Item 1. Business
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
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.
As used in this annual report, the terms "we", "us", "our" and "Ecologic" mean Ecologic Transportation, Inc. and our wholly-owned subsidiaries, Ecological Products, Inc., Ecologic Car Rentals, Inc. and Ecologic Systems, Inc., unless otherwise indicated.
Corporate Overview
The address of our principal executive office is 1327 Ocean Avenue, Suite B, Santa Monica, California, 90401. Our telephone number is 310-899-3900.
Our common stock is quoted on the OTC Bulletin Board under the symbol “EGCT”.
Corporate History
We were incorporated in the State of Nevada on September 30, 2005 under the name Heritage Explorations Inc. On June 20, 2008, we merged with our wholly owned subsidiary and changed our name to USR Technology, Inc., and on June 26, 2008 our shares began trading under the symbol “USRT”. We were engaged primarily in the provision of drilling services internationally.
Following the completion of the acquisition of Ecologic Sciences, Inc., we are a development stage company that plans to be engaged in the rental of environmentally friendly hybrid electric and low-emission vehicles to the public.
Pursuant to the terms of the Agreement and Plan of Merger, as amended:
effective June 11 2009, we effected a two (2) old for one (1) new reverse stock split of our issued and outstanding common stock. As a result, our authorized capital decreased from 150,000,000 shares of common stock with a par value of $0.001 to 75,000,000 shares of common stock with a par value of $0.001 and our issued and outstanding shares decreased from 15,020,017 shares of common stock to 7,510,000 shares of common stock;
effective June 11, 2009, we changed our name from “USR Technology, Inc.” to “Ecologic Transportation, Inc.”, by way of a merger with our wholly owned subsidiary Ecologic Transportation, Inc., which was formed solely for the change of name. The name change and forward stock split became effective with the Over-the-Counter Bulletin Board at the opening of trading on June 11, 2009 under the stock symbol “EGCT”. Our CUSIP number is 27888B 105;
certain of our pre-closing stockholders canceled 2,000,002 pre-consolidated shares of our common stock for no consideration for the purpose of making our capitalization more attractive to future equity investors; and
certain affiliates of our company cancelled an aggregate of $108,500 of debt at no consideration.
On July 2, 2009 and in connection with the closing of the agreement and plan of merger, there was a change in control of our company that resulted from the issuance of 17,559,486 shares of our common stock to the former shareholders of Ecologic Sciences, Inc.
The issuance of the 17,559,486 common shares to the former shareholders of Ecologic Sciences, Inc. was deemed to be a reverse acquisition for accounting purposes. Ecologic Sciences, Inc., the acquired entity, is regarded as the predecessor entity as of July 2, 2009. Starting with the periodic report for the quarter in which the acquisition was consummated, the Company has filed annual and quarterly reports based on the December 31st fiscal year end of Ecologic Sciences, Inc.
On September 24, 2009, we, through our wholly owned subsidiary Ecologic Products, Inc., entered into a service agreement with Park ‘N Fly Inc., a national off-airport parking company. Pursuant to the terms of the service agreement, we agreed to provide car wash cleaning services using our 100% organic cleaning products, known as Ecologic Shine®, for a period of three years at certain of Park ‘N Fly Inc.’s locations. We opened in Atlanta, Georgia on October 19, 2009. We opened in San Diego, California on November 16, 2009 and opened in Los Angeles, California in December 2009. An additional location was opened in Houston on March 24, 2010 but, having not met expectations, this location was subsequently closed on June 30, 2010 upon mutual agreement by Park ‘N Fly and the Company. We are currently in negotiations with Park ‘N Fly to revise the existing arrangements we have with them.
On November 10, 2009, in accordance with the change in direction of our company, we rescinded our agreements with Shuayb K. Al Suleimany and Euroslot S.A.S.
Our Current Business
Until April 2009, we were a company focused on the drilling services sector of the oil and gas industry. As of the closing date of the agreement and plan of merger on July 2, 2009, we became a development stage company in the business of environmental transportation. We are structured with three operating units. Our primary operation is the car rental division which will focus on an environmental car rental operation.
We have two subsidiaries in addition to Ecologic Car Rentals Inc.:
1. Ecologic Products, Inc., a Nevada Corporation 2. Ecologic Systems, Inc., a Nevada Corporation
These subsidiaries were created to provide an infrastructure and support for Ecologic Car Rentals. Our car rental business and our systems business intends to provide distribution channels for certain environmental products and both generate certain internal product requirements in order to allow us to be “green” throughout our operation. Initially our business plan calls for the products to be focused on transportation and its ancillary markets.
Ecologic Products, Inc.
Our car rental business and our systems business intend to provide distribution channels for certain environmental products and both generate certain internal product requirements in order to allow us to be “green” throughout our operation. Initially our business plan calls for the products to be focused on transportation and its ancillary markets.
In anticipation of our first rental car location and our need for environmentally friendly car cleaning (one of the most important aspects of a rental operation), we developed Ecologic Shine®, a proprietary waterless car cleaning process that delivers cleaning comparable to normal washing without using any harmful chemicals.
The commercialization of the Ecologic Shine® products and services are:
Good for the environment
Good for the customer
Good for the vehicle
Good for the bottom line
We have launched Ecologic Shine® in collaboration with Park ‘N Fly, the airport parking chain with prominent locations in 15 airport markets, and in this regard Park ‘N Fly has launched an initial test market. We currently have operations in Atlanta, San Diego and Los Angeles with encouraging results. No new locations have been established as at December 31, 2011. We are currently in negotiations with Park ‘N Fly to revise the existing arrangement we have with them.
Ecologic Systems, Inc.
Through our subsidiary, Ecologic Systems, Inc. (“EcoSys”), we intended to develop and manage the “greening” of gas stations along with retrofitting them with alternative energy options and solutions. To build this infrastructure, we intended to provide turnkey management, installation, and integration of equipment procurement, equipment installation, contracting, fuel, and regulatory tax incentive and grant subsidization proposals.
On May 13, 2011, EcoSys presented a proposed transaction to the Company’s Board of Directors in which EcoSys would spin out of the Company, and merge with a newly formed company, thereby facilitating EcoSys’ desire to pursue the alternative retail fuel network. The Board requested that further information be presented, with a focus on the financials of the proposed business transaction.
In October, 2011, EcoSys met with Amazonas Florestal, Inc. (“Amazonas”), a corporation headquartered in Florida, and a mutual Non-Disclosure Agreement was executed. After the two companies completed due diligence in January, 2012, it became apparent to the EcoSys management that there existed a viable opportunity to enhance shareholder value by combining EcoSys with Amazonas.
The Company’s Board of Directors continues to support the overall business thesis of EcoSys, but is faced with the reality that the lack of development in the alternative fuel retail market is not compatible with the Company’s cash flow requirements. The Company, as the parent of EcoSys, has been unable to raise sufficient working capital to fully exploit and grow the business of EcoSys due to a number of factors, which, in the opinion of the Company’s management, include:
a. Unfavorable market conditions in the development of retail environmental fuel operations;
b. A lack of consumer demand of multiple alternative fuels options in the environmental transportation marketplace;
c. The inconsistent and sometimes contradictory regulatory policies at the local, state and Federal levels regarding alternative fuels;
d. A reduced government incentive in the form of tax credits and grants to help develop the developing alternative fuel retail market;
e. The uncertainty of consumer acceptance and commercial adoption in the volumes needed to effectuate the commercialization of the EcoSys business model; and
f. The uncertain and fluctuating position of car manufacturers regarding what type of alternative fuel vehicles they were going to produce.
The Company’s Board of Directors has therefore made the strategic decision to focus the majority of its resources and time on the development of its environmental car rental business and on March 16, 2012 entered into a Share Exchange Agreement and Plan of Merger with Amazonas and EcoSys. The following actions were taken pursuant to the unanimous written consent of the Board of Directors of the Company on March 15, 2012, in lieu of a special meeting of the stockholders.
EcoSys entered into a Share Exchange Agreement with Amazonas wherein EcoSys acquired one hundred percent (100%) of the issued and outstanding shares of common stock of Amazonas in exchange for seventy million (70,000,000) authorized but un-issued shares of common stock of EcoSys. It is intended that the Share Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall be a plan of reorganization for purposes of Section 368(a) of the Code.
Subsequent to the Closing, Amazonas will be a wholly owned subsidiary of EcoSys, the Company will own three percent (3%) of the EcoSys outstanding capital stock (the “EGCT shares”), and the former Amazonas shareholders (“Amazonas Shareholders”) will own ninety-seven percent (97%) of the EcoSys outstanding capital stock. For a period of one hundred and eighty (180) days after the Closing the EGCT Shares will be subject to an anti-dilution provision. The anti-dilution provision will protect the three (3%) percent ownership of the issued and outstanding capital stock of EcoSys owned by the Company.
Incorporated by reference is our Current Report on Form 8-K filed on March 22, 2012.
Ecologic Car Rentals, Inc.
Currently, we intend to rent only environmentally friendly vehicles in the compact, full-size and sport-utility vehicle classes. We intend to rent cars on daily, multi-day, weekly and monthly basis. We expect that our primary source of revenue will consist of “base time and mileage” car rental fees which can include daily rates including mileage. We expect to also charge an additional fee for one-way rentals to and from specific locations. In addition to rental fees, we intend to sell other optional products to our customers, such as collision or loss damage waivers, supplemental liability insurance, personal effects coverage and gasoline.
Our customers will make rental reservations via our website, www.ecologictransportation.com, at our proposed partners’ websites, at the rental counter at any of our proposed locations, by phone, through several online travel websites that we intend to partner with or through a corporate account program in place with their employers.
We plan to acquire existing profitable independent car rental operations on a multi-regional basis and convert their operations to an Ecologic platform. We have identified independent car rental operations that will provide a multi-regional presence and can be used as a platform to become the only large “green” independent car rental operation in the U.S.
We will incrementally replace the fleets with our environmental vehicles over a 12 - 24 month period. Our strategy is to co-brand with the acquisitions for a limited period of time and complete the rebranding to “green” outlets as Ecologic Car Rentals.
Sales, Marketing, and Advertising
Our primary marketing objective is to convey to customers that we are the only transportation company committed to the environment. We are seeking to appeal to eco-conscious customers by stressing the interrelated environmental and economic benefits of renting our proposed environmentally friendly cars, using our proposed infrastructure, and purchasing our proposed environmental products.
We intend to:
exploit the differentiation of Ecologic Car Rentals from other car rental company brands.
use direct sales and education to state and municipal government agencies, universities, and corporations committed to environmental efforts.
capitalize on public relations opportunities available to an all environmental transportation company.
employ strategic use of electronic and internet distribution employing state of the art technology to target retail customers looking for green transportation including direct marketing and affinity programs.
Other than as disclosed above, currently, our sales, marketing, and advertising efforts are minimal because of our size and limited financial resources.
Our Business Strategy
We believe that growth in demand for environmentally friendly cars and the anticipated increase in production of new models of these vehicles by major automakers have created an opportunity for an environmentally friendly transportation company such as ours. We intend to capitalize on our position as a prime mover in this market by executing a comprehensive business strategy.
Our business model supports growth while holding true to our planet-friendly mission. Our first objective is to purchase our fleet of rental cars and to secure our proposed rental locations. We expect that as costs of gasoline and prices continue to rise, demand for our environmentally-friendly, higher mile per gallon proposed fleet will increase. Our intended business operations and purchase of our fleet will be contingent on our company receiving financing.
This growing demand will allow us to add to our proposed fleet and additional rental locations. We intend to market our fleet to state governments, local governments and environmentally conscious organizations. Our business will continue to expand as more manufacturers make more hybrid, electric, CNG and other environmental vehicles. We will be able to expand our product offering, capitalizing on our position as the prime mover in the market.
