CO2 sequestration process. Planktos expected the cost of the prove out program to be $1,290,000 of which Diatom had agreed to provide up to 25%. The Company was responsible for funding the remainder of the developmental funding. The agreement also provided for a royalty agreement which would have entitled Planktos and the Company to 75% of net sales revenue generated by Diatom from the sale of CER credits created from the sequestration process until the Company and Planktos had recouped their costs. Thereafter, the Company and Planktos were entitled to 25% of net sales revenue generated by Diatom from the sale of CERs. Diatom paid $250,000 in cash for the exclusive marketing and intellectual property rights. Since the Company committed to fund 75% of the estimated cost to develop the program, a provision for the estimated loss on contract of $967,500 was recognized. During the fourth quarter of 2007 and subsequent to the year ended December 31, 2007, Planktos’ “iron-fertilization” prove out program was suspended and efforts are underway to wind down its operations. Planktos has terminated all employees, liquidated substantially all of its assets and is in the process of closing its Foster City, California office. As of December 31, 2007 this prove out program was terminated and the $967,500 and $250,000 have been recognized as a loss in discontinued operations.
On August 18, 2005, the Company entered into a stock purchase agreement with Russ George to acquire 100% of the issued and outstanding stock of D2Fusion, Inc. (“D2Fusion”) for the purchase price of $2,000,000 by issuing a 5 year term convertible debenture bearing an interest rate of 5%. The proprietary solid-state fusion technology acquired as a result of this acquisition is aimed at entry level heat and energy applications for homes and industry with the ultimate goal of producing heat and electricity at a fraction of today’s cost and with no emissions. In determining the purchase price, consideration was given to previous amounts invested in developing this technology up to the point of acquisition. On November 21, 2005, Mr. George converted the debenture for 2,000,000 of the Company’s restricted common shares.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 1 - DESCRIPTION AND HISTORY OF BUSINESS AND BASIS OF PRESENTATION - CONTINUED
On August 9, 2007 the Company and Diatom completed the sale of 100% of the issued and outstanding shares of Planktos Inc. Diatom issued 45,000,000 restricted shares of common stock to the Company which represents 53% of the outstanding common stock of Diatom. As part of this transaction Diatom changed its name to Planktos Corp. This transaction is in essence an acquisition of Planktos Corp. and has been accounted for in accordance with the principles for reverse acquisition accounting. These financial statements include the 47% minority interest the Company does not own on all transactions subsequent to the Planktos Inc. sale to Planktos Corp.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Solar Energy Limited is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents at well-known, quality financial institutions.
Deferred Revenue
The Company received deferred revenue from licensing its marketing and intellectual property rights to its CO2 sequestration process from Planktos. The Company recognized this revenue under discontinued operations due to Planktos ceasing operations.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133”, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, which is effective for the Company as of its inception. These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes.
The Company issued convertible debt and accounts for that debt according to SFAS 133 and subsequent pronouncements. Consequently, management recognizes its convertible debt contract as containing a derivative instrument and accounts for the derivative according to generally accepted accounting principles in the U.S.
During the year ended December 31, 2006, the Company issued a debenture for a total of $100,000. The debenture included provisions for the conversion of the debt and interest into shares of the Company’s common stock or into CO2 Tonnes. See Note 7
Development Stage Activities
The Company has been in the development stage since inception. The Company has no revenues from its planned operations. The Company is in the development stage according to Financial Accounting Standards Board Statement No. 7 and is currently focusing its attention on raising capital in order to pursue its goals.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128, which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings (loss) per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. For the periods reported, diluted net loss per share is the same as basic net loss per share as there were no common stock equivalents outstanding.
As of December 31, 2007, the Company had outstanding common stock options of 500,000, common stock warrants of 1,681,500, and convertible debt subject to beneficial conversion of 894,617 common shares. The above common stock equivalents were deemed to be antidilutive for the Company’s year end of December 31, 2007.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
Earnings (Loss) Per Share - continued
As of December 31, 2006, the Company had outstanding common stock options of 500,000 common stock warrants of 1,931,500, and convertible debt subject to beneficial conversion of 247,904 common shares. The above options and warrants were deemed to be antidilutive for the Company’s year end of December 31, 2006.
