Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 000-53002
EASY ENERGY, INC.
(Name of registrant as specified in its charter)
Nevada 26-0204284
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 105 - 5348 Vegas Dr., Las Vegas 89108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number +1 (702) 442-1166
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.00001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
As of June 30, 2009, approximately 102,202,778 shares of common stock were
outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant, as of June 30, 2009, the last business day of
the 2nd fiscal quarter, was approximately $2,917,078 based on the closing price
of $0.06 for the registrant's common stock as quoted on the Over-the-Counter
Bulletin Board on that date. Shares of common stock held by each director, each
officer and each person who owns 10% or more of the outstanding common stock
have been excluded from this calculation in that such persons may be deemed to
be affiliates. The determination of affiliate status is not necessarily
conclusive. Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
As of April 19, 2010, the registrant's shares of common stock outstanding were
102,202,777.
EASY ENERGY, INC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements." Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "intends," "plan" "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, and similar expressions are intended to identify
forward-looking statements. We remind readers that forward-looking statements
are merely predictions and therefore inherently subject to uncertainties and
other factors and involve known and unknown risks that could cause the actual
results, performance, levels of activity, or our achievements, or industry
results, to be materially different from any future results, performance, levels
of activity, or our achievements, or industry results, expressed or implied by
such forward-looking statements. Such forward-looking statements appear in Item
1 - "Business" and Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as elsewhere in this Annual Report
and include statements regarding the following: the efficiency of our products,
the expected development and potential benefits from our products to consumers,
our marketing strategy, progress in our efforts to develop our facilities and
our products and to achieve and maintain regulatory approvals, the potential
market demand for our products, our expectations regarding our short- and
long-term capital requirements, our plans to open a factory, our ability to
raise additional capital, the potential exhaustion of our cash balances during
the first quarter of 2010, our outlook for the coming months and information
with respect to any other plans and strategies for our business.
The factors discussed herein, including those risks described in Item 1A - "Risk
Factors", and expressed from time to time in our filings with the Securities and
Exchange Commission could cause actual results and developments to be materially
different from those expressed in or implied by such statements. The
forward-looking statements are made only as of the date of this filing, and
except as required by law, we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
INTRODUCTION
Unless otherwise specified or required by context, as used in this annual
report, the terms "we," "our," "us" and the "Company" each refer to Easy Energy,
Inc.
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles (U.S. GAAP).
In this annual report, unless otherwise specified, all dollar amounts are
expressed in United States dollars and all references to "common shares" refer
to the common shares in our capital stock.
1
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business 3
Item 1A Risk Factors 7
Item 1B Unresolved Staff Comments 12
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operation 14
Item 7A Quantitative and Qualitative Disclosures About Market Risk 18
Item 8 Financial Statements and Supplementary Data 18
Item 9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 19
Item 9A(T) Controls and Procedures 19
Item 9B Other Information 21
PART III
Item 10 Directors, Executive Officers and Corporate Governance 21
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 23
Item 13 Certain Relationships and Related Transactions, and Director
Independence 24
Item 14 Principal Accountant Fees and Services 24
PART IV
Item 15 Exhibits, Financial Statement Schedules 25
SIGNATURES 45
2
PART I
ITEM 1. BUSINESS
OVERVIEW OF THE COMPANY
We are a development stage corporation in the business of developing battery
charging solutions for small hand-carried devices. We were incorporated on May
17, 2007 in the State of Nevada.
CORPORATE BACKGROUND
Easy Energy, Inc. was incorporated under the laws of the State of Nevada on May
17, 2007. We are a development stage company that generated minimal revenues
from our operation to date. We currently have no employees other than our two
board members who act as our officers. We are developing a novel, man-powered
charger solution for the problems related to the ongoing power requirements of
small hand-carried battery-powered personal electronic devices. The development
of our products is not done by us, but through Pipera Technologies Ltd., or
Pipera, a company wholly owned and CONTROLLED by our president, chief executive
officer and director, Mr. Guy Ofir.
Our principal executive office is located at Suite 105 - 5348 Vegas Dr., Las
Vegas, Nevada 89108. Our telephone number is (702) 442-1166. We also have
offices in Israel at 40 Baz St. Karmiel, Israel 20100, Tel. No. +972-4-988 8314.
We do not have any subsidiaries.
Our principal business plan is to manufacture and market the product and/or seek
third party entities interested in licensing the rights to manufacture and
market a man-powered charger. Our target market will be consumers of disposable
and rechargeable batteries, those who heavily depend on their portable devices,
especially cell phone users, and those who are looking for "green" energy
sources.
Due to the uncertainty of our ability to meet our current operating and capital
expenses, in their report on our audited financial statements for the period
ended December 31, 2009, our independent registered public accounting firm
included an explanatory paragraph regarding our ability to continue as a going
concern. Our financial statements contain additional note disclosures describing
the circumstances that lead to this disclosure by our independent registered
public accounting firm.
OUR PRODUCTS
We are the sole owner of the YoGen(R) product suite of compact man-powered
generators, which are designed to provide an innovative and effective solution
to the currently underserved need of the almost limitless users of portable
electronics devices for a power source that will ensure those devices' ability
to operate in circumstances in which conventional recharging sources are
unavailable. Included in the product line are the basic YoGen(R), a slim,
pocket-sized charger for small devices such as cell phones, GPS, iPods, etc.,
which is operated by a convenient pull-cord; the YoGen Max(TM), a compact,
fold-up foot-driven charger for laptop computer sized devices which also
includes its own battery pack; and the most recently prototyped YoGen Max(TM),
which is intended to replace a conventional cell phone battery and provide
pull-cord charging capability without the need for a stand-alone charger. All of
our products have been developed and created by Pipera, A COMPANY WHOLLY OWNED
AND controlled by our president, chief executive officer and director, Mr. Guy
Ofir..
YOGEN(R)
A slim pocket-sized, durable, hand powered electric charger that produces a
previously unmatched level of charging power when driven by the repeated pulling
of a cord, in a way which somewhat resembles the action of a Yo-Yo. When the
convenient T-handle on the self-returning cord is repeatedly pulled by the user,
an internal alternator spins continuously, generating power for recharging the
batteries of your cell phone or any other like-sized portable electronic device.
The YoGen(R) is offered in two versions, one as a pure generator and one as a
generator with a 650 mAh 3.7V back-up battery which will provide charging power
either when mechanically activated or via the battery when it is carrying a
charge. The version with the battery also includes a convenient state of charge
indicator, which monitors the state of the battery's charge.
We have completed finalization of the design of the smaller of two models of
YoGen(R) chargers and finalized and executed an agreement with a Chinese
manufacturing firm to begin mass production of the two YoGen(R) products. We
began selling the products on May of 2009.
At the 2010 International Consumer Electronics Show in Las Vegas, Nevada, the
Company's YoGen(R) product was given one of the "Best of CES 2010" award.
3
DESCRIPTION OF YOGEN(R)`S CELLULAR CHARGING CAPACITY
Cellular phones consume electric power at a rate which fits to cell antennas,
and the like. For example, cell phone power consumption for conversation mode
(50% talking / 50% listening) near to a cellular antenna is approximately 0.5
watts. Since the nominal power of the YoGen(R) output is 5 watts (ten times
higher), for every five minutes of cell phone usage under these conditions, we
believe that our device can replace the energy consumed in 30 seconds. This data
only applies to short conversations (typically up to 5 minutes) because during
short conversations, a cell phone battery's state-of-charge does not change
significantly. For example, a half hour conversation under these conditions
would require about 3 minutes to be brought to its pre-conversation charge
state. In all cases, the charge is proportional to incremental levels of effort.
The efficiency with which our YoGen(R) device recharges a cell phone is
significantly dependent on the phone's dedicated built-in charging controller
which regulates maximum charging current. For a majority of up-to-date cellular
phone models, these controllers permit a charging current supplying about 5
watts, which is the output of our device. A few older cellular phone models
permit less of a charge. For those phones, YoGen(R) is equipped with a switch
for a "lower power" mode.
We believe that our YoGen(R) device will generate 20 watts of peak power for
each cord pull. 20 watts is a peak instant power which an internal alternator
can generate when the cord is pulled very quickly. It is a pure technical
characteristic which was possible to measure only in a laboratory by accessing
YoGen(R)'s internal points. We have not used any external third party testing in
connection with this process. YoGen(R) is based on a novel axial-field
synchronous generator (alternator) producing an alternating voltage of frequency
and amplitude which are proportional to its rotation speed. Since it is driven
by reciprocating pull-release hand movement and is outputting energy during
rotation, its voltage and frequency vary considerably through the period.
Cellular phone battery controllers require a definite voltage and internal
impedance of chargers to allow them to charge the batteries. YoGen(R) includes
an electronic converter outputting a stabilized direct current voltage. YoGen(R)
has 2 modes: "nominal power" (with nominal impedance) and "lower power" (with
higher impedance).
One version of our YoGen(R) includes an internal 400/800 mAh Li-ion buffer
(back-up) battery considerably widening the stabilized power output from zero
pulling speed (the battery gives power) up to pulling high speed (the battery
receives power).
The foregoing statistics are based solely on our own limited internal testing
and have not been verified by an outside testing agency. We are now working to
validate these results in external laboratories. To date, we have produced three
prototypes of our device, each with an internal battery but without a "lower
power" option. These prototypes have been tested in our laboratory with
approximately 15 cellular phone models. Our results confirm the statistics
contained above, provided that the pulling process is done correctly.
YOGEN MAX(TM)
The YoGen Max(TM) is designed to be conveniently foot operated. A user would be
able to produce sufficient power to operate his or her laptop or similar device
(currently capable of handling portable electronic devices of 50-60 watts) and
charge its internal battery, in a fashion that will not distract from their
primary task, by pressing down on a springy, suspended, self-returning pedal.
Additionally, this design would allow for extended operation at the required
wattage without significant user fatigue.
When not in use, the YoGen Max(TM) folds up into a compact book sized package
comprised of 3 swing-jointed components: two identical thin folder covers and a
narrow base which contains the pedal mechanism. This "book" is easily
transformed between its two configurations: one for traveling, which is quite
compact and easily carried in a computer bag; and the other, unfolded for
operation, which is configured to accommodate any shoe size. The two folder
covers contain the operating "hearts" of the YoGen Max(TM), each of which is an
independent charger based on a unique, proprietary, extremely slim alternator
connected to a high ratio micro-transmission.
We have completed the design of YoGen Max(TM).
YOGEN-BAT(TM)
YoGen Bat(TM) is a compact hand-powered electromechanical generator that is
integrated inside of a cell phone battery. YoGen Bat(TM) employs a pull cord
with handle hand charging mechanism, similar to but smaller than that of the
original YoGen(R) charger. We are in the development stage of our first
prototype.
PRODUCTION AND SALES OF PRODUCTS
During the fiscal period ending December 31, 2009 started mass production of the
Yogen(R) and sold 11,000 Yogen(R) devices to our manufacturer's representative
in the UK and Ireland, Green Pulse Ltd., and 39,000 Yogen(R) devices to our
manufacturer's representative in North America and Mexico, Fame Inc.
4
MARKETING STRATEGY
We market our product in the United States and the U.K. through our distributors
Fame LLC and Green Pulse, Ltd., respectively, We also plan to sign distribution
and marketing agreements with potential distributors in Europe, Turkey, India
and other countries in which we are currently in negotiations.
We plan to offer our product at a comparable price to other re-charging systems.
We will stress advantages such as clean energy source, use with a wide array of
products and dependability.
Our Chief Executive Officer, President and Director, Mr. Guy Ofir, is in charge
of executing our marketing plan.
THE MARKET OPPORTUNITY
Our target market consists of the following market segments: cellular phones,
which are our main initial market, laptops and notebooks, mobile hand held
computers, PDAs, GPS devices and smart phones, and digital still cameras and
camcorders, all of which we believe are markets with tremendous growth
opportunities.
COMPETITION
Competition within the re-charger systems industry is intense. Many of our
competitors have longer operating histories, greater financial, sales, marketing
and technological resources and longer established client relationships than we
do. Solutions currently marketed for the problem we address include several
different groups of products, each with its own advantages and disadvantages.
Although there are several other ways of recharging batteries for a cell phone,
the only ones we consider to be in direct competition are the hand-held human
powered chargers. Such competitors include:
* IST Design Inc., who owns the Sidewinder hand charger that has a
crank-operated mechanism. Sidewinder is designed and produced by
ElectroHiFi, LLC as the SOS Charger. Sidewinder is claimed to generate
6 minutes of talk time for every 2 minutes of turning at 2 revolutions
per second. The unit currently sells for $19.95 to $24.95.
* Aladdinpower Inc., who developed a hand-squeeze generator, meant
primarily for cell phones, which has been on the market since 2002.
