x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31,
2007
o TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
||
Nevada
|
88-0467241
|
|
(State
or Other Jurisdiction
|
IRS
Employer
|
|
of
Incorporation or Organization)
|
Identification
Number
|
Securities
registered under Section 12(b) of the Exchange Act:
|
|
Title
of each class registered:
|
Name
of each exchange on which registered:
|
None
|
Over-the-Counter
Bulletin Board
|
Securities
registered under Section 12(g) of the Exchange Act:
|
|
Common
Stock, par value $0.0001
(Title
of class)
|
PART
I
|
Page
No.
|
|
Description
of Business
|
6 | |
The
Company
|
||
Products
|
||
Trademarks
|
||
Significant
Events
|
||
Item
2.
|
Properties
|
|
Item
3.
|
Legal
Proceedings
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
|
PART
II
|
||
Item
5.
|
Market
for Common Equity and Related Stockholder Matters
|
|
Management’s
Discussion and Analysis or Plan of Operation
|
24 | |
Financial
Statements
|
30 | |
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
50 | |
Controls
and Procedures
|
50 | |
Other
Information
|
53 | |
PART
III
|
||
Item
9.
|
Directors,
Executive Officers and Corporate Governance
|
|
Item
10.
|
Executive
Compensation
|
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
|
Item
12.
|
Certain
Relationships and Related Transactions
|
|
Exhibits
|
54 | |
Principal
Accountant Fees and Services
|
54 |
·
|
The
availability and adequacy of our cash flow to meet our
requirements;
|
·
|
Economic,
competitive, demographic, business and other conditions in our local and
regional markets;
|
·
|
Changes
or developments in laws, regulations or taxes in our
industry;
|
·
|
Actions
taken or omitted to be taken by third parties including our suppliers and
competitors, as well as legislative, regulatory, judicial and other
governmental authorities;
|
·
|
Competition
in our industry;
|
·
|
The
loss of or failure to obtain any license or permit necessary or desirable
in the operation of our business;
|
·
|
Changes
in our business strategy, capital improvements or development
plans;
|
·
|
The
availability of additional capital to support capital improvements and
development; and
|
·
|
Other
risks identified in this report and in our other filings with the
Securities and Exchange Commission or the
SEC.
|
Typical
Specifications
|
|
Tests
|
Results
|
Viscosity @ 37.8º
C,CS
|
10.39
|
Viscosity @ 100º F,
SSU
|
60.2
|
Specific Gravity @
15.6/15.6ºC
|
0.93
|
API Gravity,
Degrees
|
26.6
|
Flash Point, COC, ºC
(ºF)
|
149ºC
(300ºF)
|
Color and
Appearance
|
Light, bright and
clear
|
Sediment
|
None
|
•
|
The Company was the
surviving legal corporation,
|
•
|
The Company acquired
all issued and outstanding shares of Ethos in exchange for 17,718,187
shares of common stock of the Company. Shares of Company common stock,
representing an estimated 97% of the total issued and outstanding shares
of Company common stock, was issued to the Ethos
stockholders,
|
•
|
The shareholders of the
Company received pro rata for their shares of common stock of Ethos,
17,718,187 shares of common stock of the Company in the merger, and all
shares of capital stock of Ethos were cancelled,
|
•
|
The officers and
directors of Ethos became the officers and directors of the
Company,
|
•
|
The name of Victor
Industries, Inc. was changed to “Ethos Environmental, Inc.”,
and
|
•
|
Ethos requested a new
symbol for trading on the Over the Counter Bulletin Board (“OTCBB”), which
also reflects the reverse stock split of 1 for 1,200, the new symbol of
the Company is “ETEV.”
|
· Difficulty getting it
to start burning o Difficulty getting it to burn completely o Tendency to
wax and gel
|
· With introduction of
low sulfur fuel, reduced lubrication
|
· Soot clogging injector
nozzles
|
· Particulate
emissions
|
· Water in the
fuel
|
· Bacterial
growth
|
Sales of Distillate Fuel Oil by End Use 2006 | |
(Thousands of
Gallons)
|
|
Residential
|
4,984,826
|
Commercial
|
2,808,786
|
Industrial
|
2,463,676
|
Oil
Company
|
636,788
|
Farm
|
3,261,345
|
Electric
Power
|
656,355
|
Railroad
|
3,552,430
|
Vessel
Bunkering
|
1,903,138
|
On-Highway
|
39,118,301
|
Military
|
327,827
|
Off-Highway
|
2,478,554
|
All
Other
|
0
|
62,192,026
|
|
Notes: Totals
may not equal sum of components due to independent
rounding.