Our strategy will be a multi-pronged approach. We intend to:
1. identify acquisition targets for roll up;
2. add business to expand acquisitions while “greening” the acquisitions; and
3. develop new facilities that will also be a platform for Ecologic Products
The execution of our business strategy will be contingent upon and require significant financing. There can be no assurance that such financing will become available or if it does, that it will be offered on favorable terms to us. Our ultimate goal is to achieve a national presence in the car rental industry.
Facilities
Our corporate headquarters are located at 1327 Ocean Avenue Suite B, Santa Monica, California 90401.
Employees
As of December 31, 2011 we had 33 full and part-time employees in addition to our directors and executive officers. We currently have 32 full and part-time employees in addition to our directors and executive officers.
Principal Suppliers
KO Manufacturing, Inc.
Ecologic Shine® products are manufactured exclusively for Ecologic Shine® by KO Manufacturing. Founded in 1976, KO Manufacturing is headquartered in Springfield, MO.
Competition
For waterless car cleaning services, there are three primary competitors:
· ProntoWash is a company based in Argentina with franchises in the United States. All product and delivery systems are manufactured in Argentina, making it costly to import to the U.S.
· GeoWash is a 100% franchised company with global franchisees.
· EcoWash is a 100% franchised company owned and operated in Australia with a third party product supplier.
Dependence on a Few or Major Customers
The company is currently dependent upon one major customer. The major customer for the car cleaning services is Park ‘N Fly, an off airport parking company. In 2011, 100% of sales were attributable to Park 'N Fly. At December 31, 2011, 100% of accounts receivable were due from Park 'N Fly. The Company is currently in negotiations with Park ‘N Fly to revise the existing arrangement we have with them.
Government Regulation
Our operations will be subject to various federal, state and local laws, regulations, and controls including the leasing and sale of used cars, licensing, charge card operations, reservation policies, privacy and personal data protection, environmental protection, labor matters, insurance, prices, and advertising. We believe we are in compliance with any such regulations affecting our business.
Intellectual Property
We have an agreement with KO Manufacturing for our Ecologic Shine® products for the exclusive use of the Ecologic Shine® waterless car wash products.
The Company has filed a trademark application with the US office of Trademarks to trademark the name “Ecologic Transportation, Inc.” and the following logo for our company:
On August 17, 2010 the United States Patent and Trademark Office registered a Service Mark consisting of the words Ecologic Shine® as illustrated below.
Seasonality
There is seasonality only in the car rental sector of our company. The car rental industry tends to be seasonal. The third quarter, during the peak summer months of July and August, has traditionally been the strongest quarter of the year in terms of numbers of rentals and rental rates.
Research and Development
Our company has not spent any funds on research and development since inception (December 16, 2008).
Reports to Security Holders
We are not required to deliver an annual report to our stockholders, but will voluntarily send an annual report, together with our annual audited financial statements upon request. We are required to file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission. Our Securities and Exchange Commission filings are available to the public over the Internet at the SEC's website at www.sec.gov .
The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Internet address of the site is www.sec.gov .
Item 1A.
Item 1A. Risk Factors
Much of the information included in this annual report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".
Our common shares are considered speculative as our business is still in an early growth stage of its development. Prospective investors should consider carefully the risk factors set out below.
Risks Related to our Business
We have a limited operating history, and it is difficult to evaluate our financial performance and prospects. There is no assurance that we will achieve profitability or that we will not discover problems with our business model.
We have a limited operating history. As such, it is difficult to evaluate our future prospects and performance, and therefore we cannot ensure that we will operate profitably in the future.
We have limited funds available for operating expenses. If we do not obtain funds when needed, we will have to cease our operations.
Currently, we have limited operating capital. As of December 31, 2011, our cash available was $29,550. In the foreseeable future, we expect to incur significant expenses when developing our business. We may be unable to locate sources of capital or may find that capital is not available on terms that are acceptable to us to fund our additional expenses. There is the possibility that we will run out of funds, and this may affect our operations and thus our profitability. If we cannot obtain funds when needed, we may have to cease our operations.
Our business plan may not be realized. If our business plan proves to be unsuccessful, our business may fail and you may lose your entire investment.
Our operations are subject to all of the risks inherent in the establishment of a new business enterprise, including inadequate working capital and a limited operating history. The likelihood of our success must be considered in light of the problems, expenses, complications and delays frequently encountered in connection with the development of a new business. Unanticipated events may occur that could affect the actual results achieved during the forecast periods. Consequently, the actual results of operations during the forecast periods will vary from the forecasts, and such variations may be material. In addition, the degree of uncertainty increases with each successive year presented. There can be no assurance that we will succeed in the anticipated operation of our business plan. If our business plan proves to be unsuccessful, our business may fail and you may lose your entire investment.
We will need additional financing to expand our business, and to implement our business plan. Such financing may not be available on favorable terms, if at all.
If we need funds and cannot raise them on acceptable terms, we may not be able to:
execute our business plan;
acquire or lease our proposed fleet of rental cars;
take advantage of future opportunities, including synergistic acquisitions;
respond to customers, competitors or violators of our proprietary and contractual rights; or
remain in operation.
We will have to raise substantial additional capital if we wish to execute our business plan. There can be no assurance that debt or equity financing, or cash generated by operations, will be available or sufficient to meet our requirements. Additional funding may not be available under favorable terms, if at all.
We may be unable to predict accurately the timing and amount of our capital requirements. We have historically financed our activities through the sale of our equity securities, loans and from lines of credit. We may be required to raise additional funds through public or private financing, bank loans, collaborative relationships or other arrangements. It is possible that banks, venture capitalists and other investors may perceive our capital structure or operating history as too great a risk to bear. As a result, additional funding may not be available at attractive terms, or at all. If we cannot obtain additional capital when needed, we may be forced to agree to unattractive financing terms, change our method of operations, curtail operations significantly, obtain funds through entering into arrangements with collaborative partners or others, or issue additional securities. Any future issuances of our securities may result in substantial dilution to existing stockholders.
Our success will depend on our newly assembled senior management team.
Our success will be largely dependent upon the performance of our senior management team. Investors must rely on the expertise and judgment of senior management and other key personnel. The failure to attract and retain individuals with the skill and experience necessary to execute our business plan could have a materially adverse impact upon our prospects. We currently do not have any key man insurance policies and have no current plans to obtain any; therefore, there is a risk that the death or departure of any director, member of management, or any key employee could have a material adverse effect on operations.
We face significant competition in the car rental industry. There can be no assurance that we will be able to compete successfully against our competitors.
The car rental business is highly competitive. We compete against a number of established rental car companies with greater marketing and financial capabilities. Our market specialization is the rental of hybrid electric and low-emissions cars. Although we believe that we will be the first rental company featuring predominately environmentally friendly cars, we may face difficulty competing against other car rental companies should they devote significant resources to such cars. There can be no assurance that one or more competitors may not initiate a rental business similar to ours, thus compromising the differentiating factor for us. Increased competition in the rental car industry may result in reduced operating margins, loss of market share and a diminished brand franchise. There can be no assurance that we will be able to compete successfully against our competitors, and competitive pressures faced by us may have a material adverse effect on our business, prospects, financial condition and results of operations.
We are dependent on fleet financing for acquiring cars. Our failure to obtain financing for the acquisition of cars could have a material adverse effect on our business and prospects.
Our ability to purchase and finance our proposed fleet of rental vehicles will depend on the calculation and assignment of risk for the resale value of the vehicles. Despite our plans for securing the resale value, lending companies may not be enticed to finance the cars. There can be no assurance that the financing required to purchase and deploy cars will be available to us in order to meet business projections. Our failure to obtain financing for the acquisition of cars could have a material adverse effect on our business and prospects.
We may not maintain insurance sufficient to cover the full extent of our liabilities. The payment of such uninsured liabilities would reduce the funds available to us.
We intend to maintain various forms of insurance. However, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. Also, such risks may not, in all circumstances, be insurable or, in certain circumstances, we may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of such uninsured liabilities would reduce the funds available to us. The occurrence of a significant event that we are not fully insured against, or the insolvency of the insurer of such event, could have a material adverse effect on our financial position, results of operations or prospects.
We may not be able to obtain all the necessary licenses and permits required to carry on our business activities.
Our operations may require licenses and permits from various governmental authorities. There can be no assurance that we will be able to obtain all necessary licenses and permits that may be required to carry required business activities.
We may not be able to maintain the information technology and computer systems required to serve our customers.
Our reputation and ability to attract retain, and serve customers are dependent upon the reliable performance of our technology infrastructure and fulfillment processes. Interruptions or technical problems could make our systems unavailable to service customers and could diminish the overall attractiveness of our service to potential customers.
Risks Relating to Our Common Shares
Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common shares and make it difficult for our shareholders to resell their shares.
Our common shares are quoted on the OTC Bulletin Board service. Trading in shares quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common shares for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of the shares.
Our share is a penny stock. Trading of our share may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our shares.
Our share is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “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” refers generally to 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 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 shares that are 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 shares.
FINRA sales practice requirements may also limit a shareholder's ability to buy and sell our share.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory 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 shares, which may limit your ability to buy and sell our share.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common shares.
Our corporate headquarters are located at 1327 Ocean Avenue Suite B, Santa Monica, California 90401. We lease our headquarters on a month to month basis (suites B and M) for $5,800 per month.
We believe our current premises are adequate for our current operations and we do not anticipate that we will require any additional premises in the foreseeable future. When and if we require additional space, we intend to move at that time.
Item 3.
Item 3. Legal Proceedings
On November 15, 2011 the Company, as Plaintiff, filed a lawsuit in the Superior Court of California, County of Los Angeles, West District - Case No. SC114884 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co.., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants. Mr. Plamondon is the Company’s former Director, President and Chief Executive Officer. Erin Davis, Mr. Plamondon’s wife, is the Company’s former Secretary and R.I. Heller & Co. is the corporation controlled by Mr. Plamondon. Mr. Plamondon, resigned as Chief Executive Officer of the Company on October 10, 2011. The Company’s Complaint for Damages includes: Breach of Fiduciary Duty; Conspiracy to Steal Corporate Assets and Opportunities; Fraud; Breach of Contract; Theft of Corporate Assets and Opportunities; Intentional Tortious Interference with Business Relationships and Negligent Tortious Interference with Business Relationships.
The Case Management Conference scheduled for March 8, 2012 has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages as well as taking additional legal action to recoup any and all equity securities previously issued to Defendants. It is anticipated that these actions will be pursuant to a Court Order..
On January 9, 2012 Defendants filed a General Denial to the above action with Affirmative Defenses and Cross Complaints.
We know of no other material existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
Item 4.
Item 4.
Mine Safety Standards (N/A)
PART II
Item 5.
Item 5.
Market for Common Equity and Related Stockholder Matters
In the United States, our common shares are traded on the Over-the-Counter Bulletin Board under the symbol “EGCT.” The following quotations obtained from Stock Watch reflect the high and low bids for our common shares based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
The high and low prices of our common shares for the periods indicated below are as follows:
Our common shares are issued in registered form. Island Stock Transfer, 100 Second Avenue South, Suite 705S, St. Petersburg, FL, 33701(Telephone 727-289-0010, Facsimile 727-289-0069) is the registrar and transfer agent for our common shares. On, December 31, 2011 the shareholders' list of our common shares pursuant to Island Stock Transfer showed 81 registered shareholders and 24,482,824 shares outstanding. The total number of shares outstanding stated in the Island Stock Transfer list of 24,482,824 does not include 250,000 shares that have been recorded by the Company but not yet been issued to William B. Nesbitt for cash in the amount of $250.