Although it claims to be useable with any rechargeable battery, it
produces only 1.6 watts, which may not be effective in recharging a
cell phone. It is currently priced at around $60.
* Freeplay Energy plc, who developed Freeplay Freecharge. A Freecharge
mobile phone charger has been available in the market since 2002. This
product has ergonomic features, including reverse winding. It claims
that talk time of 2-3 minutes (depending on the mobile phone used), or
several hours of standby time, can be achieved with 45 seconds of
winding. Its internal battery is a rechargeable NiMH battery pack, 3.6
Volts, 1300 mAh. It is currently priced at $59.95 per unit.
There are other products in the market, but normally such products are unbranded
copies of the above-mentioned designs.
We seek to differentiate ourselves by providing a slimmer and lighter generator
at a competitive price.
INTELLECTUAL PROPERTY
The technologies of both the YoGen(R) and the Yogen Max(TM) and YoGen Bat(TM)
have been invented by Alexander Sromin and Michael Fridhendler. Mr. Sromin is an
alumnus of the Academy for Aviation & Space Instruments in St. Petersburg,
Russia with 22 years of research and development experience related to a wide
range of electric machines and electromechanical systems. His professional scope
covers compact permanent magnet motors, actuators (including linear, rotating,
reciprocating, multi-axis, etc.) and generators in the range from
Microelectromechanical systems up to 100 KW. He is an author of more than 30
articles and inventor of 10 inventions. Mr. Friedhendler graduated from The
Technion University in Haifa, Israel. He has 25 years of experience in
multi-disciplinary hi-tech ventures promotion and technological support. He
succeeded in numerous application projects in the field of mobile and internet
GPS and J2ME software projects among others. His expertise relates to
electronics, communications, cellular technology, internet and video data
transfer.
Both Mr. Sromin and Mr. Fridhendler worked for Pipera and, during the course of
their work, developed these technologies. Mr. Sromin and Mr. Fridhendler have
been assisted by Mr. Roman Lanzet, who serves as production manager at Pipera.
Mr. Sromin, Mr. Fridhendler, Mr. Lanzet and Pipera assigned their rights in the
technologies of these products to us.
5
YoGen(R) - Man-Powered Slim Charger
# Country Filing Date App. No. Pub. No. Status
---- ------- ----------- -------- -------- ------
1 U.S. August 20, 2007 11/841,046 US 2009-0051317 Publication Allowed
Date: February 26, 2009;
PCT
2 (International July 2, 2008 PCT/IL2008/000908 WO/2009/024960 Publication Published Israeli
Application) Date: February 26, 2009 National Phase filed
on February 21, 2010
and International Phase
filed February 21, 2010
YoGen Max(TM) - Foldable Charger with Two Axial Flux Alternators
# Country Filing Date App. No. Status
---- ------- ----------- -------- ------
1 PCT
(International June 29, 2008 PCT/IL2008/000882 Published
Application) WO2010/007608 Publication
Date: January 21, 2010
2 Canada September 8, 2008 2,638,242 Pending examination
YoGen BatTM - Ultra Slim Hybrid Electric Energy Source
# Country Filing Date App. No. Status
---- ------- ----------- -------- ------
1 PCT
(International September 17, 2008 PCT/IL2008/001244 Filed
Application)
2 Canada December 4, 2008 2,646,031 Pending examination
DOMAIN NAME
We own and operate the following registered internet domain name:
www.easy-energy.biz and have launched our website. The information contained in
our website does not form part of this Annual Report in any way.
TRADEMARKS
We registered the name YoGen(R) in the United States Patent and Trademark Office
(Reg. No. 3,466,439). On November 6, 2008 we filed applications to register
YoGen Max(TM) (serial number 77/608,496) and YoGen Bat(TM) (serial number
77/608,498) with the United States Patent and Trademark Office.
SUPPLIERS
We are not reliant upon any suppliers for the materials for our product, or for
the research and development of our technology.
6
CUSTOMERS
Currently we have three main customers, Fame LLC (2009 sales of 76%), Green
Pulse, Ltd. (2009 sales of 21%) and Backup Energy Ltd.
EMPLOYEES
Currently our only employees are our two directors, who provide us with services
for no compensation. We are intending to hire following employees: marketing
manager, production manager and chief technology officer. We are currently
searching for candidates to fill such positions.
RESEARCH AND DEVELOPMENT
Currently we do not have any research and development capabilities and our
research and development is being done through Pipera. We have halted the
research and development of the YoGen Max(TM) and YoGen Bat(TM) products until
we have sufficient financing to continue with it.
From the date of our inception through December 31, 2009 and for the years ended
December 31, 2009 and 2008, we spent $1,102,310, 379,087 and 723,223,
respectively, on research and development costs, of which $1,039,023 was paid to
Pipera.
AVAILABILITY OF SEC FILINGS
All our reports filed with the Securities and Exchange Commission, or SEC, are
available free of charge via EDGAR through the SEC website at www.sec.gov. In
addition, the public may read and copy materials we filed with the SEC at the
SEC's public reference room located at 100 F Street N.E., Washington, D.C.
20549.
ITEM 1A. RISK FACTORS
Our business faces many risks. If any of the events or circumstances described
in the following risks actually occurs, our business, financial condition, or
results of operations could suffer and our investors and prospective investors
may lose all or part of their investment due to any of these risks. Our
investors and prospective investors should consider the following risks and the
information contained under the heading "Cautionary Note Regarding
Forward-Looking Statements" before deciding to invest in our securities.
RISKS RELATED TO OUR BUSINESS
WE HAVE LIMITED OPERATING HISTORY AND HAVE SUSTAINED LOSSES SINCE INCEPTION,
WHICH WE EXPECT TO CONTINUE INTO THE FUTURE.
We were incorporated on May 17, 2007, and have very limited operations to date.
We have minimal revenues to date. Our products are under development. We have no
operating history at all upon which an evaluation of our future success or
failure can be made. Our net loss from inception to December 31, 2009 is
$3,769,318. Based upon our proposed plans, we expect to incur operating losses
in future periods. This will happen because there are substantial costs and
expenses associated with the development, testing and marketing of our product.
Based on arrangements made with potential distributors and the development stage
of our product, we believe that we are at least 3 months away from generating
significant revenues. We may be wrong and may fail to generate significant
revenues in the future. If we cannot attract a sufficient number of customers,
we will not be able to generate any significant revenues or income. Failure to
generate revenues will cause us to go out of business because we will not have
the money to pay our ongoing expenses.
In particular, additional capital may be required in the event that the actual
expenditures required to be made are at or above the higher range of our
estimated expenditures, we incur unexpected costs in completing the development
of our product or encounter any unexpected technical or other difficulties, we
incur delays and additional expenses as a result of technology failure, we are
unable to create a substantial market for our product, or we incur any
significant unanticipated expenses. The occurrence of any of the aforementioned
events could adversely affect our ability to meet our business plans and achieve
a profitable level of operations.
IF WE ARE UNABLE TO OBTAIN THE NECESSARY FINANCING TO IMPLEMENT OUR BUSINESS
PLAN WE WILL NOT HAVE THE MONEY TO PAY OUR ONGOING EXPENSES AND WE MAY GO OUT OF
BUSINESS.
Our budgeted expenditures for the next twelve months are $4,410,000 to fund
on-going operations, massive production of the YoGen(R) and planned research and
development programs. Because we have only generated minimal revenue from our
business, we will need to raise additional funds for the future development of
our business and to respond to unanticipated requirements or expenses.
Management estimates that our current cash balances will be exhausted during the
first quarter of 2010 provided we do not have any unanticipated expenses. We do
not currently have any arrangements for financing and we can provide no
assurance to investors we will be able to find such financing, especially given
the credit crisis and the current market conditions.
7
Our ability to successfully develop our product and to eventually produce and
sell it to generate operating revenues depends on our ability to obtain the
necessary financing to implement our business plan. Given that we have no
operating history, minimal revenues and only losses to date, we may not be able
to achieve this goal, and if this occurs we will not be able to pay for our
operations and we may go out of business. We will likely need to issue
additional equity securities or borrow money in the future to raise the
necessary funds. We do not currently have any arrangements for additional
financing and we can provide no assurance to investors we will be able to find
such financing if further funding is required. Obtaining additional financing
would be subject to a number of factors, including investor acceptance of our
product and our business model and the current credit crisis. The issuance of
additional equity securities by us would result in a significant dilution in the
equity interests of our current stockholders and may cause decrease in our share
price. Obtaining loans will increase our liabilities and future cash
commitments.
There can be no assurance that capital will continue to be available if
necessary to meet future funding needs or, if the capital is available, that it
will be on terms acceptable to us. If we are unable to obtain financing in the
amounts and on terms deemed acceptable to us, we may be forced to scale back or
cease operations, which might result in the loss of some or all investment in
our common stock.
IF OUR ESTIMATES RELATED TO EXPENDITURES ARE ERRONEOUS OUR BUSINESS WILL FAIL
AND YOU WILL LOSE YOUR ENTIRE INVESTMENT.
Our success is dependent in part upon the accuracy of our management's estimates
of expenditures, which are currently budgeted at $4,410,000 to fund on-going
operations, massive production of the YoGen(R) and planned research and
development programs (See "Liquidity and Capital Resources"). If such estimates
are erroneous or inaccurate we may not be able to carry out our business plan,
which could, in a worst-case scenario, result in the failure of our business and
you losing your entire investment.
WE HAVE NO RESEARCH AND DEVELOPMENT CAPABILITIES AND OUR RESEARCH AND
DEVELOPMENT IS BEING ENTIRELY OUTSOURCED.
We currently have no in-house research and development capabilities and Pipera
provides us with research and development services. If Pipera, which is
currently controlled by our Chief Executive Officer, President and director, Mr.
Ofir, ceases to provide us research and development services, our business could
be adversely affected and there is no assurance that we will be able to perform
our research and development in-house or identify other third parties who may be
able to provide us such services within a reasonable time without adversely
affecting our business.
OUR SUCCESS IS HEAVILY DEPENDENT ON PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of patent, trade secret, copyright and trademark
protections to protect our proprietary technology. Our success will, in part,
depend on our ability to obtain trademarks and patents. We cannot assure that
patents will be issued to us and even if they are, we cannot guarantee that the
patents issued to us will not be challenged, invalidated, or circumvented, or
that the rights granted under those registrations will provide competitive
advantages to us.
We also rely on trade secrets and new technologies to maintain our competitive
position. Although we have entered into confidentiality agreements with our
employees and consultants, we cannot be certain that others will not gain access
to these trade secrets, especially since our research and development is being
done through Pipera and not our Company. Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, THIRD PARTIES
MAY BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
COMPETE IN THE MARKET.
Our commercial success will depend in part on our ability to obtain and maintain
patent protection on our products, and successfully defend these patents and
technologies against third-party challenges. In doing so, we have secured filing
dates in the United States Trademark and Patent Office by filing provisional
patent applications and filed international patent applications via the Patent
Cooperation Treaty, or PCT. There is no certainty that such applications will be
approved. In addition, even if such applications are approved, they may not be
sufficiently broad to prevent others from practicing our technologies or from
developing competing products. Furthermore, others may independently develop
similar or alternative technologies or design around our patented technologies.
Patents we use may be challenged or invalidated or may fail to provide us with
any competitive advantage. Moreover, in certain parts of the world, such as in
China, western companies are adversely affected by poor enforcement of
intellectual property rights.
WE MAY BE EXPOSED TO LIABILITY FOR INFRINGING INTELLECTUAL PROPERTY RIGHTS OF
OTHER COMPANIES.
Our success will, in part, depend on our ability to operate without infringing
on the proprietary rights of others. Although we have conducted searches and are
not aware of any patents and trademarks which our products or their use might
infringe, we cannot be certain that infringement has not occurred or will not
occur. We could incur substantial costs, in addition to the great amount of time
lost, in defending any patent or trademark infringement suits or in asserting
any patent or trademark rights, in a suit with a third party.
OUR BUSINESS MODEL MAY NOT BE SUFFICIENT TO ENSURE OUR SUCCESS IN OUR INTENDED
MARKET.
8
Our survival is currently dependent upon the success of our efforts to gain
market acceptance of one line of products that ultimately represents a small
sector in the overall charger industry. Should our services be too narrowly
focused or should the target market not be as responsive as we anticipate, we
may not have in place alternate products or services that we can offer to ensure
our survival.
IF WE ARE UNABLE TO COMPLETE THE DEVELOPMENT OF OUR PRODUCT WE WILL NOT BE ABLE
TO GENERATE REVENUES AND YOU WILL LOSE YOUR INVESTMENT.