|
|
Sources: Energy
Information Administration Form EIA-821, "Annual
Fuel
|
|
Oil and Kerosene Sales
Report for
2002-2006.
|
Index | |
Report of Independent Auditor | F-1 |
Consolidated Balance Sheets | F-2 |
Consolidated Statements of Operations | F-3 |
Consolidated Statements of Cash Flows | F-4 |
Statement of Consolidated Stockholders’ Equity | F-5 |
Notes to the Consolidated Financial Statements | F-6 |
December
31,
2007
$
(Restated
– Note 11)
|
December
31,
2006
$
(Restated
– Note 11)
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
|
74,176 | 64,867 | ||||||
Accounts
Receivable, net of allowance of doubtful accounts
|
84,248 | 295,932 | ||||||
Inventory
(Note 3)
|
602,399 | 410,915 | ||||||
Other
Current Assets
|
– | 19,900 | ||||||
Total
Current Assets
|
760,823 | 791,614 | ||||||
Property
and Equipment (Note 4)
|
118,916 | 6,354,740 | ||||||
Other
Assets
|
399,419 | 5,000 | ||||||
Total
Assets
|
1,279,158 | 7,151,354 | ||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
Payable
|
223,891 | 311,119 | ||||||
Accrued
Liabilities
|
109,300 | 101,488 | ||||||
Notes
Payable (Note 5)
|
350,000 | 5,167,819 | ||||||
Demand
Loan (Note 5(a))
|
246,521 | 50,000 | ||||||
Total
Liabilities
|
929,712 | 5,630,426 | ||||||
Stockholders’
Equity
|
||||||||
Common
Stock (Note 6)
Authorized:
100,000,000 common shares, par value: $0.0001 per common
share
Issued
and outstanding: 37,998,562 and 24,334,562 common shares,
respectively
|
3,800 | 2,434 | ||||||
Additional
Paid-In Capital (Note 6)
|
44,779,632 | 21,369,867 | ||||||
Accumulated
Deficit
|
(44,433,986 | ) | (19,851,373 | ) | ||||
Total
Stockholders’ Equity
|
349,446 | 1,520,928 | ||||||
Total
Liabilities and Stockholders’ Equity
|
1,279,158 | 7,151,354 | ||||||
For
the Year Ended December 31,
2007
|
For
the Year Ended December 31,
2006
|
|||||||
$
(Restated
– Note 11)
|
$
(Restated
– Note 11)
|
|||||||
Revenue
|
1,355,141 | 1,521,166 | ||||||
Cost
of Sales
|
745,136 | 456,471 | ||||||
Gross
Profit
|
610,005 | 1,064,995 | ||||||
Operating
Expenses
|
||||||||
Amortization
Expense
|
20,193 | 18,865 | ||||||
Bad
Debt Expense (Note 2(d))
|
427,530 | – | ||||||
General
and Administrative
|
17,655,463 | 12,925,739 | ||||||
Impairment
of Property and Equipment
|
– | 36,728 | ||||||
Selling
Expense
|
6,861,554 | 4,609,910 | ||||||
Total
Operating Expenses
|
24,964,740 | 17,591,242 | ||||||
Total
Operating Loss
|
(24,354,735 | ) | (16,526,547 | ) | ||||
Other
Income (Expenses)
|
||||||||
Interest
Expense
|
(618,084 | ) | (620,244 | ) | ||||
Other
Expense
|
– | (58,931 | ) | |||||
Other
Income
|
390,206 | 730,813 | ||||||
Net
Loss
|
(24,582,613 | ) | (16,474,909 | ) | ||||
Net
Loss Per Share – Basic and Diluted
Net
Loss Per Share – Basic and Diluted
|