Fair Value of Financial Instruments
The Company's financial instruments as defined by Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," include cash, trade accounts receivable, and accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2007 and December 31,
Foreign Currency Translation Gains/Losses
The Company has adopted Financial Accounting Standard No. 52. Monetary assets and liabilities denominated in foreign currencies are translated into United States dollars at rates of exchange in effect at the balance sheet date. Gains or losses are included in income for the year, except gains or losses relating to long-term debt which are deferred and amortized over the remaining term of the debt. Non-monetary assets, liabilities and items recorded in income arising from transactions denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. The Company’s functional currency is the U.S. dollar.
Goodwill
Under SFAS No. 142, goodwill must be tested annually for impairment using a two step process, the first process is to test the carrying value of the reporting unit vs. fair value. The second process tests if the carrying value exceeds fair value. If so, the carrying value is then compared vs. the fair value of goodwill to measure the amount of goodwill impairment loss, if any. The Company uses such methods as present value of discounted cash flows, prices of similar assets, independent appraisals, and other valuation techniques to determine fair value.
Impaired Asset Policy
The Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for Impairment of Disposal of Long-Lived Assets.” In complying with this standard, the Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by its assets to their respective carrying amount whenever events or changes in circumstances indicate that an asset may not be recoverable.
Principles of Consolidation
The December2007 financial statements include the accounts of Solar Energy Limited and its wholly owned subsidiaries: Hydro; Sunspring; REEL; and D2 Fusion, Inc. plus 54% of Planktos Corp. post acquisition. All intercompany accounts and transactions have been eliminated in the consolidation.
Vessels
Vessels and other fixed assets are stated at cost less accumulated depreciation. Vessels and other fixed assets are depreciated when the asset is ready for its intended use.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
Vessels - continued
Depreciation is calculated, based on cost, less estimated residual value, using the straight-line method, over the remaining economic life of each asset. The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the asset’s remaining estimated useful life or the estimated life of the renewal or betterment. Expenditures for routine maintenance and repairs are expensed as incurred.
Provision for Loss on Contract
The Company recognizes funding commitments for undeveloped programs as long term liabilities. As funding is advanced by the Company for the programs, the liability is reduced by the amount of the advances. As of December 31, 2007 this program was suspended, the Company no longer recognizes the funding commitment as a long term liability.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow recognition of such an asset.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, “Business Combinations”. This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements Liabilities - an Amendment of ARB No. 51” This statement amends ARB 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159 on its financial position and results of operations.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Reclassifications
Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the fiscal 2006 presentation. The reclassifications have no effect on net assets, net revenues, or net earnings.
Revenue Recognition
The Company recognizes revenue for product sales when there is a mutually executed sales contract, when the products are shipped and title passes to customers, when the contract price and terms are fixed, and when collectibility is reasonably assured.
Use of Estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has limited cash, no revenues, and an accumulated deficit since the inception of the Company. These factors indicate that the Company may be unable to continue in existence. The Company is currently putting business plans in place which will, if successful, mitigate these factors which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans includes the following: (1) obtaining funding from private placement sources; (2) obtaining additional funding from the sale of the Company’s securities; (3) generating revenues from the commercialization of its research and development projects; and (4) obtaining loans and grants from various financial institutions, where possible. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue existence.
NOTE 4 - VESSEL AND OTHER FIXED ASSETS
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 5 - STOCKHOLDERS' EQUITY TRANSACTIONS
During 2006, the Company issued 785,000 shares of common stock from the exercise of warrants for cash proceeds of $196,250 and 4,162,034 common shares for private placements for net cash proceeds of $1,205,306.
During 2007, the Company issued 1,250,000 shares of common stock for a private placement for $145,000 in cash and related party note payable debt settlement of $282,500 for net proceeds of $427,500, 500,000 shares of common stock from the exercise of warrants for cash proceeds of $125,000 and 300,000 shares of common stock for services valued at $150,000.
NOTE 6 - NOTES PAYABLE - RELATED PARTY
The loan from Bay Cove Capital Corp., a shareholder, is uncollateralized, bears interest at 6% per annum and is due upon demand. The loan balance, not including accrued interest, at April 30, 2007 and December 31, 2006 was $198,260 and $168,260, respectively. The accrued interest owing at April 30, 2007 and December 31, 2006 on this loan was $13,218 and $9,750, respectively. On May 1, 2007, Bay Cove Capital Corp. assigned the outstanding loan and accrued interest owing totaling $211,478 to Regal RV Resorts, Inc.