We have not completed the development of our proposed products and we have no
definitive contracts or licenses for the sale or use of our product, except for
one distribution agreement that is still dependent on our ability to manufacture
our products. The success of our proposed business will depend on the completion
and the acceptance of our products by the general public. Achieving such
acceptance will require significant marketing investment. Our products, once
developed and tested, may not be accepted by our customers at sufficient levels
to support our operations and build our business. If the proposed products that
we will develop are not accepted at sufficient levels, our business will fail.
WE ARE DEPENDENT ON REVENUES TO BE GENERATED BY A SOLE LINE OF PRODUCTS AND THUS
WE ARE SUBJECT TO MANY ASSOCIATED RISKS.
Our revenue will be generated through the sale of our man-powered charger.
Unless we expand our product offerings to include related or other products, our
likely source of revenues for the foreseeable future will continue to be
generated by the man-powered charger. Accordingly, 100% of our revenue will be
dependent upon the sale of our sole line of products.
If potential users are satisfied with other means for charging their cell phone
battery or other electronic device's battery we may not be able to sell our
products. If technological developments render man-powered chargers obsolete,
our business could fail.
Thus, we may expand our financial resources on marketing and advertising without
generating concomitant revenues. If we cannot generate sufficient revenues to
cover our overhead, manufacturing and operating costs, we may go out of
business.
THERE ARE LOW BARRIERS TO ENTRY INTO THE MAN-POWERED CHARGER INDUSTRY AND, AS A
RESULT, MANY COMPANIES MAY BE ABLE TO COMPETE WITH US ON LIMITED FINANCIAL
RESOURCES.
Our products do not require large capital expenditures for their development or
manufacture. As a result, barriers to entering this industry may be low. If the
intellectual property protection with respect to the man-powered charger
products does not prove effective, a competitor with limited financial resources
may be able to successfully compete with us.
BECAUSE OUR EXECUTIVE OFFICERS ARE EMPLOYED ELSEWHERE, THEY WILL BE UNABLE TO
DEVOTE THEIR SERVICES TO OUR COMPANY ON A FULL TIME BASIS AND THE PERFORMANCE OF
OUR BUSINESS MAY SUFFER, OUR BUSINESS COULD FAIL AND INVESTORS COULD LOSE THEIR
ENTIRE INVESTMENT.
Mr. Guy Ofir, our President, Chief Executive Officer and director, currently
devotes approximately 48 hours a week to our Company.1 Mr. Emanuel Cohen, our
Secretary, Chief Financial Officer, Treasurer and a director, is employed
elsewhere and he devotes 10 to 15 hours a week to our Company. As a result of
Mr. Cohen's partial engagement, the management of our Company could
under-perform, our business could fail and investors could lose their entire
investment.
OUR EXECUTIVE OFFICERS HAVE NO EXPERIENCE OR TECHNICAL TRAINING IN THE
DEVELOPMENT, MAINTENANCE AND MARKETING OF MAN-POWERED CHARGER OR IN OPERATING
BUSINESSES THAT SELL PRODUCTS OR SERVICES TO WHOLESALES. THIS COULD CAUSE THEM
TO MAKE INEXPERIENCED OR UNINFORMED DECISIONS THAT HAVE BAD RESULTS FOR OUR
COMPANY. AS A RESULT, OUR OPERATIONS COULD SUFFER IRREPARABLE HARM AND MAY CAUSE
US TO SUSPEND OR CEASE OPERATIONS, WHICH COULD CAUSE INVESTORS TO LOSE THEIR
ENTIRE INVESTMENT.
Mr. Guy Ofir, our President, Chief Executive Officer and director and Mr.
Emanuel Cohen, our Secretary, Treasurer, Chief Financial Officer and director,
have no experience or technical training in the development, maintenance and
marketing of man-powered charger or in operating businesses that sell products
or services to wholesales. Due to their lack of experience and knowledge in
these areas, our executive officers could make the wrong decisions regarding the
development, operation and marketing of our products and the operation of our
business, which could lead to irreparable damage to our business. Consequently,
our operations could suffer irreparable harm from mistakes made by our executive
officers and we may have to suspend or cease operations, which could cause
investors to lose their entire investment.
WE DEPEND HEAVILY ON MR. GUY OFIR AND MR. EMANUEL COHEN. THE LOSS OF EITHER
PERSON WILL HAVE A SUBSTANTIAL NEGATIVE EFFECT ON OUR BUSINESS AND MAY CAUSE OUR
BUSINESS TO FAIL.
We depend entirely on Mr. Ofir and Mr. Cohen for all of our operations. The loss
of either person will have a substantial negative effect on the Company and may
cause our business to fail. Our officers did not receive any compensation for
their services and it is highly unlikely that they will receive any compensation
unless and until we generate substantial revenues.
9
We do not have any employment agreements or maintain key person life insurance
policies on our officers. If our officers do not devote sufficient time towards
our business, we may never be able to effectuate our business plan.
BECAUSE OUR EXECUTIVE OFFICERS CONTROL A LARGE PERCENTAGE OF OUR COMMON STOCK,
THEY HAVE THE ABILITY TO INFLUENCE MATTERS AFFECTING OUR STOCKHOLDERS.
Our executive officers, in the aggregate, beneficially own approximately 49% of
the issued and outstanding shares of our common stock. As a result, they have
the ability to influence matters affecting our stockholders, including the
election of our directors, the acquisition or disposition of our assets, and the
future issuance of our shares. Because our executive officers control such
shares, investors may find it difficult to replace our management if they
disagree with the way our business is being operated.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR
ABILITY TO OBTAIN FUTURE FINANCING.
Our independent registered public accounting firm has expressed substantial
doubt about our ability to continue as a going concern. Such doubt was expressed
as a result of our recurring losses and cash flow deficiencies since our
inception. We continue to experience net losses. Our ability to continue as a
going concern is subject to our ability to generate a profit and/or obtain
necessary funding from outside sources, including obtaining additional funding
from the sale of our securities, future sales of our product or obtaining loans
and grants from various financial institutions whenever possible. If we continue
to incur losses, it will become increasingly difficult for us to achieve our
goals and there can be no assurance that our business plan will materialize.
WE WILL BE HEAVILY DEPENDENT ON CONTRACTING WITH THIRD PARTY FIRM(S) TO
MANUFACTURE COMPONENTS FOR US. IF WE ARE UNABLE TO LOCATE, HIRE AND RETAIN THESE
FIRM(S), OUR BUSINESS WILL FAIL.
We intend to hire a third party firm(s) to manufacture the components of our
product. Should we be unable to contract qualified third parties firm(s) to
manufacture because we are unable to find them, are unable to attract them to
our company or are unable to afford them, we will never become profitable and
our business will fail.
WE ARE SUBJECT TO THE REQUIREMENTS OF SECTION 404 OF THE SARBANES-OXLEY ACT. IF
WE ARE UNABLE TO COMPLY WITH THE REQUIREMENTS IN A TIMELY MANNER THE MARKET
PRICE OF OUR STOCK COULD DECLINE.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial
reporting. Our management has concluded that our disclosure controls and
procedures and internal control over financial reporting were not effective as
of December 31, 2009. Our compliance with Section 404 will require that we incur
substantial expense and expend significant management efforts. If we are not
able to comply with such requirements of Section 404 in a timely manner, the
market price of our stock could decline and we could be subject to sanctions or
investigations by the SEC or other regulatory authorities.
OUR INTERNAL CONTROL OVER FINANCIAL REPORTING WAS NOT CONSIDERED EFFECTIVE AS OF
DECEMBER 31, 2009 AND MAY CONTINUE TO BE INEFFECTIVE IN THE FUTURE, WHICH COULD
RESULT IN OUR FINANCIAL STATEMENTS BEING UNRELIABLE, GOVERNMENT INVESTIGATION OR
LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS.
Our management has concluded that our internal control over financial reporting
was not effective as of December 31, 2009, as a result of several material
weaknesses. Descriptions of the material weaknesses are included in Item 9A(T),
"Control and Procedures", in this Annual Report on Form 10-K. The material
weaknesses could result in a misstatement of substantially all accounts and
disclosures, which would result in a material misstatement of annual or interim
financial statements that would not be prevented or detected. Errors in our
financial statements could require a restatement or prevent us from timely
filing our periodic reports with the SEC. Additionally, ineffective internal
control over financial reporting could cause investors to lose confidence in our
reported financial information. Our internal control over financial reporting
has also not yet been audited by our independent registered public accounting
firm.
While we are planning to take actions to remediate the material weaknesses, we
cannot be certain that any remedial measures we plan to take will be effective
in remedying all identified deficiencies in our internal control over financial
reporting or result in the design, implementation and maintenance of adequate
controls over our financial processes and reporting in the future. Our inability
to remediate the material weaknesses or any additional material weaknesses that
may be identified in the future could, among other things, cause us to fail to
timely file our periodic reports with the SEC and require us to incur additional
costs and divert management resources. Additionally, the effectiveness of our or
any system of internal controls is subject to inherent limitations, and
therefore we cannot be certain that our internal control over financial
reporting or our disclosure controls and procedures will prevent or detect
future errors or fraud in connection with our financial statements.
BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS LIVE OUTSIDE OF THE UNITED STATES,
YOU MAY HAVE NO EFFECTIVE RECOURSE AGAINST THEM FOR MISCONDUCT AND MAY NOT BE
ABLE TO ENFORCE JUDGMENT AND CIVIL LIABILITIES AGAINST THEM. INVESTORS MAY NOT
BE ABLE TO RECEIVE COMPENSATION FOR DAMAGES TO THE VALUE OF THEIR INVESTMENT
CAUSED BY WRONGFUL ACTIONS BY OUR DIRECTORS AND OFFICERS.
10
Both of our directors and officers live outside of the United States. Mr. Guy
Ofir, our President, Chief Executive Officer and a director is a national and a
resident of Israel, and all or a substantial portion of his assets are located
outside of the United States. Mr. Emanuel Cohen, our Chief Financial Officer,
Secretary, Treasurer and a director is a national and a resident of Israel, and
all or a substantial portion of his assets are located outside of the United
States. As a result, it may be difficult for investors to enforce within the
United States any judgments obtained against our directors or officers, or
obtain judgments against them outside of the United States that are predicated
upon the civil liability provisions of the securities laws of the United States
or any state thereof. Investors may not be able to receive compensation for
damages to the value of their investment caused by wrongful actions by our
directors and officers.
BECAUSE WE HAVE TWO DIRECTORS, DEADLOCKS MAY OCCUR IN OUR BOARD'S
DECISION-MAKING PROCESS, WHICH MAY DELAY OR PREVENT CRITICAL DECISIONS FROM
BEING MADE.
Since we currently only have an even number of directors, deadlocks may occur
when such directors disagree on a particular decision or course of action. Our
Articles of Incorporation and By-Laws do not contain any mechanisms for
resolving potential deadlocks. While our directors are under a duty to act in
the best interest of our Company, any deadlocks may impede the further
development of our business in that such deadlocks may delay or prevent critical
decisions regarding our development.
POTENTIAL POLITICAL, ECONOMIC AND MILITARY INSTABILITY IN ISRAEL MAY ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
Our principal offices and operations are located in Israel. Accordingly,
political, economic and military conditions in Israel directly affect our
operations. Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors. A state
of hostility, varying in degree and intensity, has led to security and economic
problems for Israel. Since October 2000, there has been an increase in
hostilities between Israel and the Palestinians, which has adversely affected
the peace process and has negatively influenced Israel's relationship with its
Arab citizens and several Arab countries. Such ongoing hostilities may hinder
Israel's international trade relations and may limit the geographic markets,
where we can sell our products as well. Furthermore, the United States
Department of State has issued advisories regarding travel to Israel, impeding
the ability of travelers to attain travel insurance. Furthermore, during July
and August of 2006 there were hostilities between Israel and the Hezbollah
terrorist organization operating in Lebanon, and the north of Israel has been
hit by rockets launched from Lebanon. In December 2008, Israel launched a
military operation against armed forces of the Hamas terror organization in the
Gaza strip, in order to stop the firing of missiles and rockets from the Gaza
strip to Israeli territories. Any hostilities involving Israel or threatening
Israel, or the interruption or curtailment of trade between Israel and its
present trading partners, could adversely affect our operations.
RISKS ASSOCIATED WITH OUR COMMON STOCK
BECAUSE WE CAN ISSUE ADDITIONAL COMMON SHARES, PURCHASERS OF OUR COMMON STOCK
MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION.
We are authorized to issue up to 185,000,000 common shares, of which 102,202,778
are issued and outstanding as of April 19, 2010. Our board of directors has the
authority to cause our Company to issue additional shares of common stock
without the consent of any of our stockholders. Consequently, our stockholders
may experience dilution in their ownership of our Company in the future.
A DECLINE IN THE PRICE OF OUR COMMON STOCK COULD AFFECT OUR ABILITY TO RAISE
FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR ABILITY TO CONTINUE OPERATIONS.