(0.87 | ) | (0.78 | ) | ||||
Weighted
Average Shares Outstanding
|
28,197,683 | 21,188,318 | ||||||
For
the Year Ended December 31,
2007
|
For
the Year Ended December 31,
2006
|
|||||||
$
(Restated
– Note 11)
|
$
(Restated
– Note 11)
|
|||||||
Operating
Activities
|
||||||||
Net
Loss For The Year
|
(24,582,613 | ) | (16,474,909 | ) | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Amortization
Expense
|
201,093 | 292,096 | ||||||
Bad
Debt Expense
|
427,530 | – | ||||||
Common
Stock Issued for Services
|
13,214,960 | 14,927,010 | ||||||
Impairment
from Sale Leaseback of Building
|
1,500,000 | – | ||||||
Impairment
from Sale of Property and Equipment
|
– | 36,728 | ||||||
Share
Purchase Warrants Issued for Debt Extinguishment
|
6,646,171 | – | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
Receivable
|
(215,846 | ) | (5,875 | ) | ||||
Inventory
|
(191,484 | ) | (151,351 | ) | ||||
Other
Assets
|
(374,519 | ) | 67,209 | |||||
Accounts
Payable and Accrued Liabilities
|
(79,416 | ) | (428,508 | ) | ||||
Net
Cash Used In Operating Activities
|
(3,454,124 | ) | (1,737,600 | ) | ||||
Investing
Activities
|
||||||||
Purchase
of Property and Equipment
|
(198,680 | ) | (6,359,874 | ) | ||||
Proceeds
on Sale of Equipment, net
|
6,233,411 | 589 | ||||||
Net
Cash Provided By (Used in) Investing Activities
|
6,034,731 | (6,359,285 | ) | |||||
Financing
Activities
|
||||||||
Proceeds
from Capital Contribution
|
– | 957,616 | ||||||
Proceeds
from Issuance of Common Shares
|
2,050,000 | 1,550,819 | ||||||
Proceeds
from Issuance of Note Payable
|
350,000 | 5,167,819 | ||||||
Proceeds
from Related Parties
|
196,521 | 50,000 | ||||||
Repayment
of Note Payable
|
(5,167,819 | ) | (13,000 | ) | ||||
Repurchase
of Common Shares
|
– | (50,000 | ) | |||||
Net
Cash Provided By (Used In) Financing Activities
|
(2,571,298 | ) | 7,663,254 | |||||
Increase
(Decrease) in Cash
|
9,309 | (433,631 | ) | |||||
Cash
– Beginning of Period
|
64,867 | 498,498 | ||||||
Cash
– End of Period
|
74,176 | 64,867 | ||||||
Supplemental
Disclosures
|
||||||||
Interest
paid
|
– | – | ||||||
Income
tax paid
|
– | – | ||||||
Common
Stock
|
Additional
|
Accumulated
|
|||||||
Shares
|
Par
Value
|
Paid-In
Capital
|
Deficit
|
Total
|
|||||
#
|
$
|
$
|
$
|
$
|
|||||
Balance
– December 31, 2004
|
17,609,992
|
1,761
|
3,805,764
|
(2,324,827)
|
1,482,698
|
||||
Issuance
of common shares for cash
|
5,108,395
|
511
|
175,689
|
–
|
176,200
|
||||
Net
loss for the year
|
–
|
–
|
–
|
(1,051,637)
|
(1,051,637)
|
||||
Balance
– December 31, 2005
|
22,718,387
|
2,272
|
3,981,453
|
(3,376,464)
|
607,261
|
||||
Repurchase
of common shares
|
(5,000,200)
|
(500)
|
(49,500)
|
–
|
(50,000)
|
||||
Recapitalization
Transaction
|
|||||||||
Shares
of Victor Industries Inc.