Dividends
We have not declared any dividends on our common stock since the inception of our company on December 16, 2008. There is no restriction in our Articles of Incorporation and Bylaws that will limit our ability to pay dividends on our common stock. However, we do not anticipate declaring and paying dividends to our shareholders in the near future.
Equity Compensation Plan Information
On June 30, 2010 the Company, under its 2009 Stock Option Plan, granted qualified stock options to purchase 435,000 shares of its common stock for five years at $0.473 per share. Of the total options granted, 240,000 were granted to three members of the Board of Directors, 120,000 of which vested on July 2, 2010 and 120,000 of which vested on July 2, 2011 and 195,000 were granted to four consultants, all of which vested on July 2, 2010. The value of the options using the Black-Scholes valuation method is $0.13 per share or $56,550. The 120,000 Directors’ options vesting at any time after July 2, 2010 were valued at $15,600 and were expensed on the books of the Company at June 30, 2010. The 120,000 Directors’ options vesting on or after July 2, 2011 were valued at $15,600 and were expensed on the books of the Company as of June 30, 2011. The 195,000 Consultants’ options vesting at any time after July 2, 2010 were valued at $25,350 and were expensed on the books of the Company as of June 30, 2010. The Company used the following assumptions in valuing the options: expected volatility 33%; expected term 5 years; expected dividend yield 0%, and risk-free interest rate of 1.49%.
On April 19, 2011 the Board of Directors, under the Company’s 2009 Stock Option Plan, granted qualified stock options to its Former Chief Executive Officer and its Chairman of the Board (“Ten Percent Holders”) to purchase 1,750,000 shares of its common stock for five years at $0.32 per share, qualified stock options to five of its employees (“Employee Options”) to purchase 775,000 shares of its common stock for ten years at $0.32 and qualified stock options to four of its directors (“Directors Options”) to purchase 500,000 shares of its common stock for ten years at $0.32 for a total grant of 3,025,000 stock options . Of the total options granted, 1,000,000 were granted to our Former Chief Executive Officer which vest (i) up to 250,000 at any time after the first 90 days of grant; (ii) up to an additional 250,000 after the second 90 days of grant; (iii) up to an additional 250,000 after the third 90 days of grant; and (iv) up to an additional 250,000 after the fourth 90 days of grant. Of the total options granted, 750,000 were granted to our Chairman of the Board which vest (i) up to 187,500 at any time after the first 90 days of grant; (ii) up to an additional 187,500 after the second 90 days of grant; (iii) up to an additional 187,500 after the third 90 days of grant; and (iv) up to an additional 187,500 after the fourth 90 days of grant. Of the total options granted, 775,000 were granted to five employees which vest (i) up to 193,750 at any time after the first 90 days of grant; (ii) up to an additional 193,750 after the second 90 days of grant; (iii) up to an additional 193,750 after the third 90 days of grant; and (iv) up to an additional 193,750 after the fourth 90 days of grant. Of the total options granted, 500,000 were granted to three directors which vest up to 450,000 at any time after the date of grant and 50,000 were granted to one director which vests up to 50,000 at any time after the date of grant. The value of the options for the Ten Percent Holders, using the Black-Scholes valuation method is $0.27 per share or $472,500. The 775,000 Employee Options and 500,000 Directors Options were valued at $0.30 per share or $382,500. The Company used the following assumptions in valuing the options: expected volatility 1.2; expected term 5 years for the Ten Percent Holders and 10 years for the Employee Options and the Directors Options; expected dividend yield 0%, and risk-free interest rate of 1.97%. At April 19, 2011, the Company expensed $150,000 in stock compensation for the 500,000 options vested any time after the date of grant, and recorded $705,000 of deferred stock compensation for the balance of the options granted, for a total value of the options granted of $855,000.
During 2011, a total of $518,100 in deferred compensation has been expensed. There remains $352,500 in deferred compensation at December 31, 2011.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during the year ended December 31, 2011.
Recent Sales of Unregistered Securities
None.
Item 6.
Item 6.
Selected Financial Data
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated audited financial statements and the related notes for the years ended December 31, 2010 and December 31, 2011 that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" of this annual report.
Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Overview
Our car rental business and our products business intends to provide distribution channels for certain environmental products and both generate certain internal product requirements in order to allow us to be “green” throughout our operation. Initially our business plan calls for the products to be focused on transportation and its ancillary markets.
We are a development stage company in the business of environmental transportation. We are structured with two operating units. Our primary operation is the car rental division which will focus on an environmental car rental operation.
In anticipation of our first rental car location and our need for environmentally friendly car cleaning (one of the most important aspects of a rental operation), we developed Ecologic Shine®, a device and system for near-waterless car cleaning that delivers cleaning comparable to normal washing without using any harmful chemicals.
The commercialization of the Ecologic Shine® products and services are:
Good for the environment
Good for the customer
Good for the vehicle
Good for the bottom line
We have launched Ecologic Shine® in collaboration with Park ‘N Fly, the airport parking chain with prominent locations in 15 airport markets, and in this regard Park ‘N Fly has launched an initial test market. Since 2008, we have opened and currently have operations in Atlanta, San Diego and Los Angeles, with encouraging results. An additional location was opened in Houston in March, 2010 but, having not met expectations was subsequently closed in June, 2010 upon mutual agreement by Park ‘N Fly and the Company. No new locations have been established as of December 31, 2011. We are currently in negotiations with Park ‘N Fly to revise the existing arrangements we have with them.
Results of Operations
The following summary of our results of operations should be read in conjunction with our financial statements for the year ended December 31, 2011 and 2010, which are included herein.
Revenue
For the year 2011, revenue in the amount of $401,454 consisted of limited levels of car washing services in Atlanta, San Diego and Los Angeles, our initial cities of test market operations.
For the year 2010, revenue in the amount of $386,708 consisted of limited levels of car washing services in Atlanta, San Diego and Los Angeles, our initial cities of test market operations.
As a development stage company, we have not yet launched our major business activity, which is car rental.
Cost of sales
For the year 2011, cost of sales in the amount of $392,115 consisted of cleaning supplies and direct labor cost, including payroll, related payroll taxes and insurance.
For the year 2010, cost of sales in the amount of $368,413 cleaning supplies and direct labor cost, including payroll, related payroll taxes and insurance.
Increased sales activity at the car washing locations in the year 2011 resulted in an increased cost of sales. An increase in insurance premiums resulted in a decrease in gross profit in the year 2011 of $9,339 compared to a gross profit of $18,295 in the year 2010.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2011 were $2,291,212 as compared to $2,497,780 for the year ended December 31, 2010.
Significant increases in general and administrative expenses in the year 2011 over 2010 were attributable to the following items:
· an increase in legal, accounting and professional fees of $93,715 due primarily to a $5,518 increase in our auditors fees, an increase in financial consulting fees of $41,500, an increase in controller fees of $47,021, a $4,788 increase in legal fees and a decrease of $4,860 in fees to various other accounting consultants;
· a decrease in management consulting fees of $71,488 primarily due to a $70,000 decrease in accrued executive management fees due to the resignation of a principal executive, resulting in only 10 months of expense in 2011 versus 12 months of expense in 2010;
· an increase in stock compensation expense of $477,150, relating to stock options granted in 2011 valued at $518,100 compared to stock options granted in 2010 valued at $40,950;
· a decrease in investor relations services from $60,000 in 2010 to none in 2011;
· a decrease in amortization of stock options of $497,363, primarily due to a decrease in amortization of $811,138 resulting from fully amortized deferred compensation to three consultants in 2010, and an increase in amortization of $84,375 resulting from 12 months of one consultant’s deferred compensation amortization in 2011 compared to only 7 months of amortization in 2010; and one consultant’s fully amortized deferred compensation in 2011 of $229,400;
· a decrease in other outside services of $32,000 primarily due to a decrease resulting from one-time consultant fee payments made in 2010 of $35,000, and an increase of $3,000 resulting from miscellaneous consulting fees in 2011 compared to none in 2010;
· a decrease in rent expense of $10,810 due to a decrease in leased office space; and
· a decrease in capital market expenses of $60,000 attributable to a decrease in financial advisory consultant fee paid in 2011 of $15,000 compared to $75,000 in 2010.
General and administrative expenses for both 2011 and 2010 were incurred primarily for the purpose of advancing the Company closer to its goal of financing and operating an environment-friendly car rental business.
Liquidity and Capital Resources
We had cash in the amount of $29,550 as of December 31, 2011 as compared to $21,579 as of December 31, 2010. We had a working capital deficit of $1,076,929 as of December 31, 2011.
We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. We anticipate that we will have to raise additional funds through private placements of our equity securities and/or debt financing to complete our business plan. There is no assurance that the financing will be completed as planned or at all. If we are unable to secure adequate capital to continue our planned operations, our shareholders may lose some or all of their investment and our business may fail.
As at December 31, 2011, affiliates and related parties are due a total of $2,055,151 which is comprised of loans to the Company of $1,457,443, accrued interest of $99,026, unpaid compensation of $483,467, and unpaid reimbursable expenses of $15,215. During the year ended December 31, 2011, loans to the Company increased by $350,143, accrued interest increased by $85,242, unpaid compensation increased by $483,467 and reimbursable expenses decreased by $45,344. The loans bear interest at the rate of 5% and 7% per annum, are unsecured and are payable one year from demand.
Our principal sources of funds have been from sales of our common stock and loans from related parties.
Future Financings
We will require additional financing in order to enable us to proceed with our plan of operations, as discussed above, including approximately $2,000,000 over the next 12 months to pay for our ongoing expenses. These cash requirements include working capital, selling, general and administrative expenses, expansion of Ecologic Shine®, and the pursuit of acquisitions. These cash requirements are in excess of our current cash and working capital resources. Accordingly, we will require additional financing in order to continue operations and to repay our liabilities. There is no assurance that any party will advance additional funds to us in order to enable us to sustain our plan of operations or to repay our liabilities.
On September 29, 2009, we executed a financial advisory and investment banking services agreement with North Sea Securities LP. Under this agreement, North Sea Securities was to advise Ecologic Transportation in structuring and executing transactions, act as its placement agent for equity, and assist it with a full range of corporate debt transactions for acquisitions and fleet financing. Both parties agreed that it was no longer in the best interest of the Company to continue the relationship and as at December 31, 2010 the Agreement was terminated.
On November 23, 2010, we executed an agreement with BMO Capital Markets (“BMO”) retaining BMO to act, on an exclusive basis, (with the exception of up to a $2 million private equity placement which we presently seek and reserve the right to continue to seek), as sole financial advisor and sole placement agent in connection with a possible private placement of equity or debt securities on a best efforts basis and subject to BMO’s satisfactory completion of its due diligence investigation. The Company has paid a non-refundable retainer to BMO in the amount of $75,000 which would be credited against financing fees to BMO upon a successful closing of a financing. There is no assurance that a financing of any kind will be successful.
We anticipate continuing to rely on equity sales of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities.
Personnel
As of December 31, 2011, we had 33 full and part-time employees in addition to our directors and executive officers. Currently, we have 32 full and part-time time employees at our airport car cleaning locations in addition to our directors and executive officers.
Contractual Obligations
As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.
Going Concern
The consolidated audited financial statements included with this annual report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the consolidated audited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Application of Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.
Net Income (Loss) Per Common Share
Our company computes earnings per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible preferred shares and the exercise of our company's stock options and warrants.
Revenue Recognition
Revenue is recognized when all applicable recognition criteria have been met, which generally include (a) persuasive evidence of an existing arrangement; (b) fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) collectability of the sales price is reasonably assured.
Recently Adopted Accounting Standards
The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the US Securities and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company. The Company has adopted the following new accounting standards during 2011:
ASU No. 2010-13: Issued in April 2010, ASU No. 2010-13 clarifies the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.
ASU 2010-29: Issued in December 2010, ASU 2010-29 requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This ASU will be effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted.