The loan from Regal RV Resorts, Inc., a shareholder, includes the $211,478 assignment of debt from Bay Cove Capital Corp., additional advances of $681,354, and a $282,500 repayment for a total owing of $610,332. Of this $610,332 loan, $97,511 is uncollateralized and bears no interest while $512,821 of the loan is uncollateralized and bears 6% per annum and is due upon demand. The accrued interest owing on this loan at December 31, 2007 and December 31, 2006 was $10,892 and $0, respectively.
NOTE 7 - DEBENTURE PAYABLE / DERIVATIVE
This loan bears interest at 10% per year for a three year term. Principal and interest may be converted into common shares of the Company at an average trading price of the previous 10 days once the holder has given the Company notice of conversion. Upon such notice, the maximum conversion price is $0.75 per common share. The holder of the debenture also has the right, at its option, to convert the principal and interest amount due into CO2 tons at any time prior to the end of the three year term, at a rate of one United States Dollar ($1.00) per CO2 ton, subject to Company’s ability to deliver such CO2 tons at the time of conversion. As of December 31, 2007, none of the principal of $100,000 or accrued interest of $14,064 has been converted.
The original $100,000 debenture was discounted by $29,551 in order to reflect the derivative portion of the note. This discount on the debenture is amortized over the life of the note on a quarterly basis. As of December 31, 2007, the discount has been amortized by $10,812 to $18,739 which when netted against the original note gives a value of the debenture payable of $81,261. The derivative portion is adjusted on a quarterly basis at fair market value. Any resulting gain or loss is recognized in the consolidated statement of operations.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 8 - COMMITMENTS
On May 31, 2007, the Company entered into a securities exchange agreement and plan of exchange with Enwin Resources, Inc whereby Solar intends to sell 100% ownership of D2 Fusion, Inc. to Enwin Resources, Inc., in exchange for an aggregate of 30,000,000 shares of Enwin Resources, Inc.’s common stock, and the fulfillment of certain conditions on or before closing. As of December 31, 2007, Enwin Resources, Inc. had advanced $344,500 (which is included in advances payable) towards working capital, these advances have no specific due dates for repayment, are currently uncollateralized, and accrue interest at 6%. Conditions of this agreement were not met and the transaction was terminated.
Lease Commitments
The Company's maintains an office located in Vancouver, British Columbia. The Company pays approximately $2,700 a month. The term of the Company’s lease is five years terminating at the end of April in 2009.
The Company also maintains office and research and development space for both Planktos and D2Fusion in Foster City, California. The Company pays approximately $4,200 a month, notice has been given of Planktos’ intent to vacate the premises as of April 30, 2008.
The Company maintains additional office and research and development space for D2Fusion in Los Alamos, New Mexico. The Company pays approximately $2,000 a month. The term of the Company’s lease is on a month to month basis.
The Company’s future obligations under mineral and office space operating lease agreements are as follows:
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 9 - STOCK OPTIONS
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (“SFAS No. 123R”), “Share-Based Payment”, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and instead generally requires that such transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation.” The Company has elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006. The Company has adopted the requirements of SFAS No. 123R for the fiscal year beginning on January 1, 2006 under the prospective method.
Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro-forma provisions of SFAS No. 123.
Prior to the adoption of SFAS No. 123R, the Company measured compensation expense for its employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. The Company applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” as if the fair-value-based method had been applied in measuring compensation expense. Under APB Opinion No. 25, when the exercise price of the Company’s employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized.
Information with respect to the Company’s stock options at December 31, 2007 is as follows:
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 10 - WARRANTS
A summary of the Company’s warrants at December 31, 2007 and December 31, 2006 and the changes for 2007 are as follows:
Weighted
Weighted
Average
Average
Warrants
Exercise
Remaining
Outstanding
Price
Life
Balance, December 31, 2005
2,185,000
$ 0.28
1.71 years
Issued
531,500
0.40
1.32
Exercised / Cancelled / Expired
(785,000)
(0.25)
-
Balance, December 31, 2006
1,931,500
0.33
0.81
Issued
1,250,000
0.40
1.84
Exercised / Cancelled / Expired
(1,400,000)
(0.30)
-
Balance December 31, 2007
1,781,500
$ 0.40
106 years
NOTE 11 - INCOME TAXES
At December 31, 2007 and 2006 the Company had gross deferred tax assets calculated at the expected rate of 35% of approximately $3,469,000 and $2,339,000, respectively, principally arising from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of $3,469,000 and $2,339,000 has been established at December 31, 2007 and 2006, respectively.