|
479,500
|
48
|
(48)
|
–
|
–
|
||||
Net
assets assumed in recapitalization
|
–
|
–
|
3,131
|
–
|
3,131
|
||||
Capital
Contribution
|
–
|
–
|
957,616
|
–
|
957,616
|
||||
Issuance
of common shares to settle services
|
4,910,000
|
491
|
13,574,499
|
–
|
13,574,990
|
||||
Issuance
of common shares for cash
|
776,225
|
78
|
1,550,741
|
–
|
1,550,819
|
||||
Issuance
of common shares for services
|
350,650
|
35
|
751,985
|
–
|
752,020
|
||||
Issuance
of common shares for services
|
100,000
|
10
|
599,990
|
–
|
600,000
|
||||
Net
loss for the year
|
–
|
–
|
–
|
(16,474,909)
|
(16,474,909)
|
||||
Balance
– December 31, 2006 (Restated – Note 11)
|
24,334,562
|
2,434
|
21,369,867
|
(19,851,373)
|
1,520,928
|
||||
Issuance
of common shares for services
|
11,214,000
|
1,121
|
13,213,839
|
–
|
13,214,960
|
||||
Issuance
of common shares for cash
|
2,500,000
|
250
|
2,049,750
|
–
|
2,050,000
|
||||
Fair
value of share purchase warrants
|
–
|
–
|
6,646,171
|
–
|
6,646,171
|
||||
Impairment
of Sale Leaseback of Equipment
|
–
|
–
|
1,500,000
|
–
|
1,500,000
|
||||
Cancellation
of common shares
|
(50,000)
|
(5)
|
5
|
–
|
–
|
||||
Net
loss for the year
|
–
|
–
|
–
|
(24,582,613)
|
(24,582,613)
|
||||
Balance
– December 31, 2007 (Restated – Note 11)
|
37,998,562
|
3,800
|
44,779,632
|
(44,433,986)
|
349,446
|
1.
|
Nature
of Operations
|
2.
|
Summary
of Significant Accounting Policies
|
|
a)
|
Basis
of Presentation
|
|
b)
|
Use
of Estimates
|
|
2.
|
Summary
of Significant Accounting Policies
(continued)
|
|
c)
|
Cash
and Cash Equivalents
|
|
d)
|
Accounts
Receivable
|
|
Accounts
receivable are stated at their principal balances and are non-interest
bearing and unsecured. Management conducts a periodic review of
the collectability of accounts receivable and deems all unpaid amounts
greater than 30 days to be past due. If uncertainty exists with
respect to the recoverability of certain amounts based on historical
experience or economic climate, management will establish an allowance
against the outstanding receivables. For the year ended
December 31, 2007, the Company recorded bad debt expense of $427,530
related to one customer who has defaulted on their amount
owing. As at December 31, 2007 and 2006, the Company recorded
an allowance for doubtful accounts of $111,362 and $126,485,
respectively.
|
|
e)
|
Inventory
|
|
Inventory
is comprised of raw materials and finished goods of its fuel reformulating
products and is recorded at the lower of cost or net realizable value on a
first in first out (FIFO) basis. The Company establishes inventory
reserves for estimated obsolete or unmarketable inventory equal to the
differences between the cost of inventory and the estimated realizable
value based upon assumptions about future and market conditions. Shipping
and handling costs are classified as a component of cost of sales in the
statement of operations.
|
|
f)
|
Property
and Equipment
|
|
Property
and equipment are recorded at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the anticipated
lease term or the estimated useful life. The Company's policy is to
capitalize items with a cost greater than $4,000 and an estimated useful
life greater than one year. The Company reviews all property and equipment
for impairment at least annually. Typically, the company depreciates its
assets over a 5 year period except for the building which is depreciated
on a 25 year basis.
|
|
g)
|
Revenue
Recognition
|
|
The
Company will recognize revenue from the sale of its fuel reformulating
products in accordance with Securities and Exchange Commission Staff
Bulletin No. 104 (“SAB 104”), “Revenue Recognition in
Financial Statements”. Revenue will be recognized only when the
price is fixed or determinable, persuasive evidence of an arrangement
exists, the service is provided, and collectibility is
assured.
|
|
h)
|
Basic
and Diluted Net Income (Loss) Per
Share
|
|
i)
|
Comprehensive
Loss
|
|
j)
|
Financial
Instruments
|
|
2.
|
Summary
of Significant Accounting Policies
(continued)
|
|
k)
|
Foreign
Currency Translation
|
|
Potential
benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted SFAS No. 109
“Accounting for Income
Taxes” as of its inception. Pursuant to SFAS No. 109 the Company is
required to compute tax asset benefits for net operating losses carried
forward. The potential benefits of net operating losses have not been
recognized in these consolidated financial statements because the Company
cannot be assured it is more likely than not it will utilize the net
operating losses carried forward in future
years.