Recently Issued Accounting Standards Updates
The following accounting standards updates were recently issued and have not yet been adopted by the Company. These standards are currently under review to determine their impact on the Company’s consolidated financial position, results of operations, or cash flows.
Trouble Debt Restructuring: Issued in April, 2011, ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted.
Comprehensive Income: Issued in June, 2011, ASU 2011-05 eliminates the current option to present other comprehensive income and its components in the statement of changes in equity. It will require companies to report the total of comprehensive income including the components of net income and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the ASU are effective for interim and annual periods beginning on or after December 15, 2011, and should be applied retrospectively. Early adoption is permitted.
Intangibles: Issued in September, 2011, ASU 2011-08 permits entities to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it would then perform the first step of the goodwill impairment test; otherwise, no further impairment test would be required. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.
Disclosures about Offsetting Assets and Liabilities: Issued in December, 2011, ASU 2011-11 requires disclosures to provide information to help reconcile differences in the offsetting requirements under U.S. GAAP and IFRS. The differences in the offsetting requirements account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and IFRS for certain entities. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 8.
Item 8.
Financial Statements and Supplementary Data
Our consolidated audited financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
The following consolidated audited financial statements are filed as part of this annual report:
Stan J.H. Lee, CPA
2160 North Central Rd. Suite 209 *Fort Lee * NJ 07024-7547
P.O. Box 436402 * San Diego * CA 92143-6402
619-623-7799 * Fax 619-564-3408 * E-mail) stan2u@gmail.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management and Members of
Ecologic Transportation, Inc.
(a development stage Company)
We have audited the accompanying consolidated balance sheet of Ecologic Transportation, Inc. (a development stage Company) (the “Company”) as of December 31, 2011, the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended, and cumulative from December 16, 2008 (inception) to December 31, 2011 for the statements of operations and cash flows. 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. The consolidated financial statements of Ecologic Transportation, Inc. (a development stage Company) as of December 31, 2010 and the period from inception (December 16, 2008) to December 31, 2010, were audited by other auditors whose report dated March 31, 2011, expressed an unqualified opinion on those statements. Their report included an explanatory paragraph regarding going concern.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ecologic Transportation, Inc. (a development stage Company) as of December 31, 2011, and the results of its operations and its cash flows for the year then ended, and cumulative from December 16, 2009 (inception) to December 31, 2011 for the statements of operations and cash flows, in conformity with accounting principles generally accepted in the United States of America.
The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company has established any source of revenue to cover its operating costs and losses from operations raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Stan J.H. Lee, CPA
Stan J.H. Lee, CPA
Fort Lee, NJ 07024 US
March 27, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Ecologic Transportation, Inc.
We have audited the accompanying consolidated balance sheet of Ecologic Transportation, Inc. (a development stage Company) as of December 31, 2010, and the related consolidated statements of operations, stockholders' (deficit), and cash flows for the year then ended, and the period from inception (December 16, 2008) to December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ecologic Transportation, Inc. as of December 31, 2010, the results of its consolidated operations and its consolidated cash flows for the year then ended, and the period from inception (December 16, 2008) to December 31, 2010, 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 2 to the financial statements, the Company has suffered a loss from operations and anticipates further losses in the development of its business. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ StarkSchenkein LLP
Denver, Colorado
March 31, 2011
ECOLOGIC TRANSPORTATION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND 2010
The accompanying notes are an integral part of these consolidated financial statements
ECOLOGIC TRANSPORTATION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
ECOLOGIC TRANSPORTATION, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1. OVERVIEW
Ecologic Transportation, Inc. (the Company) was incorporated in the State of Nevada on September 30, 2005. The Company is a development stage company as defined by ASC 915-10, “Accounting and Reporting by Development Stage Enterprises”. A development stage enterprise is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from.
On April 26, 2009, the Company entered into an agreement and plan of merger, as amended, with Ecologic Sciences, Inc. (formerly, Ecologic Transportation, Inc.), a private Nevada corporation, and Ecological Acquisition Corp., a private Nevada corporation and wholly-owned subsidiary of the Company. Ecological Acquisition Corp. was formed by the Company for the purpose of acquiring all of the outstanding shares of Ecologic Sciences, Inc. Pursuant to the agreement and plan of merger, as amended, Ecologic Sciences, Inc. (formerly, Ecologic Transportation, Inc.) was to be merged with and into Ecological Acquisition Corp., with Ecologic Sciences, Inc. continuing after the merger as a wholly-owned subsidiary of the Company.
On July 2, 2009, the Company’s wholly-owned subsidiary Ecological Acquisition Corp. was merged into Ecologic Sciences, Inc. with Ecologic Sciences, Inc. being the sole surviving entity under the name “Ecologic Sciences, Inc.” and the Company being the sole shareholder of the surviving entity. Pursuant to the merger, the Company plans to raise additional capital required to meet immediate short-term needs and to meet the balance of its estimated funding requirements for the twelve months, primarily through the private placement of its securities. Upon closing of the transactions contemplated by the agreement and plan of merger on July 2, 2009, the Company issued 17,559,486 shares of its common stock to the former shareholders of Ecologic Sciences, Inc. in consideration for the acquisition of all of the issued and outstanding common shares in the capital of Ecologic Sciences, Inc. As of the closing date, the former shareholders of Ecologic Sciences, Inc. held approximately 75.85% of the issued and outstanding common shares of the Company.
The Company is structured with three operating units. The primary operation is the car rental division which will focus on an environmental car rental operation.
There are two subsidiaries in addition to Ecologic Car Rentals Inc.:
1. Ecologic Products, Inc., a Nevada Corporation
2. Ecologic Systems, Inc., a Nevada Corporation
Ecologic Shine®, the first Ecologic product, is a proprietary waterless car cleaning process that has no adverse environmental impact. On September 24, 2009, the Company, through its wholly owned subsidiary Ecologic Products, Inc., entered into a service agreement with Park ‘N Fly Inc., a national off-airport parking company. Pursuant to the terms of the service agreement, the Company has agreed to provide car wash cleaning services using our 100% organic cleaning products, known as Ecologic Shine®, for a period of three years at certain of Park ‘N Fly Inc.’s locations. We opened a location in Atlanta, Georgia on October 19, 2009; in San Diego, California on November 16, 2009; and in Los Angeles, California in December 1, 2009. Subsequently, we opened at an additional lot in Atlanta, Georgia on March 1, 2010. An additional location was opened in Houston on March 24, 2010 but, having not met expectations, this location was subsequently closed on June 30, 2010 upon mutual agreement by Park ‘N Fly and the Company.
Through our subsidiary, Ecologic Systems, Inc. (“EcoSys”), we intended to develop and manage the “greening” of gas stations along with retrofitting them with alternative energy options and solutions. To build this infrastructure, we intended to provide turnkey management, installation, and integration of equipment procurement, equipment installation, contracting, fuel, and regulatory tax incentive and grant subsidization proposals.
On May 13, 2011, EcoSys presented a proposed transaction to the Company’s Board of Directors in which EcoSys would spin out of the Company, and merge with a newly formed company, thereby facilitating EcoSys’ desire to pursue the alternative retail fuel network. The Board requested that further information be presented, with a focus on the financials of the proposed business transaction.
During the months of June through September, 2011, EcoSys prepared its due diligence package, including market forecasts and an extensive business plan, and continued to research strategic business opportunities and potential strategic partners.
The Company determined that, although the EcoSys business plan was strong and there was a positive probability for success, there remained too many uncertainties that were out of the realm of EcoSys’ control. The Board, therefore, decided to pursue selling the EcoSys business to a better-capitalized company that had longer return on investments horizons.
In October, 2011, EcoSys met with Amazonas Florestal, Inc. (“Amazonas”), a corporation headquartered in Florida, and a mutual Non-Disclosure Agreement was executed. After the two companies completed due diligence in January, 2012, it became apparent to the EcoSys management that there existed a viable opportunity to enhance shareholder value by combining EcoSys with Amazonas.
The Company’s Board of Directors continues to support the overall business thesis of EcoSys, but is faced with the reality that the lack of development in the alternative fuel retail market is not compatible with the Company’s cash flow requirements. The Company, as the parent of EcoSys, has been unable to raise sufficient working capital to fully exploit and grow the business of EcoSys due to a number of factors, which, in the opinion of the Company’s management, include:
a. unfavorable market conditions in the development of retail environmental fuel operations;
b. a lack of consumer demand of multiple alternative fuels options in the environmental transportation marketplace;
c. the inconsistent and sometimes contradictory regulatory policies at the local, state and Federal levels regarding alternative fuels;
d. a reduced government incentive in the form of tax credits and grants to help develop the developing alternative fuel retail market;
e. the uncertainty of consumer acceptance and commercial adoption in the volumes needed to effectuate the commercialization of the EcoSys business model; and
f. the uncertain and fluctuating position of car manufacturers regarding what type of alternative fuel vehicles they were going to produce.
The Company’s Board of Directors has therefore made the strategic decision to focus the majority of its resources and time on the development of its environmental car rental business and on March 16, 2012 entered into a Share Exchange Agreement and Plan of Merger with Amazonas and EcoSys. The following actions were taken pursuant to the unanimous written consent of the Board of Directors of the Company on March 15, 2012, in lieu of a special meeting of the stockholders.
EcoSys entered into a Share Exchange Agreement with Amazonas wherein EcoSys acquired one hundred percent (100%) of the issued and outstanding shares of common stock of Amazonas in exchange for seventy million (70,000,000) authorized but un-issued shares of common stock of EcoSys. It is intended that the Share Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall be a plan of reorganization for purposes of Section 368(a) of the Code.
Subsequent to the Closing, Amazonas will be a wholly owned subsidiary of EcoSys, the Company will own three percent (3%) of the EcoSys outstanding capital stock (the “EGCT shares”), and the former Amazonas shareholders (“Amazonas Shareholders”) will own ninety-seven percent (97%) of the EcoSys outstanding capital stock. For a period of one hundred and eighty (180) days after the Closing the EGCT Shares will be subject to an anti-dilution provision. The anti-dilution provision will protect the three (3%) percent ownership of the issued and outstanding capital stock of EcoSys owned by the Company.
The Company has incurred losses since inception resulting in an accumulated deficit of $6,181,487 since inception and further losses are anticipated in the development of its business. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The preparation of financial statements in conformity with generally accepted accounting principles 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 that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company’s fiscal year end is December 31.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents: The Company considers cash in banks, deposits in transit, and highly-liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.
Accounts Receivable: The Company extends credit to customers based upon individual credit evaluation and the specific circumstances of the customer. The Company provides an allowance for doubtful accounts that is based upon a review of outstanding receivables, historical collection information, and existing economic conditions.
The Company had an allowance for doubtful accounts of zero at December 31, 2011 and $7,993 at December 31, 2010.
Net Income (Loss) Per Common Share: The Company calculates net income (loss) per share as required by ASC 450-10, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when anti-dilutive, common stock equivalents, if any, are not considered in the computation.
Income Taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes and the effect of net operating loss carry-forwards. Deferred tax assets are evaluated to determine if it is more likely than not that they will be realized. Valuation allowances have been established to reduce the carrying value of deferred tax assets in recognition of significant uncertainties regarding their ultimate realization. Further, the evaluation has determined that there are no uncertain tax positions required to be disclosed. Management evaluated the Company’s tax positions under FASB ASC No. 740 “Uncertain Tax Positions,” and concluded that the Company had taken no uncertain tax positions that require adjustment to the consolidated financial statements to comply with the provisions of this guidance.
Use of Estimates: The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Estimates that are critical to the accompanying consolidated financial statements include the, estimates related to asset impairments of long lived assets and investments, classification of expenditures as either an asset or an expense, valuation of deferred tax assets, and the likelihood of loss contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are revised periodically and the effects of revisions are reflected in the financial statements in the period it is determined to be necessary. Actual results could differ from these estimates.