A prolonged decline in the price of our common stock could result in a reduction
in the liquidity of our common stock and a reduction in our ability to raise
capital. Because a significant portion of our operations has been and will be
financed through the sale of equity securities, a decline in the price of our
common stock could be especially detrimental to our liquidity and our
operations. Such reductions may force us to reallocate funds from other planned
uses and may have a significant negative effect on our business plans and
operations, including our ability to develop new products and continue our
current operations. If our stock price declines, we can offer no assurance that
we will be able to raise additional capital or generate funds from operations
sufficient to meet our obligations. If we are unable to raise sufficient capital
in the future, we may not be able to have the resources to continue our normal
operations.
The market price for our common stock may also be affected by our ability to
meet or exceed expectations of analysts or investors. Any failure to meet these
expectations, even if minor, may have a material adverse effect on the market
price of our common stock.
TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS,
WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
The SEC has adopted regulations which generally define "penny stock" to be any
equity security that has a market price (as defined) less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and "accredited investors". The term
"accredited investor" including, among others, institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
11
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the SEC, which provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.
FINANCIAL INDUSTRY REGULATION AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulation Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
OUR COMMON STOCK IS ILLIQUID AND THE PRICE OF OUR COMMON STOCK MAY BE NEGATIVELY
IMPACTED BY FACTORS WHICH ARE UNRELATED TO OUR OPERATIONS.
Our common stock currently trades on a limited basis on the OTC Bulletin Board.
Trading of our stock through the OTC Bulletin Board is frequently thin and
highly volatile. There is no assurance that a sufficient market will develop in
the stock, in which case it could be difficult for stockholders to sell their
stock. The market price of our common stock could fluctuate substantially due to
a variety of factors, including market perception of our ability to achieve our
planned growth, quarterly operating results of our competitors, trading volume
in our common stock, changes in general conditions in the economy and the
financial markets or other developments affecting our competitors or us. In
addition, the stock market is subject to extreme price and volume fluctuations.
This volatility has had a significant effect on the market price of securities
issued by many companies for reasons unrelated to their operating performance
and could have the same effect on our common stock.
WE DO NOT INTEND TO PAY DIVIDENDS ON ANY INVESTMENT IN THE SHARES OF STOCK OF
OUR COMPANY AND THERE WILL BE FEWER WAYS FOR INVESTORS TO MAKE A GAIN ON ANY
INVESTMENT IN OUR COMPANY.
We have never paid any cash dividends and currently do not intend to pay any
dividends for the foreseeable future. To the extent that we require additional
funding currently not provided for in our financing plan, our funding sources
may prohibit the payment of a dividend. Because we do not intend to declare
dividends, any gain on an investment in our Company will need to come through an
increase in the stock's price. This may never happen and investors may lose all
of their investment in our Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our executive and head office is located at Suite 105 - 5348 Vegas Dr., Las
Vegas, NV 89108. Our office is rented on a month to month sub-lease at a cost of
$50 per month. We also have an office in Israel at 26 Haga'aton Blvd., Nahariya
22401, which is leased to us free of charge by our directors. We believe that
our office space and facilities are sufficient to meet our present needs and do
not anticipate any difficulty securing alternative or additional space, as
needed, on terms acceptable to us.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. RESERVED
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our stock is listed for quotation on the OTC Bulletin Board under the trading
symbol "ESYE.OB". Our common shares initially began trading on the OTC Bulletin
Board on December 26, 2007. The following table sets forth, for the periods
indicated, the high and low bid prices for each quarter within the fiscal years
ended December 31, 2008 and December 31, 2009 as reported by the quotation
service operated by the OTC Bulletin Board. All quotations for the OTC Bulletin
Board reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Year 2008 High Low
--------- ------ ------
First Quarter $ 0.30 $ 0.15
Second Quarter $ 0.30 $ 0.12
Third Quarter $ 0.30 $ 0.16
Fourth Quarter $ 0.17 $ 0.02
First Quarter $ 0.10 $ 0.04
Second Quarter $ 0.08 $ 0.04
Third Quarter $ 0.10 $ 0.04
Fourth Quarter $ 0.07 $ 0.04
On April 16, 2010, the closing bid price of our common stock as reported on the
OTC Bulletin Board was $0.045 per share.
Holladay Stock Transfer is the registrar and transfer agent for our common
shares. Their address is 2939 North 67th Place, Scottsdale, Arizona 85251,
U.S.A., telephone: +1 (480) 481-3940.
RECENT SALES OF UNREGISTERED SECURITIES
On July 2, 2009, we issued 250,000 of our stock to our consultants at a price of
$0.07 per share for an aggregate price of $17,500.
On July 23, 2009, we closed a private placement offering of 1,000,000 common
shares at a price of $0.065 per share with aggregate proceeds of $65,000.
On November 15, 2009, we closed a private placement offering of 2,500,000 common
shares and 1,000,000 warrants at a price of $0.05 per share with aggregate
proceeds of $125,000. Each warrant is exercisable into one common share at an
exercise price of $0.15 for a two-year period expiring November 15, 2011.
On November 20, 2009, we issued 500,000 shares of our common stock for services
at a price $0.05 per share with aggregate price of $25,000.
On November 20, 2009, we closed a private placement offering of 2,500,000 common
shares and 1,250, 000 warrants at a price of $0.05 per share with aggregate
proceeds of $125,000. Each warrant is exercisable into one common share at an
exercise price of $0.15 for a two-year period expiring November 20, 2011.
These issuances were deemed exempt under Regulation S and/or Regulation D under
the Securities Act of 1933, as amended, or the Act, and/or Section 4(2) of the
Act.
13
HOLDERS
On April 19, 2010, we had 65 holders of record of our common stock and
102,202,778 shares of our common stock were issued and outstanding, plus an
additional 18,529,440 shares of common stock issuable upon the exercise of
outstanding warrants. Some of our shares are held in brokers' accounts, so we
are unable to give an accurate statement of the number of beneficial
stockholders.
DIVIDEND POLICY
We have not declared or paid any cash dividends since inception. We do not
intend to pay any cash dividends in the foreseeable future. Although there are
no restrictions that limit our ability to pay dividends on our common stock, we
intend to retain future earnings for use in our operations and the expansion of
our business. Our future dividend policy will be determined from time to time by
our board of directors.
EQUITY COMPENSATION PLAN INFORMATION
As of April 19, 2010 and as of December 31, 2009, the end of our most recently
completed fiscal year, we did not have any equity compensation plan.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the plan of operation, financial condition, results
of operations, cash flows and changes in financial position of our Company
should be read in conjunction with the financial statements and related notes
appearing elsewhere in this Form 10-K.
We are a development stage company with limited operations and minimal revenues
from our business operations. Our auditors believe there is substantial doubt
that we can continue as an on-going business for the next twelve months.
During the fiscal period ending December 31, 2009 we completed the design of the
Yogen(R) and Yogen Max(TM), we started mass production of the Yogen(R) and sold
11,000 Yogen(R) devices to our manufacturer's representative in the UK and
Ireland, Green Pulse Ltd., and 39,000 Yogen(R) devices to our manufacturer's
representative in North America and Mexico, Fame Inc.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED
DECEMBER 31, 2008
For the years ended December 31, 2009 and 2008 the Company had sales of $66,400
and $0, respectfully. Cost of goods sold for the year ended December 31, 2009
was $54,144. Gross profit for the year ended December 31, 2009 was $12,256.
During the fiscal years ended December 31, 2009 and 2008 we incurred operating
expenses of $773,670 and $2,770,084, respectively which include $379,087 and
$723,223 of research and development costs, and $394,583 and $2,046,861 in
general and administrative expenses. Expenses increased from the comparative
period due to an overall increase in our activity and the beginning of mass
production of the Yogen(R) products.
From our inception through December 31, 2009, we incurred operating expenses of
$3,566,747, which include $1,102,310 of research and development costs, and
$2,464,437 in general and administrative expenses.
NET LOSS
We incurred a loss of $761,414 and $2,761,524 for the fiscal years ended
December 31, 2009 and 2008, respectively, and $3,545,549 from our inception to
December 31, 2009.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2009, we had cash of $105,438, representing a net decrease in
cash of $19,096 since December 31, 2008. Cash generated by financing activities
during the fiscal year ended December 31, 2009 amounted to $819,899 resulting
from the sale of stock and warrants in private placements and unsecured, due on
demand, interest-free loans of $484,899 from a director and related party. Cash
14
used in operating activities amounted to $830,495 represented by a loss of
$761,414 adjusted by common stock issued for services of $105,000, reduced by
changes in inventory of $3,721, reduced by deposits of $447,865 related to
manufacturing, accounts payable of $5,996 and customer deposits of $271,509.
Cash used for investing activities for the year ended December 31, 2009 was
$8,500 to register a patent.
For the year ended December 31, 2009, we recorded a net operating loss of
$761,414 and have an accumulated deficit of $3,545,549 since inception. As of
December 31, 2009, we had cash on hand of $105,438 and $447,865 in deposits
related to manufacturing. For the subsequent 12 months, management estimates
minimum cash requirements of approximately $4,410,000 to fund on-going
operations, massive production of the YoGen(R) and planned research and
development programs. Accordingly, we do not have sufficient funds to meet our
plan of operation over the next 12 months and will need to obtain further
financing through issuance of shares, debentures or convertible debentures or
other financing sources. We will also endeavor to access available funding from
research and development grants or loans from various public and private
research granting agencies. Moreover, all cash operating expenses will be
carefully monitored to ensure we can meet our obligations as they become due.
Due to the recent global financial recession, there can be no assurance that
additional financing will be available when needed or, if available, on
commercially reasonable terms. If we are not able to obtain additional financing
on a timely basis, we may not be able to meet our obligations as they become due
and may be forced to scale down or perhaps even cease business operations.
To date, we have had negative cash flows from operations and we have been
dependent on sales of our equity securities financing to meet our cash
requirements. We have also been dependent on debt financing from our Chief
Executive Officer and an affiliate of the Chief Executive Officer, there is no
assurance that these advances will continue or be under terms which are
acceptable. We expect this situation to continue for the foreseeable future. We
anticipate that we will have positive cash flows from operations in the next
twelve month period.
GOING CONCERN
There is substantial doubt about our ability to continue as a going concern as
the continuation of our business is dependent upon obtaining further long-term
financing, successful development of our technologies into a marketable product
and successful and sufficient market acceptance of our products once developed
and, finally, achieving a profitable level of operations. The issuance of
additional equity securities by us could result in significant dilution of the
equity interests of our current stockholders. Obtaining commercial or other
loans, assuming those loans would be available, will increase our liabilities
and future cash commitments. Due to the uncertainty of our ability to meet
current operating and capital expenses, our independent registered public
accounting firm included an explanatory paragraph regarding substantial doubt
about our ability to continue as a going concern in their audit report for the
period ended December 31, 2009.
OUR PRINCIPAL BUSINESS OBJECTIVES FOR FISCAL YEAR 2010 ARE:
- To continue manufacturing the Yogen(R) products in mass quantities and
sell them world widely.
- To register the Yogen(R)patent in Japan, Israel, Europe Countries,
China, India & South Korea.
15
- To complete the development of the Yogen Max(TM) product.
- At the end of the third quarter, we plan to produce all molds for
Yogen Max(TM)product.
- At the end of the third quarter, we plan to refocus on the development
of the Yogen Bat(TM)product.
ANTICIPATED CASH REQUIREMENTS
We estimate our minimum cash requirements until the end of fiscal year 2010 to
be as follows:
Present to April 2010 to July 2010 to October 2010 to Present to
March 2010 June 2010 September 2010 December 2010 December 2010
---------- --------- -------------- ------------- -------------
YoGen(R) manufacturing $ 350,000 $ 450,000 $ 900,000 $1,800,000 $3,500,000
Yogen(R) Patent Registrations $ 5,000 $ 30,000 -- -- $ 35,000
Advertising/Marketing for Yogen(R) $ 50,000 -- -- -- $ 50,000
YoGen Max(TM) R&D $ 160,000 $ 100,000 $ 100,000 -- $ 360,000
YoGen Max(TM) Molds -- -- -- $ 75,000 $ 75,000
Yogen Bat(TM) R&D -- -- -- $ 200,000 $ 200,000
Legal/Accounting $ 15,000 $ 15,000 $ 15,000 $ 25,000 $ 70,000
Miscellaneous & Traveling Expenditures $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 120,000
---------- ---------- ---------- ---------- ----------
$ 610,000 $ 625,000 $1,045,000 $2,130,000 $4,410,000
========== ========== ========== ========== ==========
OUTLOOK
Our current cash, may not be sufficient to meet our anticipated requirements for
the next 12 months. We believe that our future growth will depend upon the
success of our sales. There is no assurance, however, that such growth may be
achieved. Our future sustainability also depends on our ability to raise
sufficient capital to meet our future expenses, either by making additional
offerings of our stock, assuming additional debt or a combination of stock and
debt offerings. We are looking constantly for sources of funding. If we are
unable to obtain the financing necessary to support our operations, we may need
to take measures to reduce our operating costs, or, if such measures will not be
sufficient, we may be unable to continue as a going concern. In that event, we
may be forced to cease operations and our stockholders could lose their entire
investment in the Company.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not expect to purchase any significant equipment over the twelve months.