The significant components of the Company’s net deferred tax asset (liabilities) at December 31, 2007 and 2006 are as follows:
Gross deferred tax assets (liabilities):
At December 31, 2007 and 2006, the Company has net operating loss carryforwards of approximately $9,913,000 and $6,684,000 respectively, which will expire in the years 2023 through 2022. The net change in the allowance account was an increase of $1,130,000.
SOLAR ENERGY LIMITED
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2007
NOTE 12 - DISCONTINUED OPERATIONS
In December 2007, the Company’s majority owned subsidiary, Planktos Corp., suspended its Iron-Fertilization Prove-Out operations and initiated negotiations for the sale of the related assets (See Notes 1 and 13). Accordingly, this business component has been presented as discontinued operations within the consolidated financial statements in accordance with SFAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived Assets” and EITF 03-13. As discussed in Note 1, Planktos Corp was engaged in research related to creation and sales of “Kyoto Protocol” certified emission reduction credits.
The loss from disposal of discontinued operations for the year ended December 31, 2007 includes Planktos operations of $2,841,810 and the recognition of previously recorded deferred revenues of $250,000 and provision for loss on contract of $967,500.
NOTE 13 - SUBSEQUENT EVENTS
On January 21, 2008, Planktos entered into a letter of intent with the St Petersburg Environmental Research Center (“SPERC”) to sell its research vessel the Weatherbird II according to certain terms and conditions in exchange for a purchase price of $1,000,000 of which $100,000 was paid on acceptance of the letter of intent. Further to mutual agreement, the terms of the letter of intent were subsequently assigned to Sperc Explorer, Inc. The balance of the purchase price was paid to Planktos on February 29, 2008 at which time title to the Weatherbird II passed to Sperc Explorer, Inc.
On February 21, 2008 Planktos executed an Agreement to sell its sixty percent (60%) interest in Klimafa to Dr. David Gazdag in exchange for two hundred and fifty thousand dollars ($250,000) in the form of a convertible debenture with a repayment term being the earlier of ten years or Klimafa’s generation of cash flow, bearing interest at four percent (4%) per annum, convertible into sequestered tones of carbon dioxide credits.
On February 22, 2008 the Company and Planktos entered into a Settlement and Release Agreement with Russ George. The agreement provided that Russ George resign his positions as the Company’s chief executive officer, chief financial officer and principal accounting officer, resign from the Company’s board of directors and return to Solar for cancellation 3,500,000 shares of Solar that were issued to him for his ownership interest in Planktos (and his interest in D2Fusion, Inc., a wholly owned subsidiary of the Company) in exchange for his right to the exclusive use of the name Planktos and the non-exclusive use of the proprietary know-how associated with both “iron-fertilization” and cold fusion.
.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by the Company’s management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, 2007. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process, under the supervision of the chief executive officer and the chief financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors; and
•
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 or procedures may deteriorate.
The Company’s management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management identified material weaknesses in internal control over financial reporting.
A material weakness is a control deficiency, or a 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.
The material weaknesses identified are disclosed below.
Lack of Appropriate Independent Oversight. The board of directors has not provided an appropriate level of oversight of the Company’s consolidated financial reporting and procedures for internal control over financial reporting, including appropriate authorization of transactions and subsidiary operations. Throughout the fiscal year ended December 31, 2007, the Company engaged in a number of related party transactions to secure funding for its operations from other companies under common control. Bookkeeping for these companies is performed by the same individual, and, in addition, the individual who authorizes the transactions for either party is common to both parties. There are, at present, no independent directors who could provide an appropriate level of oversight, including challenging management’s accounting for and reporting of the transactions.
Sufficiency of Accounting Personnel. The Company has a highly complex organizational structure, and limited accounting personnel resources to prepare the financial statements, including performance of the consolidation of the Company and its subsidiaries. As a result of resource constraints, certain errors in the consolidation of the Company and its subsidiaries were not detected by the Company’s internal control over financial reporting.
As a result of the material weaknesses in internal control over financial reporting described above, the Company’s management has concluded that, as of December 31, 2007, that the Company’s internal control over financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this annual report.