Revenue Recognition: Revenue is recognized when all applicable recognition criteria have been met, which generally include (a) persuasive evidence of an existing arrangement; (b) fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) collectability of the sales price is reasonably assured.
The Company’s current revenue stream is from Ecologic Products’ Ecologic Shine®. Through the agreement with Park ‘N Fly, Ecologic Shine® is currently operating in five Park ‘N Fly locations. Park ‘N Fly is billed every two weeks by Ecologic Products for the total cars cleaned, and Park ‘N Fly pays within two weeks of receipt. The Company is currently in negotiations with Park ‘N Fly to revise the existing arrangement.
Impairment of Long-Lived Assets: The Company evaluates its long-lived assets for impairment. If impairment indicators exist, the Company performs additional analysis to quantify the amount by which capitalized costs exceed recoverable value.
Stock Based Compensation: The Company records compensation expense for the fair value of stock options that are granted. Expense is recognized on a pro-rata basis over the vesting periods, if any, of the options. The fair value of stock options at their grant date is estimated by using the Black-Scholes-Merton option pricing model.
Fair Value of Financial Instruments: ASC 825, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2011.
The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash and cash equivalents, accounts receivable, leases receivable, prepaid and other current assets, inventory, accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are either short term in nature and their carrying amounts approximate fair value, they are receivable or payable on demand.
Recently Adopted Accounting Standards: The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the US Securities and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company. The Company has adopted the following new accounting standards during 2011:
ASU No. 2010-13: Issued in April 2010, ASU No. 2010-13 clarifies the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security SU wiltrades. This Al be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.
ASU 2010-29: Issued in December 2010, ASU 2010-29 requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during
the year had been as of the beginning of the annual reporting period. This ASU will be effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted.
Recently Issued Accounting Standards Updates: The following accounting standards updates were recently issued and have not yet been adopted by the Company. These standards are currently under review to determine their impact on the Company’s consolidated financial position, results of operations, or cash flows.
Trouble Debt Restructuring: Issued in April, 2011, ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted.
Comprehensive Income: Issued in June, 2011, ASU 2011-05 eliminates the current option to present other comprehensive income and its components in the statement of changes in equity. It will require companies to report the total of comprehensive income including the components of net income and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the ASU are effective for interim and annual periods beginning on or after December 15, 2011, and should be applied retrospectively. Early adoption is permitted.
Intangibles: Issued in September, 2011, ASU 2011-08 permits entities to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it would then perform the first step of the goodwill impairment test; otherwise, no further impairment test would be required. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.
Disclosures about Offsetting Assets and Liabilities: Issued in December, 2011, ASU 2011-11 requires disclosures to provide information to help reconcile differences in the offsetting requirements under U.S. GAAP and IFRS. The differences in the offsetting requirements account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and IFRS for certain entities. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.
There were other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Going Concern: We have incurred losses of $6,181,487 since inception and our ability to continue as a going concern depends upon our ability to develop profitable operations and to continue to raise adequate financing. We are actively targeting sources of additional financing to provide continuation of our operations. In order for us to meet our liabilities as they come due and to continue our operations, we are solely dependent upon our ability to generate such financing.
There can be no assurance that the Company will be able to continue to raise funds, in which case we may be unable to meet our obligations and we may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
NOTE 3. PREPAID EXPENSES
The prepaid expenses of $12,003 and $5,952 as of December 31, 2011 and 2010, respectively, consist of prepaid insurance premiums.
NOTE 4. LOANS AND NOTES PAYABLE
On January 24, 2011, Skyy Holdings, Ltd. loaned the Company $100,000 evidenced by a Promissory Note bearing interest at the rate of 15%, with principal and interest payable 45 days from the date of issue, and if not then paid interest shall accrue at a rate of 25% per annum. As at the date of this filing, the note remains outstanding and no demand has been made.
On March 29, 2011 Prominence Capital LLC loaned the Company $25,000 evidenced by a Promissory Note bearing interest at the rate of 8% per annum with the principal balance due on demand. As at the date of this filing, no demand has been made.
On September 30, 2011, the Company executed a Convertible Promissory Note (the “Note”) in the amount of $144,500 representing monies owed to Kunin Business Consulting for executive services provided by, and expenses reimbursable to, Norman A. Kunin through September 30, 2011 pursuant to the terms and conditions of the existing Advisory Agreement dated July 1, 2010, and subsequent Amendment dated April 1, 2011. The Note bears interest at 7% per annum and includes a provision to convert the Note into shares of the Company’s common stock at a price of $0.12 per share. Mr. Kunin was formerly the CFO but resigned August 16, 2011. On November 15, 2011, a modification was made to the Note, changing the conversion price to $0.32 per share. No other terms of the Note were modified.
Accrued interest at December 31, 2011 was $37,892.
NOTE 5. RELATED PARTY LOANS
As at December 31, 2011, affiliates and related parties are due a total of $2,055,151 which is comprised of loans to the Company of $1,457,443, accrued interest of $99,026, unpaid compensation of $483,467, and unpaid reimbursable expenses of $15,215. During the year ended December 31, 2011, loans to the Company increased by $350,143, accrued interest increased by $85,242, unpaid compensation increased by $483,467 and reimbursable expenses decreased by $45,344.
The Company’s increase in Related Party Loans of $435,385 is comprised of an increase in already outstanding cash loans of $104,893 from Huntington Chase Financial Group and $16,250 from OFS Capital Group, accrued compensation converted to notes payable in the amount of $229.000, and accrued interest increase of $85,242. The increases in notes payable for accrued compensation is comprised of an increase of $150,000 in already existing notes payable issued to Huntington Chase Ltd, and RI Heller, Inc., a promissory note issued to The Kasper Group in the amount of $49,000 and a Senior Convertible Promissory Note (the “Senior Note”) issued to William B. Nesbitt in the amount of $30,000. The Senior Note bears interest at a rate of five percent (5%) per annum, and is payable upon completion of certain funding goals of the Company. All other outstanding related party notes bear interest at the rate of seven percent (7%) per annum and are due and payable within one (1) year of receipt of written demand by the related party creditors.
In addition, an assignment of debt was entered into between Huntington Chase Ltd., and The Kasper Group, whereby $400,000 of the funds owed by the Company to Huntington Chase Ltd. was assigned to The Kasper Group, also a related party creditor. There were no changes in the terms and conditions of the original promissory notes, and there was no increase or decrease to the Company’s Related Party Loans at the date of assignment.
The Company’s increase in Related Party Payables is due to an increase in accrued compensation of $485,647 payable to Huntington Chase, Ltd., The Kasper Group, R.I. Heller, and Calli Bucci, all related party creditors, and a decrease in reimbursable expenses owed to related parties in the amount of $45,344.
Accrued interest at December 31, 2011 was $99,026.
NOTE 6. STOCKHOLDERS’ (DEFICIT)
The total number of authorized shares of common stock that may be issued by the Company is 75,000,000 with a par value of $0.001 per share.
The Board of Directors has approved an action to amend the Articles of Incorporation to provide for the issuance of 10 million shares of preferred stock with no par value. The amendment of the Articles has not yet been filed with the Nevada Secretary of State's Office.
During January 2009 the Company issued 500,000 common shares for investor relations consulting services valued at $120,000.
During March 2009 the Company issued 9,560,745 common shares for cash at $0.001 per share.
During April 2009 the Company issued 1,200,000 common shares for cash at $0.25 per share.
During April 2009 the Company issued 100,000 common shares for web site design services valued at $180,000, of which $20,833 is deferred at December 31, 2011.
During May 2009 the Company issued 50,000 common shares for web site design services valued at $90,000 of which $10,417 is deferred at December 31, 2011.
During June 2009 the Company issued 100,000 common shares for radio operations services valued at $180,000 which was fully expensed during 2009 and 2010.
Effective June 11, 2009, we changed our name from “USR Technology, Inc.” to “Ecologic Transportation, Inc.”, by way of a merger with our wholly owned subsidiary Ecologic Transportation, Inc., which was formed solely for the change of name.
On July 2, 2009, USR’s wholly owned subsidiary Ecological Acquisition Corp. was merged into Ecologic Sciences, Inc. with Ecologic Sciences, Inc. being the sole surviving entity under the name “Ecologic Sciences, Inc.” and our company being the sole shareholder of the surviving entity. In connection with the closing of the merger, the Company issued an aggregate of 17,559,486 restricted shares of common stock representing approximately 75.85% of the issued and outstanding shares of the Company to the former shareholders of Ecologic Sciences, Inc. As a result, the issued and outstanding shares increased from 5,620,832 shares of common stock to 23,180,318 shares of common stock.
Effective July 2, 2009, the Company issued 7,520,834 common shares to the shareholders of predecessor Ecologic Transportation, Inc. (formerly USR Technology, Inc.), on an exchange basis of one share of Ecologic Sciences, Inc. (formerly Ecologic Transportation, Inc.) common stock for each share of Ecologic Transportation, Inc. (formerly USR Technology, Inc.), common stock.
During July 2009, certain stockholders canceled 1,900,002 post split shares of common stock for no consideration.
During October 2009, certain stockholders canceled 1,369,494 post split shares of common stock for no consideration.
During October 2009 the Company issued 852,000 shares of its common stock for $213,000 in cash.
During May 2010 the Company issued 1,000,000 shares of its common stock to a consultant for services valued at $450,000 of which $84,375 is deferred at December 31, 2011.
On May 20, 2010 the Company entered into a Memorandum of Understanding and Binding Effect (“Memorandum”) with Wakabayashi Fund, LLC (“Wakabayashi”) to cancel the agreement that the Company entered into with Wakabayashi on May 11, 2010 wherein Wakabayashi was to provide institutional market awareness and public relations services to the Company. Under the original agreement, the Company issued to Wakabayashi a retainer of 250,000 shares of the Company’s common stock (the “Shares”). Under the terms of the Memorandum, Wakabayashi agreed to return the Shares and the Company agreed to cancel the Shares and issue 50,000 new shares valued at $0.45 per share for a total of $22,500 of stock compensation expense to Wakabayashi (the “Replacement Shares”). The Company has recorded the cancellation and issuance as stated above in 2010.
During September 2010, the Company issued 100,000 shares for services valued at $31,000.
On April 1, 2011, the Company issued 620,000 restricted shares of common stock for services for the period April 1, 2011 to September 30, 2011. As a result, the Company recorded a total of $229,400 of deferred compensation, which has been fully amortized in 2011.
On May 9, 2011, the Company issued 50,000 of restricted shares of the Company’s common stock relating to the April 1, 2011 amendment to the Agreement for Executive Services with Kunin Business Consulting. The shares were valued at $14,500.
On December 16, 2011 the Company issued 250,000 shares of its common stock for cash at $0.001 per share.
The Company expensed deferred stock compensation of $544,400 for the year ended December 31, 2011. There remains $131,225 of deferred stock compensation which will be expensed over the following six months.
As at December 31, 2011 the Company has 24,732,824 common shares issued and outstanding.
NOTE 7. WARRANTS AND OPTIONS
In conjunction with the reverse acquisition in July 2009, the Company assumed 90,250 warrants outstanding with an exercise price of $2.50. The warrants expired on September 30, 2011.