We are going to spend over $100,000 in purchasing equipment for our future
factory.
OFF-BALANCE SHEET ARRANGEMENTS
Our Company does not have any off-balance sheet arrangements, including any
outstanding derivative financial statements, off-balance sheet guarantees,
interest rate swap transactions or foreign currency contracts. Our Company does
not engage in trading activities involving non-exchange traded contracts.
RELATED PERSON TRANSACTIONS
During 2009, the Company received $484,899 in advances from the Chief Executive
officer. Of the total, $141,170 was obtained from Pipera, a company wholly owned
and controlled by the our president, chief executive officer and director, Mr.
Guy Ofir. These advances were non-interest bearing, unsecured and due on demand.
During the period ended December 31, 2009, the Company paid $324,300 in product
development costs and $200,000 letter of credit to Pipera, a company wholly
owned and controlled by our president, chief executive officer and director, Mr.
Guy Ofir. This advance was non-interest bearing, unsecured and due on demand.
The Company's directors provide our Company office space free of charge.
16
APPLICATION OF CRITICAL ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. See the information under the heading "Cautionary Note Concerning
Forward-Looking Statements" contained in this Annual Report on Form 10-K.
OUR MOST CRITICAL ACCOUNTING POLICIES ARE AS FOLLOWS:
REVENUE RECOGNITION AND CUSTOMER DEPOSITS
The Company records revenue when all of the following have occurred: (1)
persuasive evidence of an arrangement exists, (2) the product is delivered, (3)
the sales price to the customer is fixed or determinable, and (4) collectability
of the related customer receivable is reasonably assured. There is no stated
right of return for products. Sales are recognized upon shipment of products to
customers. As of December 31, 2009 and 2008, respectively, the Company had no
reserves and there have been no returns to date.
The Company collects a percentage of the sales price from its customers in
advance of shipment. Upon shipment, customer deposits become earned revenues.
The Company had $271,509 and $0 of such deposits on hand as of December 31, 2009
and 2008, respectively.
SHARE-BASED PAYMENTS
Generally, all forms of share-based payments, including stock option grants,
restricted stock grants and stock appreciation rights are measured at their fair
value on the awards' grant date, based on the estimated number of awards that
are ultimately expected to vest. Share-based compensation awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The expense resulting from share-based payments are
recorded as general and administrative expense
INCOME TAXES
The Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC Topic 740, "INCOME TAXES," which requires that the Company
recognize deferred tax liabilities and assets based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences are
expected to reverse. Deferred income tax benefit (expense) results from the
change in net deferred tax assets or deferred tax liabilities. A valuation
allowance is recorded when it is more likely than not that some or all deferred
tax assets will not be realized.
Accounting guidance now codified as FASB ASC Topic 740-20, "INCOME TAXES -
INTRAPERIOD TAX ALLOCATION," clarifies the accounting for uncertainties in
income taxes recognized in accordance with FASB ASC Topic 740-20 by prescribing
guidance for the recognition, de-recognition and measurement in financial
statements of income tax positions taken in previously filed tax returns or tax
positions expected to be taken in tax returns, including a decision whether to
file or not to file in a particular jurisdiction. FASB ASC Topic 740-20 requires
that any liability created for unrecognized tax benefits is disclosed. The
application of FASB ASC Topic 740-20 may also affect the tax bases of assets and
liabilities and therefore may change or create deferred tax liabilities or
assets. The Company would recognize interest and penalties related to
unrecognized tax benefits in income tax expense. At December 31, 2009 and 2008,
respectively, the Company did not record any liabilities for uncertain tax
positions.
EARNINGS PER SHARE
In accordance with accounting guidance now codified as FASB ASC Topic 260,
"EARNINGS PER SHARE," basic earnings (loss) per share is computed by dividing
net income (loss) by weighted average number of shares of common stock
outstanding during each period. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock, common stock equivalents and potentially dilutive securities outstanding
during the period.
17
The Company had the following potential common stock equivalents at December 31,
2009 and 2008:
2009 2008
---------- ----------
Warrants 18,529,440 16,029,440
Since the Company reflected a net loss in 2009 and 2008, respectively, the
effect of considering any common stock equivalents, if outstanding, would have
been anti-dilutive. A separate computation of diluted earnings (loss) per share
is not presented.
On January 28, 2008, the Company declared a 10 for 1 forward split. All share
and per share amounts have been retroactively restated.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
"FAIR VALUE MEASUREMENTS AND DISCLOSURES," which amends previous guidance to
require disclosures about fair value of financial instruments in interim as well
as annual financial statements in the current economic environment. This
pronouncement was effective for periods ending after June 15, 2009. The adoption
of this pronouncement did not have a material impact on the Company's business,
financial condition or results of operations; however, these provisions of FASB
ASC Topic 820 resulted in additional disclosures with respect to the fair value
of the Company's financial instruments.
In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
"SUBSEQUENT EVENTS," which establishes general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This
pronouncement was effective for interim or fiscal periods ending after June 15,
2009. The adoption of this pronouncement did not have a material impact on the
Company's business, results of operations or financial position; however, the
provisions of FASB ASC Topic 855 resulted in additional disclosures with respect
to subsequent events.
In June 2009, the Financial Accounting Standards Board (FASB) issued guidance
now codified as FASB Accounting Standards Codification (ASC) Topic 105,
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES," as the single source of
authoritative non-governmental U.S. GAAP. FASB ASC Topic 105 does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all authoritative literature related to a particular
topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the FASB
Codification will be considered non-authoritative. These provisions of FASB ASC
Topic 105 were effective for interim and annual periods ending after September
15, 2009 and, accordingly, were effective for the Company for the current fiscal
reporting period. The adoption of this pronouncement did not have an impact on
the Company's business, financial condition or results of operations, but will
impact the Company's financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
updated guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and Level 2 of
the fair value hierarchy (including the reasons for these transfers) and the
reasons for any transfers in or out of Level 3. This update also requires a
reconciliation of recurring Level 3 measurements about purchases, sales,
issuances and settlements on a gross basis. In addition to these new disclosure
requirements, this update clarifies certain existing disclosure requirements.
For example, this update clarifies that reporting entities are required to
provide fair value measurement disclosures for each class of assets and
liabilities rather than each major category of assets and liabilities. This
update also clarifies the requirement for entities to disclose information about
both the valuation techniques and inputs used in estimating Level 2 and Level 3
fair value measurements. This update will become effective for the Company with
the interim and annual reporting period beginning January 1, 2010, except for
the requirement to provide the Level 3 activity of purchases, sales, issuances,
and settlements on a gross basis, which will become effective for the Company
with the interim and annual reporting period beginning January 1, 2011. The
Company will not be required to provide the amended disclosures for any previous
periods presented for comparative purposes. Other than requiring additional
disclosures, adoption of this update will not have a material effect on the
Company's financial statements.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in Item 15 of this Annual
Report on Form 10-K.
18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Our accountant is Berman & Company, P.A., independent certified public
accountants. At no time have there been any disagreements with such accountants
regarding any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
ITEM 9A(T). CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on their evaluation as of the end of the period covered by this Annual
Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that
information required to be disclosed by us in report that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms and to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
internal controls over financial reporting and disclosure controls. Internal
Control Over Financial Reporting is a process designed by, or under the
supervision of, the Company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the issuer's
board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
1. Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the issuer;
2. Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the issuer are being made only in accordance with
authorizations of management and directors of the registrant; and
3. Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the issuer's assets
that could have a material effect on the financial statements.
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934, as amended, is appropriately recorded, processed, summarized and reported
within the specified time periods.
Management has conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2009 based on the framework
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO").
Based on this assessment, management concluded that as of December 31, 2009 it
had material weaknesses in its internal control procedures.
A material weakness is a control deficiency, or combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements would not be prevented or detected on a timely basis.
As of December 31, 2009, we have concluded that our internal control over
financial reporting was ineffective as of December 31, 2009.
The Company's assessment identified certain material weaknesses which are set
forth below:
19
FINANCIAL STATEMENT CLOSE PROCESS
The Company currently has an insufficient level of monitoring and oversight
controls for review and recording of stock issuances, agreements and contracts,
including insufficient documentation and review of the selection and application
of generally accepted accounting principles to significant non-routine
transactions.
ENTITY LEVEL CONTROLS
There are insufficient corporate governance policies. Our corporate governance
activities and processes are not always formally documented. Specifically,
decisions made by the board to be carried out by management should be documented
and communicated on a timely basis to reduce the likelihood of any
misunderstandings regarding key decisions affecting our operations and
management.
The Company currently has insufficient resources and an insufficient level of
monitoring and oversight, which may restrict the Company's ability to gather,
analyze and report information relative to the financial statements in a timely
manner, including insufficient documentation and review of the selection and
application of generally accepted accounting principles to significant
non-routine transactions. In addition, the limited size of the accounting
department makes it impractical to achieve and optimum segregation of duties.
There are limited processes and limited or no documentation in place for the
identification and assessment of internal and external risks that would
influence the success or failure of the achievement of entity-wide and
activity-level objectives.
FUNCTIONAL CONTROLS AND SEGREGATION OF DUTIES
Because of the Company's limited resources, there are limited controls over
information processing, and no internal controls over the accuracy, completeness
and authorization of transactions.
There is an inadequate segregation of duties consistent with control objectives.
Our Company's management is composed of a small number of individuals resulting
in a situation where limitations on segregation of duties exist. In order to
remedy this situation we would need to hire additional staff to provide greater
segregation of duties. Currently, it is not feasible to hire additional staff to
obtain optimal segregation of duties. Management will reassess this matter in
the following year to determine whether improvement in segregation of duty is
feasible.
There is a lack of top level reviews in place to review targets, product
development, joint ventures or financing. All major business decisions are
carried out by the officers with board of director approval when needed.
Accordingly, as the result of identifying the above material weaknesses we have
concluded that these control deficiencies resulted in a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis by the Company's internal
controls.
Management believes that the material weaknesses set forth above were the result
of the scale of our operations and are intrinsic to our small size. Management
believes these weaknesses did not have a material effect on our financial
results and intends to take remedial actions upon receiving funding for the
Company's business operations.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management's report herein.
20
(c) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
We are committed to improving our financial organization. As part of this
commitment, we will create a position to segregate duties consistent with
control objectives and will increase our personnel resources and technical
accounting expertise within the accounting function when funds are available to
us by preparing and implementing sufficient written policies and checklists
which will set forth procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements.
Management believes that preparing and implementing sufficient written policies
and checklists will remedy the material weaknesses pertaining to insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements. We intend to take appropriate and reasonable steps to make the
necessary improvements to remediate these deficiencies, including:
(1) We will document a formal code of ethics.
(2) We will revise processes to provide for a greater role of independent
board members in the oversight and review until such time that we are
adequately capitalized to permit hiring additional personnel to
address segregation of duties issues, ineffective controls over the
revenue cycle and insufficient supervision and review by our corporate
management.
(3) We will continue to update the documentation of our internal control
processes, including formal risk assessment of our financial reporting
processes.
We intend to consider the results of our remediation efforts and related testing
as part of our year-end 2010 assessment of the effectiveness of our internal
control over financial reporting.
Subsequent to December 31 2009, we have undertaken the following steps to
address the deficiencies stated above:
* Commenced the development of internal controls and procedures
surrounding the financial reporting process, primarily through the use
of account reconciliations, and supervision
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
All directors of our Company hold office until the next annual meeting of the
stockholders, if any, or until their successors have been elected and qualified.
The executive officers of our Company are appointed by our board of directors
and hold office until their death, resignation or removal from office. Our
directors and executive officers, their ages, positions held, and duration as
such, are as follows:
Position Held Date First Elected
Name with the Company Age or Appointed
---- ---------------- --- ------------
Guy Ofir Chief Executive Officer, President and Director 37 May 17, 2007
Emanuel Cohen Chief Financial Officer, Secretary, Treasurer and Director 60 May 17, 2007
The biographies of each of the nominees and continuing directors below contains
information regarding the person's service as a director, business experience,
director positions held currently or at any time during the last five years,
information regarding involvement in certain legal or administrative
proceedings, if applicable, and the experiences, qualifications, attributes or
skills that caused us to determine that the person should serve as a director
for the Company.