Remediation of Material Weaknesses in Internal Control over Financial Reporting
The Company is actively remedying the material weaknesses identified above.
Changes in Internal Control over Financial Reporting
As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the year ended December 31, 2007, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
PART III
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Officers and Directors
The following table sets forth the name, age and position of each director and executive officer of the Company:
Nelson Skalbania was appointed as the chief executive officer, chief financial officer, and principal accounting officer of the Company on January 4, 2008.
Mr. Skalbania graduated from the University of British Columbia with a Bachelor of Applied Science in 1961 and received his Professional Engineering license in 1963. In 1964 Mr. Skalbania received his Master of Science in Civil Engineering from the California Institute of Technology, Pasadena.
Mr. Skalbania was a founding partner of McKenzie, Snowball & Skalbania, a major consulting engineering company based in Vancouver, British Columbia that offered services related to structural, mechanical and civil engineering. Under Mr. Skalbania’s direction the firm grew to over 100 employees and was eventually split into three independent engineering companies.
Mr. Skalbania has been active in the real estate business for the past 40 years and during the peak years, 1970 to 1980 the transaction volume approached $500 million annually. Additionally, he owned part or all of 10 separate professional sports teams, including the Calgary Flames and Edmonton Oilers (5 hockey, 1 baseball, 2 soccer and 2 football teams). Mr. Skalbania has been involved in acquiring and financing various operating companies: (brewery, sawmill, several hotels, oil service-company, mining, etc.) More recently he has focused on business in the renewable energy and environmentally friendly companies. Currently he is the president and director of Regal RV Resorts, Inc. (“Regal”), a consulting company and shareholder of the Company.
Mr. Skalbania is not a director of any reporting corporations other than the Company.
Andrew Wallace was appointed to the Company’s board of directors in February of 2004, and has served as the Company’s CFO from September 13, 2005 and the Company’s CEO from October 6, 2005 to January 4, 2008.
Mr. Wallace attended the University of British Columbia Faculty of Business Administration and Commerce and has extensive business experience in real estate development. Mr. Wallace acted as a principal of RV Resort Management Consultants, Inc. and was instrumental in the development of the Spokane RV Resort between 2001 and 2003. Between 1998 and 2001, Mr. Wallace was a founding partner of Ontera RV Resorts, Inc., a development that re-positioned RV Resorts throughout California. Prior to joining Ontera RV Resorts, Mr. Wallace was a director of financing for Westone Properties, Inc., and was responsible for raising capital to fund real estate development projects in British Columbia.
Mr. Wallace is not a director of any reporting corporations other than the Company.
No other persons are expected to make any significant contributions to the Company’s executive decisions who are not executive officers or directors of the Company.
Term of Office
Our directors are appointed for a one (1) year term to hold office until the next annual meeting of our shareholders or until removed from office in accordance with our bylaws. Our executive officers are appointed by our Board of Directors and hold office until removed by the board.
Family Relationships
There are no family relationships between or among the directors or executive officers
Director Independence
The Company is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have director independence requirements. However, for purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 4200(a)(15). NASDAQ Rule 4200(a)(15) states that a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. We do not consider the Company to have any independent directors at this time.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Compliance with Section 16(A) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, we are unaware of any person who, during the period ended December 31, 2007, failed to file, on a timely basis, reports required by Section 16(a) of the Securities Exchange Act of 1934, except Andrew Wallace, a director and executive officer, who failed to file on Form 3, 4 or 5.
Code of Ethics
The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal executive officer, principal financial officer, controller, and persons performing similar functions. The Company has incorporated a copy of its Code of Ethics as Exhibit 14 to this form 10-K. Further, our Code of Ethics is available in print, at no charge, to any security holder who requests such information by contacting us.
Board of Directors Committees
The board of directors has not established an audit committee. An audit committee typically reviews, acts on and reports to the board of directors with respect to various auditing and accounting matters, including the recommendations and performance of independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, and internal accounting and financial control policies and procedures. Certain stock exchanges currently require companies to adopt a formal written charter that establishes an audit committee that specifies the scope of an audit committee’s responsibilities and the means by which it carries out those responsibilities. In order to be listed on any of these exchanges, the Company will be required to establish an audit committee. The board of directors has not established a compensation committee.
The Company’s board of directors has not established a compensation committee.