|
|
n)
|
Stock-Based
Compensation
|
|
The
Company records stock-based compensation in accordance with SFAS No. 123R
“Share Based Payments”, using the fair value method. All transactions in
which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Equity instruments issued to
employees and the cost of the services received as consideration are
measured and recognized based on the fair value of the equity instruments
issued.
|
o)
|
Recent
Accounting Pronouncements
|
|
o)
|
Recent
Accounting Pronouncements
(continued)
|
December
31,
2007
$
|
December
31,
2006
$
|
|||||||
Raw
Materials
|
267,278 | 335,381 | ||||||
Finished
Goods
|
335,121 | 75,534 | ||||||
602,399 | 410,915 |
Net
Book Value
|
||||||||||||||||
Cost
$
|
Accumulated
Amortization
$
|
December
31, 2007
$
|
December
31, 2006
$
|
|||||||||||||
Building
and Land
|
– | – | – | 5,666,824 | ||||||||||||
Computers
|
36,637 | 35,482 | 1,155 | 12,762 | ||||||||||||
Equipment
|
235,257 | 120,339 | 114,918 | 669,609 | ||||||||||||
Furniture
and Fixtures
|
16,698 | 13,855 | 2,843 | 5,545 | ||||||||||||
288,592 | 169,676 | 118,916 | 6,354,740 |
|
a)
|
As
at December 31, 2007, the Company owed $246,521 (2006 - $50,000) in a
demand loan for financing of operations. Under the terms of the
loan, the amount is unsecured, non-interest bearing, and due on
demand.
|
|
b)
|
In
December 2007, the Company entered into a Demand Loan Agreement with a
third party for $350,000. Under the terms of the loan, the
amount was unsecured, non-interest bearing, and due on
demand.
|
|
b)
|
On
December 26, 2006, the company entered into a Demand Loan Agreement with a
third party for $500,000 with an annual interest rate of 12%. As at
December 31, 2007, the Company had fully repaid the demand
loan.
|
|
c)
|
On
January 26, 2006, the Company secured a loan for its building in the
amount of $4,750,000 with a convertible Promissory Note. The Note was
convertible into 1,900,000 common shares of the Company at a conversion
rate of $2.50 per common share. The Note carried an annual
interest rate of 17% with interest-only payments and a term of one
year.
|
6.
|
Common
Shares
|
|
Transactions
for the year ended December 31,
2007:
|
|
a)
|
On
November 27, 2007, the Company issued 350,000 common shares of the Company
at $2.05 per common share to settle consulting services valued at
$717,500.
|
|
b)
|
On
November 21, 2007, the Company issued 20,000 common shares of the Company
at $2.15 per common share to settle consulting services valued at
$43,000.
|
|
c)
|
On
November 9, 2007, the Company issued 167,500 common shares of the Company
at $1.20 per common share to settle consulting services and professional
fees valued at $201,000.
|
|
d)
|
On
October 13, 2007, the Company issued 10,025,000 common share of the
Company at $0.95 per common share to settle consulting services,
professional fees, and management fees totalling $9,523,750, including
5,000,000 common shares to the Company’s Chief Executive Officer with a
fair value of $4,750,000.
|
|
e)
|
On
July 24, 2007, the Company issued 2,500,000 common shares of the Company
in a private placement agreement as part of the sale of the Company’s land
and building, for proceeds of $2,000,000. The remaining
$5,875,000 of the purchase and sale agreement has been allocated to the
sale of the land and building.
|
6.
|
Common
Shares (continued)
|
|
f)
|
On
April 27, 2007, the Company issued 127,500 common shares of the Company at
$3.10 per common share, or fair value of $395,250, for consulting services
incurred.
|
|
g)
|
On
April 5, 2007, the Company cancelled 50,000 common shares of the Company
and returned the shares to
treasury.
|
|
h)
|
On
April 4, 2007, the Company issued 156,000 common shares of the Company at
$4.25 per common share, or fair value of $663,000, for professional fees
and consulting services incurred.