MR. GUY OFIR has been serving as our Chief Executive Officer, President and a
member of our board of directors since May 17, 2007. Mr. Ofir is an attorney and
owned a law firm in Israel which specializes in corporate and international law.
21
His law firm employed several lawyers and represents over 100 companies. Mr.
Ofir is also the owner of Pipera. In addition to his work in our Company, he
also manages investments and companies in Romania. His wholly owned company (Guy
Ofir & Co. SRL) deals with land and properties in Bucharest. Mr. Ofir has not
served as a director of any company during the past five years, or been involved
in any legal proceedings during the past ten years.
We believe Mr. Ofir's qualifications to sit on our board of directors include
his years of experience as an attorney and a business owner, as well as the deep
understanding of our products that he has acquired over several years of service
on our board of directors.
MR. EMANUEL COHEN has been serving as our Secretary, Treasurer and a member of
our board of directors since May 17, 2007. Mr. Cohen is a major stockholder and
a director of several privately owned companies in Israel and in the United
States. His expertise includes land, properties & fabrics. He is the President
of Amitex & Emday Ltd., one of the largest Israeli fabric companies. Mr. Cohen
is also a shareholder in Lev Hazom Ltd., Hafia Zamin Ltd., Leved Adi Properties
Ltd, and Mashko Ltd, all of which are private companies which hold land &
properties in Israel. In addition to his activities in Europe and Israel, Mr.
Cohen is also a shareholder in the following companies which hold land and
properties in the USA - Echo investments LLC, Bilou Capital investment LLC and
Eden Associated LLC. Previously he was an officer in Israel's largest bank, Bank
Hapoalim Ltd. Mr. Cohen has not served as a director of any company during the
past five years, or been involved in any legal proceedings during the past ten
years.
We believe Mr. Cohen's qualifications to sit on our board of directors include
his years of experience as a business owner, as well as the deep understanding
of our products that he has acquired over several years of service on our board
of directors.
There are no family relationships among our directors or executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who own more than 10% of a registered class of our equity securities
to file reports of ownership and changes in ownership with the SEC. These
persons are also required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based solely on our review of such forms or
written representations from reporting persons, we believe that during fiscal
year ended December 31, 2009, our executive officers and directors and other
reporting persons filed on a timely basis all of the reports required by Section
16(a) ), except that a Form 4 covering an aggregate of 1,701,000 shares of
common stock was not timely filed by Mr. Ofir. A Form 5 was filed on February
16, 2010 with respect to such shares.
AUDIT COMMITTEE, AUDIT COMMITTEE FINANCIAL EXPERT
We do not have a separately-designated standing audit committee, or a committee
performing similar functions. We believe that our board of directors is capable
of analyzing and evaluating our financial statements and understanding internal
controls and procedures for financial reporting. The board of directors of our
Company does not believe that it is necessary to have an audit committee because
management believes that the functions of an audit committee can be adequately
performed by our board of directors. In addition, our board of directors has
determined that we do not have a board member that qualifies as an "audit
committee financial expert" as defined in Item 407(d)(5) of Regulation S-K, nor
do we have a Board member that qualifies as "independent" as the term is used in
Section 10A(m)(3)(B) under the Exchange Act. We believe that retaining an
independent director who would qualify as an "audit committee financial expert"
would be overly costly and burdensome and is not warranted in our circumstances
given the stage of our development and the fact that we have not generated any
positive cash flows from operations to date.
CODE OF ETHICS
We do not currently have a Code of Ethics applicable to our principal executive,
financial or accounting officer, because we are a small company in its early
stages of existence and have not yet generated enough revenues to justify the
expense of creating and adopting such a code. As our business grows and we hire
additional employees and appoint additional officers, we expect to adopt a Code
of Ethics.
EMPLOYEES
Currently our only employees are our two directors who are also our officers.
ITEM 11. EXECUTIVE COMPENSATION
No executive officer of our Company has received any compensation during 2009 or
2008.
22
EQUITY AWARDS
Since our inception to the period ended December 31, 2009, we have not adopted
any stock option plans or other equity or other compensatory plans, and we have
not granted any stock options nor stock appreciation right to any of our
directors or executive officers.
COMPENSATION OF DIRECTORS
None of our directors has received any compensation from our inception to
December 31, 2009. We do not currently have any arrangements pursuant to which
directors are or will be compensated in the future for any services provided as
directors.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
We have not entered into any employment agreement or consulting agreements with
our directors and executive officers. We have no arrangements or plans in which
we provide pension, retirement or similar benefits for directors or executive
officers. Our directors and executive officers may receive stock options at the
discretion of our board of directors in the future. We do not have any material
bonus or profit sharing plans pursuant to which cash or non-cash compensation is
or may be paid to our directors or executive officers, except that stock options
may be granted at the discretion of our board of directors.
COMPENSATION COMMITTEE
We do not presently have a compensation committee. Due to the size of our
Company, our board of directors currently performs functions related to
oversight of compensation. Both members of our board of directors participated
in deliberations concerning executive officer compensation during the last
completed fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS
The Company has no compensation plans under which equity securities are
authorized for issuance.
The following table sets forth certain information, to the best of our
knowledge, as of April 19, 2010 (unless provided herein otherwise), with respect
to holdings of our Common Stock by (1) each person known by us to be the
beneficial owner of more than 5% of the total number of shares of our Common
Stock outstanding as of such date; (2) each of our directors; (3) each of our
executive officers; and (4) all of our directors and our current executive
officers as a group. Each stockholder has sole voting and investment power with
respect to the shares of Common Stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of Common Stock, except as
otherwise indicated.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class (1)
------------------------ -------------------- ---------
Guy Ofir (2) 27,014,953 26%
40 Baz St., Karmiel 20100
Israel
Emanuel Cohen (3) 23,675,000 23%
51 Bilu St.,
Ra'anan, Israel
Directors and Executive Officers
as a Group (2 persons) 50,689,953 49%
----------
(1) Based on 102,202,778 shares of our common stock issued and outstanding as
of April 19, 2010. Beneficial ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power with
respect to securities.
(2) Mr. Ofir is one of our two directors and an executive officer. Includes
4,865,800 shares owned by Mr. Ofir's wife. Mr. Ofir disclaims beneficial
ownership of these shares. Also included are 425,000 shares to which Mr.
Ofir disclaims beneficial ownership. On October 28, 2009, the Company
rescinded 425,000 shares previously issued pursuant to a consulting
arrangement with a third party and such rescinded shares were subsequently
registered in the name of Mr. Ofir subject to the issuer making a decision
with regard to their disposition.
(3) Mr. Cohen is one of our two directors and an executive officer. Includes
3,675,000 shares owned by Mr. Cohen's wife. Mr. Cohen disclaims beneficial
ownership of these shares.
23
EQUITY COMPENSATION PLAN INFORMATION
As of April 19, 2010 and as of December 31, 2009, the end of our most recently
completed fiscal year, our Company did not have any equity compensation plans or
change-of-control agreements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Except as described below, no director, executive officer, principal stockholder
holding at least 5% of our common shares, or any family member thereof, had any
material interest, direct or indirect, in any transaction, or proposed
transaction, during the twelve months ended December 31, 2009, in which the
amount involved in the transaction exceeded or exceeds the lesser of $120,000 or
one percent of the average of our total assets at the year end for the last two
completed fiscal years:
* During 2009, the Company received $484,899 in advances from the Chief
Executive officer. Of the total, $141,170 was obtained from Pipera,
a company wholly owned and controlled by our president, chief
executive officer and director, Mr. Guy Ofir. These advances were
non-interest bearing, unsecured and due on demand.
* During the period ended December 31, 2009, the Company paid $324,300
in product development costs and $200,000 letter of credit to Pipera,
a company wholly owned and controlled by our president, chief
executive officer and director, Mr. Guy Ofir.
* The Company's directors provide our Company office space free of
charge.
We have determined that neither Mr. Guy Ofir nor Mr. Emanuel Cohen are
independent directors, as that term is used in Rule 5605(a)(2) of the Nasdaq
Listing Rules.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The following is a summary of the fees billed to us by Moore and Associates
Chartered and Seale and Beer CPA's for professional services rendered for the
past two fiscal years:
Fee Category Fiscal 2008 Fees Fiscal 2009 Fees
------------ ---------------- ----------------
Audit Fees (1) $7,750 $9,250
Audit-Related Fees $ 0 $ 0
Tax Fees $ 0 $ 0
All Other Fees $ 0 $ 0
----------
(1) Consist of fees billed for professional services rendered for the audit of
our financial statements and review of the interim financial statements
included in quarterly reports and services that are normally provided by
Moore & Associates Chartered and Seale and Beer CPA's in connection with
statutory and regulatory filings or engagements.
Our new auditors, Berman & Company, P.A. have billed $7,000 pertaining to the
reaudit of the prior year's (2008 and 2007) previously audited by Moore &
Associates, a PCAOB registered firm that was sanctioned and banned from
practicing public accounting. Berman & Company, also audited 2009.
POLICY ON PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS
We do not have an Audit Committee. Nevertheless, the Company's policy is to
pre-approve all audit and permissible non-audit services provided by the
independent auditors. These services may include audit services, audit-related
services, tax services, and other services. Pre-approval is generally provided
for up to one year, and any pre-approval is detailed as to the particular
service or category of services and is generally subject to a specific budget.
24
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements and Financial Statement Schedules filed as part of this
report:
Page
----
Report of Independent Registered Public Accounting Firm 27
Balance Sheets as of December 31, 2009 and 2008 28
Statements of Operations for the Years Ended December 31, 2009
and 2008, and for the period from May 17, 2007 (inception) to
December 31, 2009 29
Statement of Stockholders' Equity (Deficit) for the Years Ended
December 31, 2009 and 2008, and for the period from May 17, 2007
(inception) to December 31, 2009 30
Statements of Cash Flows for the Years Ended December 31, 2009 and 2008,
and for the period from May 17, 2007 (inception) to December 31, 2009 31
Notes to the Financial Statements 32
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions, or are
inapplicable, and therefore have been omitted.
(b) Exhibits
Exhibit No. Exhibit Description
----------- -------------------
3.1 Composite copy of the Articles of Incorporation of Easy Energy,
Inc. (incorporated by reference to our Annual Report on Form 10-K
filed with the SEC on March 27, 2009).
3.2 Bylaws of Easy Energy, Inc. (incorporated by reference to the
Company's Registration Statement on Form SB-2 (No. 333-146895)
filed with the SEC on October 24, 2007).
4.1 Securities Purchase Agreement dated as of March 10, 2008 between
the Company and Tailor-Made Capital Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K/A filed
with the SEC on July 7, 2008).
4.2 Registration Rights Agreement dated as of March 10, 2008 between
the Company and Tailor-Made Capital Ltd. (incorporated by
reference to the Company's Current Report on Form 8-K filed with
the SEC on March 24, 2008).
4.3 Form of a Stock Purchase Warrant dated February 28, 2008 and
Appendix (incorporated by reference to the Company's Registration
Statement on Form S-1/A (No. 333-150468) filed with the SEC on
July 7, 2008).
10.1 Exclusive Purchasing and Marketing Agreement between Easy Energy,
Inc. and Al-Sadeef Trading Company dated April 20, 2008
(incorporated by reference to our Quarterly Report on Form 10-Q
filed with the SEC on November 19, 2008).
10.2 Assignment of patent application (incorporated by reference to
Company's Registration Statement on Form SB-2 filed with the SEC
on October 24, 2007).
25
Exhibit No. Exhibit Description
----------- -------------------
10.3 Investment Agreement dated January 16, 2008, between the Company
and Mair Duke (incorporated by reference to the Post-Effective
Amendment 1 to Form S-1 filed with the SEC on November 16, 2009).
31.1* Rule 13a-14(a) Certification of Principal Executive Officer.
31.2* Rule 13a-14(a) Certification of Principal Financial Officer.
32.1** Certification of Principal Executive Officer furnished pursuant
to 18 U.S.C. Section 1350.
32.2** Certification of Principal Financial Officer furnished pursuant
to 18 U.S.C. Section 1350.
----------
* Filed herewith
** Furnished herewith
26
[LETTERHEAD OF BERMAN & COMPANY. P. A]
Certified Public Accountants and Consultants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of:
Easy Energy, Inc.
We have audited the accompanying balance sheets of Easy Energy, Inc. (a
development stage company) as of December 31, 2009 and 2008, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 2009 and 2008, and for the period from May 17, 2007
(inception) to December 31, 2009. 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 audits.
We conducted our audits 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 audits provide 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 Easy Energy, Inc. (a
development stage company) as of December 31, 2009 and 2008, and the results of
its operations and its cash flows for the years ended December 31, 2009 and
2008, and for the period from May 17, 2007 (inception) to December 31, 2009, 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 has a net loss of $761,414 and net cash used
in operations of $830,495 for the year ended December 31, 2009; and a
stockholders' deficit of $197,180 at December 31, 2009. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plan in regards to these matters is also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Berman & Company, P.A.