Director Compensation
Directors currently are not reimbursed for out-of-pocket costs incurred in attending meetings nor are they typically compensated for their service as directors. However, the Company has a consulting agreement with RV Regal Resorts, Inc., which entity is owned by Nelson Skalbania, one of our current directors to render services pertinent to our operation. However, since Mr. Skalbania did not join the board of directors until subsequent to year end 2007, no compensation was paid to him during this prior period as a director. The Company may adopt a provision for compensating directors in the future.
Compensation Discussion and Analysis
The objective of the Company’s compensation program is to provide compensation for services rendered as an executive officer. Our salaries are designed to retain the services of our executive officer. Salary is currently the only type of compensation we utilize in our compensation program. We utilize this form of compensation because we feel that it is adequate to retain and motivate our executive officer. The amounts we deem appropriate to compensate our executive officer are determined in accordance with market forces; we have no specific formula to determine compensatory amounts at this time. While we have deemed that our current compensatory program and the decisions regarding compensation are easy to administer and are appropriately suited for our objectives, we may expand our compensation program to any additional future employees to include options and other compensatory elements.
Tables
The following table provides summary information for the years 2007, and 2006 concerning cash and non-cash compensation paid or accrued by the Company to or on behalf of (i) the chief executive officer and (ii) any other employee to receive compensation in excess of $100,000.
*
Resigned as chief executive officer, chief financial officer and principal accounting officer on January 4, 2008
**
Appointed as chief executive officer, chief financial officer and principal accounting officer on January 4, 2008
We have no “Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal Year-End”, “Option Exercises and Stock Vested”, “Pension Benefits”, or “Nonqualified Deferred Compensation”. Nor do we have any “Post Employment Payments” to report.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information concerning the ownership of the Company’s 21,923,309 shares of common stock issued and outstanding as of April 14, 2008, with respect to: (i) all directors; (ii) each person known by us to be the beneficial owner of more than five percent of our common stock; and (iii) our directors and executive officers as a group.
*
Nelson Skalbania is considered the beneficial owner of those shares attributed to the legal entities marked hereto and 300,000 shares held in his own name
**
Russ George has agreed to return his shares of the Company’s common stock for cancellation and return to authorized share capital pursuant to the Settlement and Release Agreement dated February 22, 2008. The shares are in the Company’s possession but are yet to be submitted to its transfer agent for cancellation.
None of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction in the period covered by this report or in any presently proposed transaction which, in either case, has or will materially affect us, except as follows:
On May 1, 2007, the Company authorized the issuance of 1,150,000 units, each unit comprised of one common share and one purchase warrant with an exercise price of $0.40 for a period of 24 months to Regal RV Resorts, Inc. pursuant to exemptions from registration provided by Section 4(2) and Regulation S of the Securities Act of 1933 in exchange for cash consideration of $402,500 or $0.35 per unit.
On May 17, 2007 the Company authorized the issuance of 200,000 shares of common stock valued at $0.51 a share to Regal RV Resorts, Inc. as required by the consulting agreement, as amended, pursuant to exemptions from registration provided by Section 4(2) and Regulation S of the Securities Act of 1933 for services rendered.
The Company owed Regal RV Resorts, Inc. $735,332 at December 31, 2007, from loans and amounts due under its consulting agreement with us.
Audit Fees
Williams & Webster, P.S., provided audit services in connection with its annual report for the fiscal year ended December 31, 2006. The aggregate of fees billed by Williams & Webster for the audit of the Company’s financial statements was $33,681 in 2007 and $25,000 in 2006.
Audit Related Fees
Williams & Webster, P.S., billed to the Company no fees in 2007 or 2006 for professional services that are reasonably related to the audit of the Company’s financial statements that are not disclosed in “Audit Fees” above.
Tax Fees
Williams & Webster, P.S., billed to the Company no fees in 2007 or 2006 for professional services rendered in connection with the preparation of the Company's tax return for the period.
All Other Fees
Williams & Webster, P.S., billed to the Company no fees in 2007 or 2006 for professional services rendered or any other services not disclosed above.
Audit Committee Pre-Approval
The Company does not have a standing audit committee. Therefore, all services provided to the Company by Williams & Webster, P.S. were pre-approved by the Company’s board of directors. Williams & Webster, P.S. performed all work only with their permanent full time employees.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Consolidated Financial Statements
The following documents are filed under “Item 8.