|
|
i)
|
On
March 23, 2007, the Company issued 100,000 common shares of the Company at
$4.00 per common share, or fair value of $400,000, for professional fees
and consulting services incurred.
|
|
j)
|
On
March 9, 2007, the Company issued 10,000 common shares of the Company at
$3.54 per common share, or fair value of $35,400, for professional fees
incurred.
|
|
k)
|
On
February 6, 2007, the Company issued 58,000 common shares of the Company
at $4.07 per common share, or fair value of $236,060, for professional
fees and consulting services
incurred.
|
|
l)
|
On
January 24, 2007, the Company issued 200,000 common shares at $5.00 per
common share, or fair value of $1,000,000, for consulting services
incurred.
|
|
Transactions
for the year ended December 31,
2006:
|
|
m)
|
On
December 4, 2006, the Company issued 100,000 common shares of the Company
to the Chief Financial Officer of the Company at $6.00 per common share
for a fair value of $600,000 as part of the compensation
package.
|
|
n)
|
On
November 21, 2006, the Company issued 1,310,000 common shares of the
Company for consulting services at $5.00 per common
share.
|
|
o)
|
In
November 2006, the Company issued 776,225 common shares of the Company in
various private placements for gross proceeds of
$1,550,819.
|
|
p)
|
In
November 2006, the Company issued 350,650 common shares of the Company at
approximately $2.00 per common share to settle services valued at
$752,020.
|
|
q)
|
On
November 16, 2006, the Company approved a 1-to-1,200 reverse common stock
split that decreased the number of issued and outstanding common shares
from 573,850,485 common shares to 479,500 common shares after accounting
for rounding up of partial common shares affected by the reverse stock
split. The common stock split has been applied
retroactively.
|
|
r)
|
On
November 2, 2006, the Company issued 17,718,187 post-reverse split common
shares to acquire 100% of the common shares of Ethos Environmental, Inc.
in a reverse takeover transaction, as disclosed in Note 3. The
common shares issued have been applied
retroactively.
|
|
s)
|
On
November 1, 2006, the Company issued 3,500,000 post-reverse split common
shares of the Company to the President of the Company with a fair value of
$2.00 per common share as settlement of services. The fair
value of the common shares were derived by management using historical
share issuance prices to third parties, and were a result of pre-merger
activity.
|
|
t)
|
On
November 1, 2006, the Company issued 100,000 post-reverse split common
shares at $0.25 per common share to settle legal fees valued at
$25,000.
|
|
u)
|
During
the six months ended June 30, 2008, the Company received capital
contributions totalling $957,616 which has been recorded as additional
paid-in capital.
|
7.
|
Share
Purchase Warrants
|
|
In
May 2007, the Company issued 1,900,000 share purchase warrants as part of
the amendment of the loan agreement, as noted in Note 5(b)
above. Each warrant allows the warrant holder to purchase one
additional common share of the Company at $2.50 per common share within
three years of the signed date. As at December 31, 2007, no
share purchase warrants have been
exercised.
|
7.
|
Share
Purchase Warrants (continued)
|
|
During
the year ended December 31, 2007, the Company issued the following share
purchase warrants:
|
Number of Warrants
|
Exercise Price
|
|||||||
Balance
– December 31, 2006
|
– | – | ||||||
Issued
|
1,900,000 | $ | 2.50 | |||||
Balance
– December 31, 2007
|
1,900,000 | $ | 2.50 |
|
As
at December 31, 2007, the following share purchase warrants were
outstanding:
|
Number of Warrants
|
Exercise Price
|
Expiry Date
|
|||||
1,900,000 | $ | 2.50 |
May
23, 2010
|
||||
1,900,000 |
|
a)
|
During
the year ended December 31, 2007, the Company issued 5,000,000 common
shares to the Chief Executive Officer of the Company (now former Chief
Executive Officer of the Company) for management fees with a fair value of
$4,750,000.
|
|
a)
|
The
Company leases an office building under a lease agreement that expires in
July 2012. For the years ended December 31, 2006 and 2005, rent
expense totalled $52,657 and 66,844,
respectively.
|
|
In
October 2007, the Company completed a sale and leaseback agreement with
respect to its building. Commencing November 1, 2007, the
Company entered into a 15-year lease agreement, with monthly lease
payments of $63,000 in 2007. For the year ended December 31,
2007, the Company incurred lease expense of $126,000 (2006 -
$52,657).