---------------------------------
Berman & Company, P.A.
Boca Raton, Florida
April 16, 2010
27
Easy Energy, Inc.
(A Development Stage Company)
Balance Sheets
--------------
December 31, 2009 December 31, 2008
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 105,438 $ 124,534
Inventory 3,721 --
Deposits 447,865 --
----------- -----------
TOTAL CURRENT ASSETS 557,024 124,534
----------- -----------
OTHER ASSETS
Patent 8,500 --
----------- -----------
TOTAL OTHER ASSETS 8,500 --
----------- -----------
TOTAL ASSETS $ 565,524 $ 124,534
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 5,996 $ --
Customer deposits 271,509 --
Loans payable - related party 485,199 300
----------- -----------
TOTAL CURRENT LIABILITIES 762,704 300
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, $0.0001 par value; 50,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.00001 par value, 185,000,000 shares authorized;
101,702,778 and 93,302,778 shares issued and outstanding 1,017 933
Additional paid in capital 3,347,352 2,907,436
Deficit accumulated during the development stage (3,545,549) (2,784,135)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (197,180) 124,234
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 565,524 $ 124,534
=========== ===========
See accompanying notes to financial statements
28
Easy Energy, Inc.
(A Development Stage Company)
Statements of Operations
------------------------
For the Period from
May 17, 2007
For the Years Ended December 31, (inception) to
2009 2008 December 31, 2009
------------ ------------ -----------------
SALES $ 66,400 $ -- $ 66,400
COST OF GOODS SOLD 54,144 -- 54,144
------------ ------------ ------------
GROSS PROFIT 12,256 -- 12,256
------------ ------------ ------------
RESEARCH AND DEVELOPMENT - PRIMARILY RELATED PARTY 379,087 723,223 1,102,310
GENERAL AND ADMINISTRATIVE EXPENSES 394,583 2,046,861 2,464,437
------------ ------------ ------------
TOTAL EXPENSES 773,670 2,770,084 3,566,747
INTEREST INCOME -- 8,560 8,942
------------ ------------ ------------
NET LOSS $ (761,414) $ (2,761,524) $ (3,545,549)
============ ============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ (0.03) $ (0.04)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
DURING THE PERIOD - BASIC AND DILUTED 95,864,695 91,365,162 87,228,618
============ ============ ============
See accompanying notes to financial statements
29
Easy Energy, Inc.
Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2009 and 2008 and for the period from
May 17, 2007 (Inception) to December 31, 2009
---------------------------------------------
Common Stock,
$0.00001 Par Value Additional Total
------------------- Paid in Accumulated Stockholders'
Shares Amount Capital Deficit Equity (Deficit)
------ ------ ------- ------- ----------------
Common stock issued to founder
for cash ($0.0001/share) 40,000,000 $ 400 $ 3,600 $ -- $ 4,000
Common stock issued for cash
($0.002/share) 40,333,190 403 90,597 -- 91,000
Net loss, 2007 -- -- -- (22,611) (22,611)
----------- ------ ---------- ----------- -----------
Balance, December 31, 2007 80,333,190 803 94,197 (22,611) 72,389
Common stock issued for cash
($0.01 - $0.24/share) 10,587,235 106 1,045,401 -- 1,045,507
Common stock issued for services
($0.24 - $0.30/share) 2,382,353 24 661,738 -- 661,762
Warrants issued for services -- -- 1,106,100 -- 1,106,100
Net loss, 2008 -- -- -- (2,761,524) (2,761,524)
----------- ------ ---------- ----------- -----------
Balance, December 31, 2008 93,302,778 933 2,907,436 (2,784,135) 124,234
Common stock issued for cash
($0.05 - $0.065/share) 6,400,000 64 334,936 -- 335,000
Common stock issued for services
($0.07/share) 1,500,000 15 104,985 -- 105,000
Common stock issued as direct
offering costs 500,000 5 (5) -- --
Net loss, 2009 -- -- -- (761,414) (761,414)
----------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 2009 101,702,778 $1,017 $3,347,352 $(3,545,549) $ (197,180)
=========== ====== ========== =========== ===========
See accompanying notes to financial statements
30
Easy Energy, Inc.
(A Development Stage Company)
Statements of Cash Flows
------------------------
For the Period from
May 17, 2007
For the Years Ended December 31, (inception) to
2009 2008 December 31, 2009
----------- ----------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (761,414) $(2,761,524) $(3,545,549)
Adjustments to reconcile net loss to net
cash used in operating activities
Stock issued for services 105,000 661,762 766,762
Warrants issued for services -- 1,106,100 1,106,100
Changes in operating assets and liabilities
Inventory (3,721) -- (3,721)
Deposits (447,865) -- (447,865)
Accounts payable 5,996 -- 5,996
Customer deposits 271,509 -- 271,509
----------- ----------- -----------
Net Cash Used In Operating Activities (830,495) (993,662) (1,846,768)
----------- ----------- -----------
CASH FLOWS USED FROM INVESTING ACTIVITIES
Increase in patent costs (8,500) -- (8,500)
----------- ----------- -----------
Net Cash Used In Investing Activities (8,500) -- (8,500)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans 484,899 -- 485,199
Proceeds from stock issued for cash 335,000 1,045,508 1,475,507
----------- ----------- -----------
Net Cash Provided By Financing Activities 819,899 1,045,508 1,960,706
----------- ----------- -----------
Net increase (decrease) in cash (19,096) 51,846 105,438
Cash - beginning of year/period 124,534 72,688 --
----------- ----------- -----------
Cash - end of year/period $ 105,438 $ 124,534 $ 105,438
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year/period for:
Interest $ -- $ -- $ --
=========== =========== ===========
Taxes $ -- $ -- $ --
=========== =========== ===========
See accompanying notes to financial statements
31
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
NOTE 1 NATURE OF OPERATIONS
Easy Energy, Inc. (the "Company" or "Easy") was incorporated under the laws of
the State of Nevada on May 17, 2007. The Company is headquartered in Karmiel,
Israel.
The Company is in the business of developing and manufacturing battery charging
solutions for small hand-carried devices. The Company has received purchase
orders for its YoGen(R) product and has begun manufacturing the product. The
Company currently uses three suppliers in China.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE
The Company's financial statements are presented as those of a development stage
enterprise. Activities during the development stage primarily include equity
based financing and further implementation of the business plan. The Company
generated minimal revenues in 2009.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions impact, among others, the
following: the fair value of options granted as compensation, estimates of the
probability and potential magnitude of contingent liabilities and the valuation
allowance for deferred tax assets due to continuing operating losses.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate could change
in the near term due to one or more future confirming events. Accordingly, the
actual results could differ significantly from our estimates.
RISKS AND UNCERTAINTIES
The Company's operations are subject to significant risk and uncertainties
including financial, operational, technological, intense competition, and
regulatory risks including the potential risk of business failure. The risk of
social and governmental factors is also a concern since the Company operates in
Israel and its sole supplier is based in China. See Note 3 regarding going
concern matters.
32
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
CASH
The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. There were no cash equivalents at
December 31, 2009 and 2008, respectively.
The Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits.
INVENTORY
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) valuation method.
December 31, 2009 December 31, 2008
----------------- -----------------
Finished goods $ 3,721 $ --
DEPOSITS
The Company purchases inventory from its suppliers through a letter of credit.
The funds are held in a bank which are released once the product is ready to be
shipped. At December 31, 2009 and 2008, the Company had deposits of $447,865 and
$0, respectively.
LONG-LIVED ASSETS
The Company carries long-lived assets at the lower of their carrying amount or
their fair value. The Company periodically reviews the carrying values of
long-lived assets when events or changes in circumstances indicate that it is
more likely than not that the carrying value may exceed the fair value, and
record an impairment charge when considered necessary.
When circumstances indicate that an impairment of value may have occurred, the
Company tests such assets for recoverability by comparing the estimated
undiscounted future cash flows expected to result from the use of such assets
and their eventual disposition to their carrying amounts. If the undiscounted
future cash flows are less than the carrying amount of the asset, an impairment
loss, measured as the excess of the carrying value of the asset over its
estimated fair value, is recognized. Fair value, for purposes of calculating
impairment, is measured based on estimated future cash flows, discounted at a
market rate of interest.
In 2009, the Company incurred patent related costs of $8,500 for its
intellectual property. These costs have been capitalized and will be evaluated
for impairment at least annually.
33
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. The carrying amounts of the Company's short
term financial instruments, approximate fair value due to the relatively short
period to maturity for these instruments.
SEGMENT INFORMATION
For 2009 and 2008, respectively, the Company only operated in one segment;
therefore, segment information has not been presented.
REVENUE RECOGNITION AND CUSTOMER DEPOSITS
The Company records revenue when all of the following have occurred: (1)
persuasive evidence of an arrangement exists, (2) the product is delivered, (3)
the sales price to the customer is fixed or determinable, and (4) collectability
of the related customer receivable is reasonably assured. There is no stated
right of return for products. Sales are recognized upon shipment of products to
customers. As of December 31, 2009 and 2008, respectively, the Company had no
reserves and there have been no returns to date.
The Company collects a percentage of the sales price from its customers in
advance of shipment. Upon shipment, customer deposits become earned revenues.
The Company had $271,509 and $0 of such deposits on hand as of December 31, 2009
and 2008, respectively.
RESEARCH AND DEVELOPMENT
Research and development is expensed as incurred.
ADVERTISING
Costs incurred for advertising are charged to operations as incurred.
December 31, 2009 December 31, 2008
----------------- -----------------
$83,510 $ --
34
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
SHARE-BASED PAYMENTS
Generally, all forms of share-based payments, including stock option grants,
restricted stock grants and stock appreciation rights are measured at their fair
value on the awards' grant date, based on the estimated number of awards that
are ultimately expected to vest. Share-based compensation awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The expense resulting from share-based payments are
recorded as general and administrative expense
INCOME TAXES
The Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC Topic 740, "Income Taxes," which requires that the Company
recognize deferred tax liabilities and assets based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences are
expected to reverse. Deferred income tax benefit (expense) results from the
change in net deferred tax assets or deferred tax liabilities. A valuation
allowance is recorded when it is more likely than not that some or all deferred
tax assets will not be realized.
Accounting guidance now codified as FASB ASC Topic 740-20, "Income Taxes -
Intraperiod Tax Allocation," clarifies the accounting for uncertainties in
income taxes recognized in accordance with FASB ASC Topic 740-20 by prescribing
guidance for the recognition, de-recognition and measurement in financial
statements of income tax positions taken in previously filed tax returns or tax
positions expected to be taken in tax returns, including a decision whether to
file or not to file in a particular jurisdiction. FASB ASC Topic 740-20 requires
that any liability created for unrecognized tax benefits is disclosed. The
application of FASB ASC Topic 740-20 may also affect the tax bases of assets and
liabilities and therefore may change or create deferred tax liabilities or
assets. The Company would recognize interest and penalties related to
unrecognized tax benefits in income tax expense. At December 31, 2009 and 2008,
respectively, the Company did not record any liabilities for uncertain tax
positions.
EARNINGS PER SHARE
In accordance with accounting guidance now codified as FASB ASC Topic 260,
"Earnings Per Share," basic earnings (loss) per share is computed by dividing
net income (loss) by weighted average number of shares of common stock
outstanding during each period. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock, common stock equivalents and potentially dilutive securities outstanding
during the period.
35
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
The Company had the following potential common stock equivalents at December 31,
2009 and 2008:
2009 2008
---------- ----------
Warrants 18,529,440 16,029,440
Since the Company reflected a net loss in 2009 and 2008, respectively, the
effect of considering any common stock equivalents, if outstanding, would have
been anti-dilutive. A separate computation of diluted earnings (loss) per share
is not presented.
On January 28, 2008, the Company declared a 10 for 1 forward split. All share
and per share amounts have been retroactively restated.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
"Fair Value Measurements and Disclosures," which amends previous guidance to
require disclosures about fair value of financial instruments in interim as well
as annual financial statements in the current economic environment. This
pronouncement was effective for periods ending after June 15, 2009. The adoption
of this pronouncement did not have a material impact on the Company's business,
financial condition or results of operations; however, these provisions of FASB
ASC Topic 820 resulted in additional disclosures with respect to the fair value
of the Company's financial instruments.
In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
"Subsequent Events," which establishes general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This
pronouncement was effective for interim or fiscal periods ending after June 15,
2009. The adoption of this pronouncement did not have a material impact on the
Company's business, results of operations or financial position; however, the
provisions of FASB ASC Topic 855 resulted in additional disclosures with respect
to subsequent events.