On June 30, 2010 the Company, under its 2009 Stock Option Plan, granted qualified stock options to purchase 435,000 shares of its common stock for five years at $0.473 per share. Of the total options granted, 240,000 were granted to three members of the Board of Directors, 120,000 of which vest on July 2, 2010 and 120,000 of which vest on July 2, 2011 and 195,000 were granted to four consultants, all of which vest on July 2, 2010. The value of the options using the Black-Scholes valuation method is $0.13 per share or $56,550. The 120,000 Directors’ options vesting at any time after July 2, 2010 were valued at $15,600 and were expensed on the books of the Company at June 30, 2010. The 120,000 Directors’ options vesting on or after July 2, 2011 were recorded on the books as prepaid expense of $15,600 as of June 30, 2010, and were expensed in the current year. The 195,000 Consultants’ options vesting at any time after July 2, 2010 were valued at $25,350 and were expensed on the books of the Company as at June 30, 2010. The Company used the following assumptions in valuing the options: expected volatility 33%; expected term 5 years; expected dividend yield 0%, and risk-free interest rate of 1.49%.
On October 1, 2009 the Company entered into a consulting agreement for services under which the Company issued 2,287,547 options to purchase 2,287,547 shares of its common stock for an option price of $0.25. The options vested on September 1, 2010. The options are exercisable for a period of three years after the vesting date. The Company has valued the options utilizing The Black Scholes Valuation at $989,645 and for accounting purposes has amortized the option value over the eleven month period commencing with the date of issuance and ending when the options vest. The full amount was amortized during 2009 and 2010. Assumptions used in valuing the options: expected term is 3.67 years, expected volatility is 0.33, risk-free interest rate is 2.00%, and dividend yield is 0.00%.
On April 19, 2011 the Board of Directors, under the Company’s 2009 Stock Option Plan, granted qualified stock options to its Former Chief Executive Officer and its Chairman of the Board (“Ten Percent Holders”) to purchase 1,750,000 shares of its common stock for five years at $0.32 per share, qualified stock options to five of its employees (“Employee Options”) to purchase 775,000 shares of its common stock for ten years at $0.32 and qualified stock options to four of its directors (“Directors Options”) to purchase 500,000 shares of its common stock for ten years at $0.32 for a total grant of 3,025,000 stock options . Of the total options granted, 1,000,000 were granted to our Former Chief Executive Officer which vest (i) up to 250,000 at any time after the first 90 days of grant; (ii) up to an additional 250,000 after the second 90 days of grant; (iii) up to an additional 250,000 after the third 90 days of grant; and (iv) up to an additional 250,000 after the fourth 90 days of grant. Of the total options granted, 750,000 were granted to our Chairman of the Board which vest (i) up to 187,500 at any time after the first 90 days of grant; (ii) up to an additional 187,500 after the second 90 days of grant; (iii) up to an additional 187,500 after the third 90 days of grant; and (iv) up to an additional 187,500 after the fourth 90 days of grant. Of the total options granted, 775,000 were granted to five employees which vest (i) up to 193,750 at any time after the first 90 days of grant; (ii) up to an additional 193,750 after the second 90 days of grant; (iii) up to an additional 193,750 after the third 90 days of grant; and (iv) up to an additional 193,750 after the fourth 90 days of grant. Of the total options granted, 500,000 were granted to three directors which vest up to 450,000 at any time after the date of grant and 50,000 were granted to one director which vests up to 50,000 at any time after the date of grant. The value of the options for the Ten Percent Holders, using the Black-Scholes valuation method is $0.27 per share or $472,500. The 775,000 Employee Options and 500,000 Directors Options were valued at $0.30 per share or $382,500. The Company used the following assumptions in valuing the options: expected volatility 1.2; expected term 5 years for the Ten Percent Holders and 10 years for the Employee Options and the Directors Options; expected dividend yield 0%, and risk-free interest rate of 1.97%. At April 19, 2011, the Company expensed $150,000 in stock compensation for the 500,000 options vested any time after the date of grant, and recorded $705,000 of deferred stock compensation for the balance of the options granted, for a total value of the options granted of $855,000.
During 2011, a total of $518,100 in deferred compensation has been expensed. There remains $352,500 in deferred compensation at December 31, 2011.
As at December 31, 2011 the Company has no Warrants and 5,747,547 Options issued and outstanding.
NOTE 8. COMMITMENTS AND CONTINGENCIES
On October 12, 2009 the Company entered into a consulting agreement with Huntington Chase, Ltd., a Nevada corporation wherein Edward W. Withrow III, Ecologic Transportation’s Chairman, owns a majority control. The consulting agreement provides for Huntington Chase, Ltd. to perform certain advisory functions, and to be paid $15,000 per month for a period of three years.
The Company signed an Investment Banking and Financial Advisory Agreement (“the Innovator Agreement”) with Innovator Capital of London England (“Innovator”) dated January 9, 2010. The Agreement provides for Innovator to perform the following services; strategic business consulting, capital raising activities, strategic partnership in both the private and public sectors, merger and acquisition advisory and corporate communications strategy. The economics of the agreement are as follows; an engagement fee of £15,625 pound sterling (USD$23,437) was to be paid upon signing. The Company negotiated to pay £7,812.50 pound sterling (USD$12,481) upon signing and the remaining £7,812.50 pounds sterling after the Company raises a minimum of $1,000,000. The agreement provides for a monthly retainer fee of £15,625 pounds sterling (USD $23,437) which will accrue on a daily basis payable monthly in arrears; such fee will be deferred and will commence, with arrears also being payable, immediately upon the receipt by Ecologic of a minimum aggregate $2,000,000. Innovator receives a 5% fee of all monies raised for the Company. As at December 31, 2011, the Company and Innovator are in dispute with respect to the Innovator Agreement, however it is management’s belief that the outcome will not adversely affect the Company.
Matrix Advisors, LLC a New York Limited Liability Company (“Matrix”) signed a consulting agreement with the Company dated effective October 1, 2009. The consulting agreement provides f or Matrix Advisors to deliver advisory services to the Company for a period of three years for a fee of $10,000 per month and options to purchase 2,287,547 shares exercisable at $0.25 per share for a term of three years from September 1, 2009. The vesting period for the options ended on September 1, 2010. On November 24, 2010, Matrix waived its right of first refusal to participate in the financing transaction contemplated in the engagement letter between BMO Capital Markets Corp. and the Company.
On May 18, 2010 the Company entered into an Independent Consulting Agreement (“Consulting Agreement”) with Prominence Capital, LLC (“Prominence”) to represent the Company in investor communications and public relations for a term of two (2) years commencing May 18, 2010. As remuneration for the services of Prominence, the Company issued to Prominence 1,000,000 restricted common shares of the Company valued at $0.45 for a per share which was the stock price on May 18, 2010, the date of issuance. The Company recorded $28,125 as operating expense for the period May 18, 2010 to September 30, 2010 and deferred compensation of $421,875, which is being amortized through May 18, 2012. The Company expensed $225,000 and $140,625of deferred compensation for the year ended December 31, 2011 and 2010, respectively, and has a deferred compensation balance of $46,875 and $309,375 at December 31, 2011 and 2010, respectively.
On July 1, 2010 the Company entered into an Advisory Agreement for Executive Services of Norman A. Kunin with Kunin Business Consulting (“KBC”), a division of Ace Investors, LLC (the “Advisory Agreement”.) The Advisory Agreement is for the non-exclusive services of Norman A. Kunin (the “Executive”) to serve as Chief Financial Officer of the Company. The term of the engagement is for one year commencing on July 1, 2010, with a one year option to continue upon mutually agreeable terms. Executive fee compensation is at the rate of $5,000 per month, payment of which is deferred until the Company is capitalized with a minimum of $1,000,000, but will continue to accrue on a monthly basis. The Company will reimburse KBC for services already rendered in the one-time amount of $25,000, which has been recorded as a fee payable as of December 31, 2011.
On April 1, 2011, the Company amended the Agreement for Executive Services dated July 1, 2010 with Kunin Business Consulting, a division of Ace Investors, LLC (the “Amendment”). The Amendment (i) increased the monthly Executive Fee from $5,000 to $7,500 effective October 1, 2010; (ii) defined payment terms of executive fee deferment; (iii) added an additional one-time deferred payment of $10,000; and (iv) provided for the issuance, not later than May 1, 2011, of 50,000 restricted shares of the Company’s common stock (“Kunin Shares”) the Kunin shares were issued on May 9, 2011. The Amendment also stipulates that KBC shall be paid accrued fees up to a maximum of 5% of the net amount of debt or equity capital received by the Company after payment of Placement Agent Fees. As of December 31, 2011, the Company has accrued $144,500 in Executive Fees and expense reimbursements payable to KBC, for which the Company executed a Convertible Promissory Note (the “Note”). The Note bears interest at 7% per annum and includes a provision to convert the Note into shares of the Company’s common stock at a price of $0.12 per share. On November 15, 2011, a modification was made to the Note, changing the conversion price to $0.32 per share. No other terms of the Note were modified.
On April 1, 2011 the Company entered into an independent consulting agreement (“the Oracle Agreement”) with Oracle Capital Partners, LLC (“Oracle”) wherein Oracle was engaged to represent the Company in investors’ communications and public relations from the date of issuance of the Remuneration Shares until September 30, 2011. Remuneration for the services to be provided by Oracle was the issuance, on April 4, 2011, of Six Hundred Twenty Thousand (620,000) restricted shares of the Company’s common stock at par value (the “Remuneration Shares”). The Remuneration Shares were recorded on the books and records of the Company at a value of $229,400 ($0.37 per share on the date of the Oracle Agreement) and has been amortized ratably over the period April 1, 2011 to September 30, 2011. The Oracle Agreement expired on September 30, 2011.
On April 12, 2011 the Company entered into a non-exclusive Placement Agent Agreement with View Trade Securities, Inc. to act as the Company’s exclusive agent to sell up to $2,000,000 of the Company’s Senior Convertible Notes and paid View Trade a fee of $15,000. As of December 31, 2011, the Company is no longer pursuing the efforts of View Trade.
In August, 2011, Mr. Kunin resigned as Chief Financial Officer if the Company due to certain health conditions. However, Mr. Kunin continues to provide advisory services to the Company. As such, the Advisory Agreement dated July 1, 2010, and subsequent amendment dated April 1, 2011, has been terminated, and a Consulting Agreement was negotiated.
On August 2, 2011 The Company entered into a Consulting Agreement with Kunin Business Consulting for the consulting services of Norman A. Kunin effective August 2, 2011. The Consulting Agreement is for an initial term of 2 years, and provides for monthly compensation in the amount of $5,000 for the first 12 months, increasing to $7,500 per month for an additional 12 months, a monthly allowance of $300 for transportation costs, and the issuance of 100,000 common stock warrants exercisable for three (3) years at a price of $0.001 per share. All cash compensation payable under this agreement shall be deferred until the Company meets certain funding goals.
On September 21, 2011, the Company engaged William B Nesbitt to serve as Chief Operating Officer of the Company. The engagement is to provide the Company with additional internal support for the daily operations of the Company. The terms of Mr. Nesbitt’s engagement includes compensation in the amount of $10,000 per month on a consultant basis for his services, reporting directly to the Company’s Chief Executive Officer and Board of Directors.
On October 10, 2011, William N. Plamondon III resigned from his position as Chief Executive Officer of the Company. Mr. Plamondon has claimed to the Company that he was constructively discharged on this date, but the Company denies such claim. The employment agreement with William N. Plamondon III, dated January 30, 2009, which provided for compensation in the amount of $35,000 per month and standard health benefits, was terminated effective October 31, 2011. The employment agreement with Mr. Plamondon contains certain terms with respect to remuneration received or that may be received in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000. Mr. Plamondon’s employment agreement is included as Exhibit Number 10.1 - Material Contracts.
The Company entered into an employment agreement with Mr. Nesbitt effective November 1, 2011, for his services as President and Chief Executive Officer of the Company. The Agreement supersedes any other existing engagement for Mr. Nesbitt’s services. The initial term of the Agreement is for a period of twelve (12) months and is automatically renewed annually unless terminated by either party. The Agreement provides for initial compensation of $10,000 per month for the first six months, increasing to $20,833 thereafter, contingent upon certain funding of the Company. Any unpaid compensation shall be converted to a Senior Note Payable on a monthly basis, accruing interest at a rate of five percent (5%) per annum. In addition, the Agreement provides for expense reimbursements, an initial Stock Option grant upon certain funding, and annual Performance Options.