|
|
During
the year ended December 31, 2007, the Company entered into various lease
agreements with respect to its manufacturing equipment, including sale
leaseback agreements of manufacturing equipment of approximately
$737,968. Under the lease terms, the monthly payment is based
on a factor of 0.04125 times the average outstanding loan balance for the
month. For the year ended December 31, 2007, the Company
incurred lease expense of $246,554 (2006 -
$4,996).
|
Amount
$
|
|
December
31, 2008
|
1,174,860
|
December
31, 2009
|
900,891
|
December
31, 2010
|
809,568
|
December
31, 2011
|
809,568
|
December
31, 2012
|
782,784
|
Thereafter
|
3,654,000
|
8,131,671
|
December
31,
2007
$
|
December
31,
2006
$
|
|||||||
Income
(Loss) Before Taxes
|
(24,582,613 | ) | (16,474,909 | ) | ||||
Statutory
rate
|
34 | % | 34 | % | ||||
Computed
expected tax recovery
|
(8,358,088 | ) | (5,601,469 | ) | ||||
Non-deductible
expenses
|
68,372 | 12,488 | ||||||
Change
in valuation allowance
|
8,289,716 | 5,588,981 | ||||||
Reported
income taxes
|
– | – |
December
31,
2007
$
|
December
31,
2006
$
|
|||||||
Deferred
tax asset
|
||||||||
-
Cumulative net operating losses
|
15,038,059 | 6,748,343 | ||||||
-
Less valuation allowance
|
(15,038,059 | ) | (6,738,343 | ) | ||||
Net
deferred tax asset
|
– | – |
Expiration
|
|||
Net
|
Date
of
|
||
Loss
|
Operating
|
||
Period
Incurred
|
$
|
Losses
|
|
December
31, 2004
|
801,800
|
2011
|
|
December
31, 2005
|
357,500
|
2020
|
|
December
31, 2006
|
5,589,000
|
2026
|
|
December
31, 2007
|
8,289,700
|
2027
|
|
15,038,000
|
|||
·
|
impairment
of goodwill and intangible assets upon the Company’s acquisition of Ethos
Environmental, Inc.;
|
·
|
recording
of fair value of issuance of common shares to management and directors of
the Company at the end-of-day trading price when the Company’s common
stock was publicly traded or based on the most recent third-party issuance
price when the Company’s common stock was not publicly
traded;
|
·
|
recording
of the issuance of common shares for cash proceeds and issuance of common
shares for services for the years ended December 31, 2007 and
2006;
|
·
|
recording
of the issuance in fiscal 2006 of common shares to the Company’s Chief
Financial Officer (CFO) that was previously booked during the year ended
December 31, 2007;
|
·
|
recording
of $901,080 of capital contributions for the year ended December 31,
2006;
|
·
|
reversal
of restricted cash that was previously recorded in the Company’s audited
financial statements, as the Company does not have ownership of the
funds;
|
·
|
property
and equipment that was purchased for personal use were written off and
charged to operations under general and administrative
expense;
|
·
|
impairment
of property & equipment that are no longer in the Company’s ownership
and use of operations and adjustments to amortization expense based on the
Company’s amortization policies;
and
|
·
|
reversal
of unsupported sales invoices and inventory purchases for the years ended
December 31, 2007 and 2006.