In June 2009, the Financial Accounting Standards Board (FASB) issued guidance
now codified as FASB Accounting Standards Codification (ASC) Topic 105,
"Generally Accepted Accounting Principles," as the single source of
authoritative non-governmental U.S. GAAP. FASB ASC Topic 105 does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all authoritative literature related to a particular
topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the FASB
Codification will be considered non-authoritative. These provisions of FASB ASC
Topic 105 were effective for interim and annual periods ending after September
15, 2009 and, accordingly, were effective for the Company for the current fiscal
reporting period. The adoption of this pronouncement did not have an impact on
36
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
the Company's business, financial condition or results of operations, but will
impact the Company's financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
updated guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and Level 2 of
the fair value hierarchy (including the reasons for these transfers) and the
reasons for any transfers in or out of Level 3. This update also requires a
reconciliation of recurring Level 3 measurements about purchases, sales,
issuances and settlements on a gross basis. In addition to these new disclosure
requirements, this update clarifies certain existing disclosure requirements.
For example, this update clarifies that reporting entities are required to
provide fair value measurement disclosures for each class of assets and
liabilities rather than each major category of assets and liabilities. This
update also clarifies the requirement for entities to disclose information about
both the valuation techniques and inputs used in estimating Level 2 and Level 3
fair value measurements. This update will become effective for the Company with
the interim and annual reporting period beginning January 1, 2010, except for
the requirement to provide the Level 3 activity of purchases, sales, issuances,
and settlements on a gross basis, which will become effective for the Company
with the interim and annual reporting period beginning January 1, 2011. The
Company will not be required to provide the amended disclosures for any previous
periods presented for comparative purposes. Other than requiring additional
disclosures, adoption of this update will not have a material effect on the
Company's financial statements.
NOTE 3 GOING CONCERN
As reflected in the accompanying financial statements, the Company has a net
loss of $761,414 and net cash used in operations of $830,495 for the year ended
December 31, 2009, the Company also had a stockholders' deficit of $197,180 at
December 31, 2009.
The ability of the Company to continue its operations is dependent on
Management's plans, which include the raising of capital through debt and/or
equity markets with some additional funding from other traditional financing
sources, including term notes, until such time that funds provided by operations
are sufficient to fund working capital requirements. The Company may need to
incur additional liabilities with certain related parties to sustain the
Company's existence. The Company will require additional funding to finance the
growth of its current and expected future operations as well as to achieve its
strategic objectives. The Company believes its current available cash along with
anticipated revenues may be insufficient to meet its cash needs for the near
future. There can be no assurance that financing will be available in amounts or
terms acceptable to the Company, if at all.
37
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 4 STOCKHOLDERS' EQUITY (DEFICIT)
I. FOUNDER SHARES, COMMON STOCK AND WARRANTS
FOR THE YEAR ENDED DECEMBER 31, 2007:
On May 17, 2007(inception), the Company issued 40,000,000 shares of common stock
to its founders for a total of $4,000 ($0.0001/share).
During 2007, the Company had the following private placement:
40,333,190 shares for $91,000 ($0.002/share)
FOR THE YEAR ENDED DECEMBER 31, 2008:
During 2008, the Company had the following private placements:
(A) JANUARY 16, 2008
* 4,285,714 shares for $300,000 (0.07/share)
(B) FEBRUARY 28, 2008
* 367,648 units for $625,001 ($0.17/unit),
* Each unit consisted of ten shares of stock (3,676,480) and thirty
warrants (11,029,440 Series "A")
* Series "A" warrants have an exercise price of $0.27/share and an
expiration date of five years.
(C) FEBRUARY 28, 2008
* 208,333 shares for $50,000 ($0.24/share)
(D) MARCH 3, 2008
* 300,000 shares for $3,000 ($0.01/share)
* Warrants to purchase 1,000,000 shares having an exercise price of
$0.15/share and expiration date of five years.
38
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
(E) MARCH 25, 2008
* 2,000,000 shares issued for cash payment of $50,000 ($0.025)
* Warrants to purchase 1,000,000 shares having an exercise price of
$0.10/share and expiration date of five years.
(F) SEPTEMBER 15, 2008
* 116,708 shares for $17,506 ($0.15/share)
During 2008, the Company issued shares for services as follows:
(A) MARCH 10, 2008
* 882,353 shares having a fair value of $211,762 ($0.24/share), based
upon the quoted closing trading price.
* Warrants to purchase 3,000,000 shares having an exercise price of
$0.27/share and expiration date of five years.
(B) MARCH 27, 2008
* 1,500,000 shares having a fair value of $450,000 ($0.30/share), based
upon the quoted closing trading price.
FOR THE YEAR ENDED DECEMBER 31, 2009:
During 2009, the Company had the following private placements:
(A) APRIL 1, 2009
* 400,000 shares for $20,000 ($0.05/share)
(B) JULY 23, 2009
* 1,000,000 shares for $65,000 ($0.065/share)
(C) NOVEMBER 15, 2009
* 2,500,000 shares for $125,000 ($0.05/share)
(D) NOVEMBER 20, 2009
* 2,500,000 shares for $125,000 ($0.05/share)
39
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
During 2009, the Company issued shares for services as follows:
(A) MARCH 29, 2009
* 1,250,000 shares having a fair value of $87,500 ($0.07/share), based
upon the quoted closing trading price.
(B) JULY 2, 2009
* 250,000 shares having a fair value of $17,500 ($0.07/share), based
upon the quoted closing trading price.
(C) NOVEMBER 20, 2009
* 500,000 shares having a fair value of $25,000 ($0.05/share), based
upon the quoted closing trading price. These shares were issued as a
direct offering cost in connection with funds raised in private
placements. The net effect on equity is $0.
The following is a summary of the Company's warrants that are
outstanding and exercisable at December 31, 2009 and 2008:
Weighted
Average
Weighted Remaining
Average Contractual
Exercise Life in Intrinsic
Warrants Price Years Value
-------- ----- ----- -----
Balance - December 31, 2007 -- $ --
Granted 16,029,440 $0.25
Exercised -- $ --
Forfeited/Cancelled -- $ --
---------- ----- ----- -------
Balance - December 31, 2008 - outstanding 16,029,440 $0.25 4.04 $ --
========== ===== ===== =======
Balance - December 31, 2008 - exercisable 16,029,440 $0.25 4.04 $ --
========== ===== ===== =======
Granted 2,500,000 $0.15
Exercised -- $ --
Forfeited/Cancelled -- $ --
---------- ----- ----- -------
Balance - December 31, 2009 - outstanding 18,529,440 $0.24 2.89 $ --
========== ===== ===== =======
Balance - December 31, 2009 - exercisable 18,529,440 $0.24 2.89 $ --
========== ===== ===== =======
40
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
WARRANTS ISSUED FOR SERVICES AND OFFERING COSTS
In 2009, the Company issued 2,500,000 warrants for direct offering costs having
a fair value of $25,000. Since this was a direct offering cost, the net effect
to equity was $0.
In 2008, the Company issued 5,000,000 warrants for services and direct offering
costs. Of the total, 4,000,000 warrants were granted for professional fees
having a fair value of $1,106,100. The remaining $1,000,000 warrants had a fair
value of $243,600; however, since this was a direct offering cost, the net
effect to equity was $0.
The Company determined the fair value of warrants granted based upon the
following assumptions:
2009 2008
-------- -------------
Exercise price $0.10 $0.10 - $0.15
Expected term 5 years 5 years
Expected volatility 150% 150%
Expected dividends 0% 0%
Risk free interest rate 0.30% 1.93% - 2.48%
Expected forfeitures 0% 0%
NOTE 6 CONTINGENCIES
LITIGATIONS, CLAIMS AND ASSESSMENTS
From time to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise that may harm its business. The Company is currently not aware
of any such legal proceedings or claims that they believe will have,
individually or in the aggregate, a material adverse affect on its business,
financial condition or operating results.
NOTE 7 INCOME TAXES
The Company recognizes deferred tax assets and liabilities for both the expected
impact of differences between the financial statements and the tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax losses and tax credit carryforwards. The Company will establish a
valuation allowance to reflect the likelihood of realization of deferred tax
assets.
The Company has a net operating loss carryforward for tax purposes totaling
approximately $1,673,000 at December 31, 2009, expiring through 2029. There is a
limitation on the amount of taxable income that can be offset by carryforwards
41
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
after a change in control (generally greater than a 50% change in ownership).
Temporary differences, which give rise to a net deferred tax asset, are as
follows:
Significant deferred tax assets at December 31, 2009 and 2008 are as follows:
2009 2008
--------- ---------
Gross deferred tax assets:
Net operating loss carryforwards $(679,000) $(413,000)
--------- ---------
Total deferred tax assets 679,000 413,000
Less: valuation allowance (679,000) (413,000)
--------- ---------
Net deferred tax asset recorded $ -- $ --
========= =========
The valuation allowance at December 31, 2008 was approximately $413,000. The net
change in valuation allowance during the year ended December 31, 2009 was an
increase of approximately $266,000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred income tax assets will not be realized. The
ultimate realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred income tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based on consideration of these
items, management has determined that enough uncertainty exists relative to the
realization of the deferred income tax asset balances to warrant the application
of a full valuation allowance as of December 31, 2009 and 2008, respectively.
The actual tax benefit differs from the expected tax benefit for the years ended
December 31, 2009 and 2008 (computed by applying the U.S. Federal Corporate tax
rate of 34% to income before taxes and 10% for State income taxes, a blended
rate of 40.60%) as follows:
2009 2008
--------- ---------
Expected tax expense (benefit) - Federal $(233,000) $(910,000)
Expected tax expense (benefit) - State (76,000) (298,000)
Non-deductible stock compensation 43,000 805,000
Change in Valuation Allowance 266,000 403,000
--------- ---------
Actual tax expense (benefit) $ -- $ --
========= =========
42
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
NOTE 8 LOANS PAYABLE - RELATED PARTY AND OTHER RELATED PARTY TRANSACTIONS
(A) DEBT
During 2009, the Company received $484,899 in advances from the Chief Executive
officer. Of the total, $141,170 was obtained from a company controlled by the
Chief Executive Officer. These advances were non-interest bearing, unsecured and
due on demand.
During 2007, the Company received $300 in advances from the Chief Executive
officer. This advance was non-interest bearing, unsecured and due on demand.
This is a concentration of debt financing, since all advances from inception are
from the Company's Chief Executive Officer.
(B) RESEARCH AND DEVELOPMENT
The following product development costs were paid to a company controlled by the
Company's Chief Executive Officer since inception:
2007 $ --
2008 723,223
2009 315,800
----------
Total $1,039,023
==========
NOTE 9 CONCENTRATIONS
The Company has the following concentrations for sales and purchases in 2009:
Sales
A 76%
B 21%
Purchases
A (RELATED PARTY) 83%
B 13%
43
Easy Energy, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009 and 2008
--------------------------
NOTE 10 SUBSEQUENT EVENTS
The Company has evaluated for subsequent events between the balance sheet date
of December 31, 2009 and April 16, 2010, the date the financial statements were
issued.
On January 26, 2010, the Company issued 500,000 shares of common stock for
consulting services, having a fair value of $25,000 ($0.05/share), based upon
the quoted closing trading price. In addition the Company granted the consultant
500,000 stock options at an exercise price of $0.15 per share. The options vest
evenly over a period of 5 months starting February 1, 2010.
The Company determined the fair value of the stock options was $17,200, based
upon the following assumptions:
Expected term 3 years
Expected volatility 150%
Expected dividends 0%
Risk free interest rate 1.40%
Expected forfeitures 0%
The consultant is also receiving $1,000/month as additional consideration.
On March 28, 2010 the Company received $220,000 from family members of a Company
director. The loan is non-interest bearing and due January 1, 2012. In the event
of default, the Company would be required to issue 4,000,000 shares of common
stock at the market price on the default date.
On March 29, 2010, the Company issued 1,450,000 shares and 400,000 warrants in a
private placement for $79,750 ($0.055/share). The warrants expire in two years
and have an exercise price of $0.12/share.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Easy Energy, Inc.
Dated: April 19, 2010 By: /s/ Guy Ofir
-----------------------------------------------
Guy Ofir
Chief Executive Officer, President and Director
Dated: April 19, 2010 By: /s/ Emanuel Cohen
-----------------------------------------------
Emanuel Cohen
Chief Financial Officer, Treasurer, Secretary
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Guy Ofir Chief Executive Officer, President April 19, 2010
----------------------------- and Director
Guy Ofir (Principal Executive Officer)
/s/ Emanuel Cohen Chief Financial Officer, Treasurer, April 19, 2010
----------------------------- Secretary and Director
Emanuel Cohen (Principal Financial and Accounting
Officer)
4