On November 15, 2011 the Company, as Plaintiff, filed a lawsuit in the Superior Court of California, County of Los Angeles, West District - Case No. SC114884 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co.., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants. Mr. Plamondon is the Company’s former Director, President and Chief Executive Officer. Erin Davis, Mr. Plamondon’s wife, is the Company’s former Secretary and R.I. Heller & Co. is the corporation controlled by Mr. Plamondon. Mr. Plamondon resigned as Chief Executive Officer of the Company on October 10, 2011. The Company’s Complaint for Damages includes: Breach of Fiduciary Duty; Conspiracy to Steal Corporate Assets and Opportunities; Fraud; Breach of Contract; Theft of Corporate Assets and Opportunities; Intentional Tortious Interference with Business Relationships and Negligent Tortious Interference with Business Relationships.
The Case Management Conference scheduled for March 8, 2012 has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages.
The Company also intends to take additional legal action to recoup any and all equity securities previously issued to Defendants.
On January 9, 2012 Defendants filed a General Denial to the above action with Affirmative Defenses and Cross Complaints.
NOTE 9. INCOME TAXES
Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the ultimate realization of a deferred tax as The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010, are presented below:
At this time, the Company is unable to determine if it will be able to benefit from its deferred tax asset. There are limitations on the utilization of net operating loss carry forwards, including a requirement that losses be offset against future taxable income, if any. In addition, there are limitations imposed by certain transactions which are deemed to be ownership changes. Accordingly, a valuation allowance has been established for the entire deferred tax asset. The increase in the valuation allowance was approximately $912,000 during 2011.
The amount of income taxes the Company pays is subject to ongoing examinations by federal and state tax authorities. To date, there have been no reviews performed by federal or state tax authorities on any of the Company’s previously filed returns. The Company’s 2008 and later tax returns are still subject to examination.
NOTE 10. SUBSEQUENT EVENTS
The Company has evaluated events and transactions that occurred between December 31, 2011 and the date the consolidated financial statements were available for issue, for possible disclosure or recognition in the consolidated financial statements. The Company has determined that there were no such events or transactions that warrant disclosure or recognition in the consolidated financial statements except as noted below.
On January 31, 2012, the former Chief Financial Officer, Norman A. Kunin, converted his debt in the amount of $147,909 into 462,214 restricted shares of the Company’s common stock at $0.32 per share.
On February 6, 2012, two Directors of the Company received the right to purchase 250,000 each shares of common stock at par value of $0.001 for their services over and above their roles as Directors of the Company. Both Directors elected to purchase the shares and, as a result, a total of 500,000 restricted shares of the Company’s common stock were issued for $250 cash.
On February 6, 2012, William B. Nesbitt, the Company’s Chief Executive Officer, was afforded the opportunity to purchase 500,000 shares of common stock at par value of $0.001 for his contribution to the Company prior to executing an employment agreement with the Company. Mr. Nesbitt elected to purchase the shares and, as a result, 500,000 restricted shares of the Company’s common stock were issued for $500 cash.
On February 29, 2012, 50,000 restricted shares of the Company’s common stock were issued to a consultant in exchange for services provided valued at $5,000.
At April 10, 2012, there were 26,245,038 shares of common stock issued and outstanding.
On March 16, 2012, the Company and its wholly owned subsidiary Ecologic Systems, Inc. (“EcoSys”), entered into a Share Exchange Agreement with Amazonas Florestal, Inc. (“Amazonas”), wherein EcoSys acquired one hundred percent (100%) of the issued and outstanding shares of common stock of Amazonas in exchange for seventy million (70,000,000) authorized but un-issued shares of common stock of EcoSys. It is intended that the Share Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall be a plan of reorganization for purposes of Section 368(a) of the Code.
Subsequent to the Closing, Amazonas will be a wholly owned subsidiary of EcoSys, the Company will own three percent (3%) of the EcoSys outstanding capital stock, and the former Amazonas shareholders will own ninety-seven percent (97%) of the EcoSys outstanding capital stock. For a period of one hundred and eighty (180) days after the Closing the EGCT Shares will be subject to an anti-dilution provision. The anti-dilution provision will protect the three (3%) percent ownership of the issued and outstanding capital stock of EcoSys owned by the Company.
In connection with the lawsuit filed by the Company on November 15, 2011 (see Note 9. Commitments and Contingencies), against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co.., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants, the Defendants filed a General Denial to the action with Affirmative Defenses and Cross Complaints on January 9, 2012. The Case Management Conference was scheduled for March 8, 2012, but has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages.
The Company also intends to take additional legal action to recoup any and all equity securities previously issued to Defendants.
During the period January 1, 2012 through March 31, 2012 the Company increased its loans from related parties by $156,967, from a total of $2,055,151 at December 31, 2011 to $2,212,118 at March 31, 2011. The increase represents cash loans to the Company in the amount of $33,500, accrued compensation owed to related parties in the amount of $99,500, and accrued interest of $23,967. The loans bear interest at the rates of 5% and 7% per annum, are unsecured and are payable within one year upon demand.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On March 6, 2012, the Audit Committee and the Board of Directors of Ecologic Transportation, Inc. (the “Company”) dismissed StarkSchenkein, LLP (“Stark”), the Company’s former independent registered public accounting firm. On March 7, 2012, the Audit Committee and the Board of Directors of the Company selected Stan J.H. Lee, CPA (the “New Accountant”) to serve as the Company’s auditor for the fiscal year ended December 31, 2011.
The audit reports of the Company on its financial statements for the past two fiscal years ended December 31, 2009 and 2010 did not contain any adverse opinion, disclaimer of opinion, modification or qualification as to uncertainty, audit scope or accounting principles except for a going concern opinion. During the Company’s fiscal years ended December 31, 2009 and 2010 and the subsequent interim period up to March 6, 2012 there were no disagreements with Stark, whether or not resolved, on any matter of accounting principle or practice, financial statement disclosure, auditing scope or procedure which, if not resolved to the satisfaction of Stark, would have caused Stark to make reference to the subject matter of such disagreement in connection with its report on the Company’s financial statements for such periods.
The Company has provided Stark a copy of the foregoing disclosures. Exhibit 16.1, incorporated by reference, is a copy of the letter from Stark dated March 22, 2012, stating its agreement with such statements.
During our two most recent fiscal years and through March 7, 2012, prior to engaging the New Accountant, we have not consulted with the New Accountant with respect to the application of accounting principles to a specified transaction, either completed or proposed, or any other matter.
Item 9A.
Item 9A.
Controls and Procedures
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president, chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2011, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision and with the participation of our president, chief executive officer and chief financial officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president, chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2011, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles. Our management reviewed the results of their assessment with our Board of Directors.
This annual report does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit our company to provide only management’s report in this annual report.
Inherent limitations on effectiveness of controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the year ended December 31, 2011 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B.
Item 9B.
Other Information
None
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
All of the directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified. Our officers are appointed by our board of directors and hold office until their death, resignation or removal from office.
Effective August 9, 2011, Shelly J. Meyers resigned from the Board of Directors of the Company.
Effective August 16, 2011, Norman A. Kunin resigned his position as Chief Financial Officer of the Company due to health reasons. Mr. Kunin has entered into a consulting agreement with the Company to provide financial services and advice to the Company, and support to Ms. Bucci.
Effective August 16, 2011, Calli R. Bucci, Controller of the Company since January, 2010, was appointed interim Chief Financial Officer of the Company.
On October 10, 2011, William N. Plamondon III resigned from his position as Chief Executive Officer of the Company. Mr. Plamondon has claimed to the Company that he was constructively discharged on this date, but the Company denies such claim.
On November 1, 2011, the Board of Directors of the Company accepted the resignation of Mr. Plamondon, and appointed William B. Nesbitt, Chief Operating Officer of the Company, as successor in the position of President and Chief Executive Officer.
Effective November 1, 2011, Erin E. Davis resigned as Secretary and Vice President of Marketing and Communications.
Effective November 1, 2011, Paul Christensen resigned as Vice President of Rental Operations of the Company.
Effective November 1, 2011, Calli R. Bucci was appointed as Secretary of the Company.
On November 5, 2011 Mr. Plamondon resigned as a member of the Board of Directors of the Company and its subsidiaries.
Our directors and executive officers, their ages, positions held, and duration as such, are as follows:
Name
Position Held with the Company
Age
Date First
Elected or
Appointed
William B. Nesbitt
President and Chief Executive Officer
Director
November 1, 2011
November 6, 2011
John L. Ogden
Director
March 3, 2008
Edward W. Withrow III
Chairman of the Board and Director
July 2, 2009
Edward W. Withrow Jr.
Director
July 2, 2009
Dr. Martin A. Blake
Director
August 12, 2010
Calli R. Bucci
Chief Financial Officer
Secretary
August 16, 2011
November 1, 2011
Business Experience
The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person's principal occupation during the period, and the name and principal business of the organization by which he was employed.
William B. Nesbitt, President, Chief Executive Officer and Director
Mr. Nesbitt is a graduated from Cornell University with a BS degree in Hotel and Service Industry Management from the School of Hotel Administration. He started a car rental company in New York City called Olin’s Rent A Car which grew into a major presence in New York and subsequently opened branches in Florida to utilize its off season fleet and serve its vacationing New York customers. Olin’s strategy was as a market niche company avoiding the airports and focusing on local neighborhoods and businesses.
Mr. Nesbitt left Olin’s for an opportunity to work for Walter Wriston at Citibank where he participated in the development of the Automatic Teller Machine and a major reduction on branch cost and footprint, with a very substantial increase in customer convenience and deposits.
Mr. Nesbitt rejoined his old company in Florida which had changed its name to Alamo Rent A Car. He was initially responsible for branches and for fleet utilization. He developed a capacity planning system to help predict the numbers of reservations, pricing potential and no show expectations. This allowed the company to achieve fleet utilization far above the competition. He later led the expansion of Alamo across the country and into foreign markets. With expansion complete, Bill focused on marketing and sales to major wholesale suppliers and partners such as the airlines, travel consortiums, cruise lines and large corporations.
Since the sale of Alamo, Mr. Nesbitt has focused on several successful company startup and acquisition projects as well as developing customer loyalty retail marketing programs for Harley Davidson dealerships and marine products companies.
Mr. Nesbitt comes to us with 40+ years of experience not only in the car rental business, but wide experience in company building, corporate expansion and controls. We look forward to his contributions to our efforts to build and maintain a world class environmental transportation business.
John L. Ogden, Director
Mr. Ogden has more than 30 years’ experience in energy corporate finance, international negotiations, corporate and asset acquisition, business development and energy company management. Since 1995 he has been a principal and managing director of Wood Roberts, LLC, an energy corporate financial advisory firm based in Houston, Texas. Between 1985 and 1995, he managed an independent corporate financial consulting business specializing in domestic and international energy issues, providing M&A advice, and strategic corporate financial consulting services. Mr. Ogden graduated from the University of Leeds, England, with a Bachelor of Laws (honors) and is qualified as a Barrister-at-Law in England.
Edward W. Withrow III, Director
Mr. Withrow has over 20 years of experience as a financier, wherein he has developed an expertise in finding small undervalued and under-funded companies and creating value with them. In 1992 Mr. Withrow created Box Office Partners I, II, & III, a series of funds that provided off-balance sheet financing for foreign film distributors. In 1994 Mr. Withrow became a pioneer in the development of sell-thru educational entertainment video into grocery stores chains which led to the creation of Family Store Entertainment, LLC an educational entertainment company involved in production, licensing, acquisition and distribution of children’s entertainment. In 1998 Mr. Withrow co-founded Simplyfamily.com an Internet based an integrated affinity community.