|
a)
|
Balance
Sheet
|
As
at December 31, 2007
|
||||||||||||
As
Reported
|
Adjustment
|
Restated
|
||||||||||
$ | $ | $ | ||||||||||
Assets
|
||||||||||||
Accounts
Receivable
|
5,951,275 | (5,867,027 | ) | 84,248 | ||||||||
Inventory
|
1,376,030 | (773,631 | ) | 602,399 | ||||||||
Total
Current Assets
|
7,401,481 | (6,640,658 | ) | 760,823 | ||||||||
Property
and Equipment
|
228,452 | (109,536 | ) | 118,916 | ||||||||
Other
Assets
|
699,419 | (300,000 | ) | 399,419 | ||||||||
Total
Assets
|
8,329,352 | (7,050,194 | ) | 1,279,158 | ||||||||
Stockholders’
Equity
|
||||||||||||
Common
Stock
|
3,687 | 113 | 3,800 | |||||||||
Additional
Paid-In Capital
|
35,615,040 | 9,164,592 | 44,779,632 | |||||||||
Accumulated
Deficit
|
(28,219,087 | ) | (16,214,899 | ) | (44,433,986 | ) | ||||||
Total
Stockholders’ Equity
|
7,399,640 | (7,050,194 | ) | 349,446 | ||||||||
Total
Liabilities and Stockholders’ Equity
|
8,329,352 | (7,050,194 | ) | 1,279,158 |
For
the Year Ended December 31, 2007
|
||||||||||||
As
Reported
|
Adjustment
|
Restated
|
||||||||||
$ | $ | $ | ||||||||||
Sales
Revenue
|
10,376,646 | (9,021,505 | ) | 1,355,141 | ||||||||
Cost
of Sales
|
3,404,735 | (2,659,599 | ) | 745,136 | ||||||||
Gross
Profit
|
6,971,911 | (6,361,906 | ) | 610,005 | ||||||||
Operating
Expenses
|
||||||||||||
Bad
Debt Expense
|
– | 427,530 | 427.530 | |||||||||
General
and Administrative
|
18,214,796 | (559,333 | ) | 17,655,463 | ||||||||
Total
Operating Expenses
|
25,096,543 | (131,803 | ) | 24,964,740 | ||||||||
Net
Loss
|
(18,352,510 | ) | (6,230,130 | ) | (24,582,640 | ) | ||||||
Net
Loss Per Share – Basic and Diluted
|
(0.66 | ) | (0,21 | ) | (0.87 | ) |
For
the Year Ended December 31, 2007
|
||||||||||||
As
Reported
|
Adjustment
|
Restated
|
||||||||||
$ | $ | $ | ||||||||||
Operating
Activities
|
||||||||||||
Net
Loss for the Year
|
(18,352,510 | ) | (6,230,103 | ) | (24,582,613 | ) | ||||||
Amortization
Expense
|
213,702 | (12,609 | ) | 201,093 | ||||||||
Bad
Debt Expense
|
– | 427,530 | 427,530 | |||||||||
Common
Stock Issued for Services
|
15,359,710 | (2,144,750 | ) | 13,214,960 | ||||||||
Impairment
from Sale Leaseback of Building
|
– | 1,500,000 | 1,500,000 | |||||||||
Changes
in Operating Assets and Liabilities
|
||||||||||||
Accounts
Receivable
|
(5,623,951 | ) | 5,408,105 | (215,846 | ) | |||||||
Inventory
|
(965,115 | ) | 773,631 | (191,484 | ) | |||||||
Other
Assets
|
(674,519 | ) | 300,000 | (374,519 | ) | |||||||
Accounts
Payable and Accrued Liabilities
|
(272,195 | ) | 192,779 | (79,416 | ) | |||||||
Cashflows
Provided By (Used In) Operating Activities
|
(3,668,707 | ) | 214,583 | (3,454,124 | ) | |||||||
Investing
Activities
|
||||||||||||
Purchase
of Property and Equipment
|
– | (198,680 | ) | (198,680 | ) | |||||||
Proceeds
from Sale of Property and Equipment
|
1,199,314 | 5,034,097 | 6,233,411 | |||||||||
Cashflows
Provided By Investing Activities
|
1,199,314 | 4,835,417 | 6,034,731 | |||||||||
Financing
Activities
|
||||||||||||
Proceeds
from Issuance of Note Payable
|
1,055,334 | (705,334 | ) | 350,000 | ||||||||
Repayment
of Note Payable
|
(1,123,153 | ) | (4,044,666 | ) | (5,167,819 | ) | ||||||
Cashflows
Provided by (Used In) Financing Activities
|
2,178,702 | (4,750,000 | ) | (2,571,298 | ) | |||||||
Increase
(Decrease) in Cash
|
(290,691 | ) | 300,000 | 9,309 | ||||||||
Cash
– Beginning of Period
|
364,867 | (300,000 | ) | 64,867 |
Balance
– December 31, 2007
|
||||||||||||
As
Reported
|
Adjustment
|