In 2000, Mr. Withrow founded Huntington Chase Financial Group, LLC and Huntington Chase, Ltd. to engage in venture capital and merchant banking activities. From 2000 until the present, Mr. Withrow acquired, restructured, merged, created and was a senior advisor to 10 companies. From 2002 to 2004, Mr. Withrow was the CEO of Reward Enterprises, Inc., a public company and early adopter of VOIP telecommunications in the international market with operations in North Africa and India. In 2003 to 2004 Mr. Withrow founded Symphony Card, LLC a stored value debit card targeting the West African nation of Nigeria in partnership with Fountain Trust Bank, PLC.
From 2004 to 2005, Mr. Withrow became the CEO of Addison-Davis Diagnostics, Ltd, a leading edge point-of-care diagnostic company. From 2005 to present, Mr. Withrow co-founded Eaton Scientific Systems, Ltd., a biotechnology company and co-authored a patent pending non-hormonal treatment for women in menopause and post cancer treatments. From 2006 to present, Mr. Withrow was a co-founder of Montecito Bio Sciences, Ltd. an innovative diagnostic company. He is the author of several patents in the life sciences space. In 2006 Mr. Withrow became a Managing Director of Orient Financial Group, Ltd a Hong Kong registered financial advisory firm headquartered in Hong Kong with representative offices in Geneva, Delhi and Los Angeles.
Mr. Withrow co-founded Save Our Children a non-profit organization that assisted in fundraising activities for charities that focused on child abuse and since 1999 has been actively involved with Planet Hope a non-profit organization that helps homeless mothers and their children.
Edward W. Withrow Jr., Director
Mr. Withrow earned his Master’s in Business Administration from Harvard University, with a concentration in Investment Banking. He has a bachelor’s degree in Business, with a concentration in Finance and Accounting, from the University of Colorado. He served twenty-four years on active duty in the U.S. Navy as a professional logistician, retiring with the rank of Captain. He spent approximately 20 years as a financial professional with Drexel Burnham Lambert, Paine Webber, Merrill Lynch and Wells Fargo.
Mr. Withrow has been very active in civic leadership for the past 20 years serving in a number of elected and appointed positions, including Mayor of Alameda, California. He is currently serving as the regionally elected President of the Governing Board of The Peralta Colleges, an institution consisting of 2,000 faculty and staff and approximately 30,000 students.
Dr. Martin A. Blake, MBA, BSc, Director
Dr. Blake is a sustainability expert with over 25 years experience developing strategic plans and influencing high profile stakeholders within governments, NGOs as well as the postal, construction, healthcare, oil and gas and charity sectors.
From 2004 to the present, Dr. Blake has been the Head of CSR, Sustainability and Social Policy for the Royal Mail Group plc, London, UK’s postal service company and largest single employer, with more than 195,000 employees, 14,000 retail outlets and a fleet of 35,000 vehicles.
From 2001 to 2004, Dr. Blake was Director of Change, Performance and Risk Management of local authority proving public services for Suffolk Coastal District Council, Suffolk, UK. He successfully designed and directed the implementation of a major transformational change management programme.
Since 1988, Dr. Blake has also held the positions of Interim Managing Director of InterVest Group (BVI) Limited, Bahrain, an international financial services and venture capital provider and Director of Community Infrastructure Development for Saudi Arabian Oil Company, KSA, Saudi Arabia, the largest oil producing, refining and shipping company in the world.
Calli R. Bucci, Secretary and Chief Financial Officer
Ms. Bucci has over 25 years experience in the field of finance and business management. Prior to holding the position of interim Chief Financial Officer at Ecologic Transportation, Ms. Bucci has been Controller of the Company since January 2010, and was responsible for general ledger, quarterly certified reviews, annual audits, preparation for SEC filings, customer billing and invoicing, multi-state payroll, licenses and consolidated corporate income taxes.Before joining the Company, Ms. Bucci held the position of Chief Financial Officer at InstaSave, Inc., a promotional incentive company, from December 2007, where she was responsible for financial reporting, capital structure strategy and modeling, financial transactions with consumers, consumer product goods companies and retailers, investor relations, audits, payroll and corporate income taxes. From July, 2003, Ms. Bucci held the position of Senior Accountant at Lagnese, Peyrot & Mucci where she was responsible for financial transactions, contract administration, audits, general ledger reviews and annual tax preparation. Ms. Bucci attended the University of California Berkley, majoring in Accounting.
William N. Plamondon III, former President, former Chief Executive Officer and former Director
On November 1, 2011, Mr. Plamondon resigned his positions as the Company’s President and Chief Executive Officer. He resigned as Director on November 5, 2011. He is succeeded by William B. Nesbitt.
Shelly J. Meyers, former Director
Shelly Meyers resigned as Director on August 9, 2011.
Norman A. Kunin, C.P.A., former Chief Financial Officer
Mr. Kunin resigned his position as Chief Financial Officer of the Company effective August 16, 2011due to health reasons. He will continue to provide services to the Company on a consultant basis. Calli R. Bucci has been appointed interim Chief Financial Officer.
Erin E. Davis, former Corporate Secretary and Vice President of Marketing and Communications
Ms. Davis resigned her positions as Corporate Secretary and Vice President of Marketing and Communications as of November 1, 2011. She is succeeded by Calli R. Bucci.
Paul Christensen, former Vice President of Rental Operations
Mr. Christensen resigned his position as Vice President of Rental Operations on November 1, 2011.
Family Relationships
Other than as described below, there are no family relationships among our directors or executive officers.
Edward W. Withrow, Jr. is the father of Edward W. Withrow III. Erin E. Davis is the wife of William N. Plamondon III.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of our common stock to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2011, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.
Audit Committee and Audit Committee Financial Expert
Currently our audit committee consists of John L. Ogden and Edward W. Withrow Jr. Effective August 9, 2011, John L. Ogden was appointed chair of the audit committee. We currently do not have nominating, compensation committees or committees performing similar functions. There has not been any defined policy or procedure requirements for shareholders to submit recommendations or nomination for directors.
During the calendar year 2011, aside from quarterly review teleconferences and the matter of replacement of our auditors, there were no meetings held by this committee. The business of the audit committee was conducted though these teleconferences and by resolutions consented to in writing by all the members and filed with the minutes of the proceedings of the audit committee. Audit Committee meetings were held in conjunction with Board of Director’s meetings
Item 11.
Item 11.
Executive Compensation
The table below summarizes the compensation paid to the following persons:
(a) our principal executive officer;
(b) each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended December 31, 2011 and 2010; and
(c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended December 31, 2011 and 2010,
who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:
(1)
William N. Plamondon III was granted 1,000,000 options on April 19, 2011, with a total value of $270,000. As of December 31, 2011, $135,000 was vested. Mr. Plamondon resigned as chief executive officer and director on November 1, 2011.
(2)
Edward W. Withrow III is the Founder and Chairman of the Board for Ecologic Transportation, Inc. Mr. Withrow was granted 750,000 options on April 19, 2011, with a total value of $202,500. As of December 31, 2011, $101,250 was vested.
Stock Options/SAR Grants
During the year ended December 31, 2011, we granted the following stock options to directors and officers:
On April 19, 2011, Edward W. Withrow III was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 750,000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, John Ogden was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 150, 000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, Martin Blake was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 50,000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, E. William Withrow Jr. was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 150, 000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, Calli R. Bucci was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 50,000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, William N. Plamondon was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 1,000,000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, Erin Davis was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 250,000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, Paul Christensen was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 100,000 shares of the Company’s common stock at a price of $0.32 per share.
On April 19, 2011, Shelley Meyers was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 150,000 shares of the Company’s common stock at a price of $0.32 per share.
On October, 1, 2011, William B. Nesbitt was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 1,500,000 shares of the Company’s common stock at a price of $0.20 per share.
During the year ended December 31, 2010, we granted the following stock options to directors and officers:
On June 30, 2010, Edward W. Withrow, Jr. was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 80,000 shares of the Company’s common stock at a price of $0.473 per share.
On June 30, 2010, John L. Ogden was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 80,000 shares of the Company’s common stock at a price of $0.473 per share.
On June 30, 2010, Norman A. Kunin was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 50,000 shares of the Company’s common stock at a price of $0.473 per share.
On June 30, 2010, Shelly J. Meyers was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 80,000 shares of the Company’s common stock at a price of $0.473 per share.
On June 30, 2010, Paul Christensen was granted an option under the Company’s 2009 Stock Option Plan adopted effective September 2009 to purchase 50,000 shares of the Company’s common stock at a price of $0.473 per share.
Aggregated Option Exercised in Last Fiscal Year and Fiscal Year-End Values
There were no options exercised during our fiscal year ended December 31, 2011 or December 31, 2010 by any officer or director of our company.
Outstanding Equity Awards at Fiscal Year End
On June 30, 2010 the Company, under its 2009 Stock Option Plan, granted qualified stock options to purchase 435,000 shares of its common stock for five year at $0.473 per share. Of the total options granted, 240,000 were granted to three members of the Board of Directors, 120,000 of which vest on July 2, 2010 and 120,000 of which vest on July 2, 2011 and 195,000 were granted to four consultants, all of which vest on July 2, 2010. The value of the options using the Black-Scholes valuation method is $0.13 per share or $56,550. The 120,000 Directors’ options vesting at any time after July 2, 2010 were valued at $15,600 and were expensed on the books of the Company at June 30, 2010. The 120,000 Directors’ options vesting on or after July 2, 2011 were valued at $15,600 and were expensed on the books of the Company at July 2, 2011. The 195,000 Consultants’ options vesting at any time after July 2, 2010 were valued at $25,350 and were expensed on the books of the Company as at June 30, 2010. The Company used the following assumptions in valuing the options: expected volatility 33%; expected term 5 years; expected dividend yield 0%, and risk-free interest rate of 1.49%.
On April 19, 2011 the Board of Directors, under the Company’s 2009 Stock Option Plan, granted qualified stock options to its Former Chief Executive Officer and its Chairman of the Board (“Ten Percent Holders”) to purchase 1,750,000 shares of its common stock for five years at $0.32 per share, qualified stock options to five of its employees (“Employee Options”) to purchase 775,000 shares of its common stock for ten years at $0.32 and qualified stock options to four of its directors (“Directors Options”) to purchase 500,000 shares of its common stock for ten years at $0.32 for a total grant of 3,025,000 stock options . Of the total options granted, 1,000,000 were granted to our Former Chief Executive Officer which vest (i) up to 250,000 at any time after the first 90 days of grant; (ii) up to an additional 250,000 after the second 90 days of grant; (iii) up to an additional 250,000 after the third 90 days of grant; and (iv) up to an additional 250,000 after the fourth 90 days of grant. Of the total options granted, 750,000 were granted to our Chairman of the Board which vest (i) up to 187,500 at any time after the first 90 days of grant; (ii) up to an additional 187,500 after the second 90 days of grant; (iii) up to an additional 187,500 after the third 90 days of grant; and (iv) up to an additional 187,500 after the fourth 90 days of grant. Of the total options granted, 775,000 were granted to five employees which vest (i) up to 193,750 at any time after the first 90 days of grant; (ii) up to an additional 193,750 after the second 90 days of grant; (iii) up to an additional 193,750 after the third 90 days of grant; and (iv) up to an additional 193,750 after the fourth 90 days of grant. Of the total options granted, 500,000 were granted to three directors which vest up to 450,000 at any time after the date of grant and 50,000 were granted to one director which vests up to 50,000 at any time after the date of grant. The value of the options for the Ten Percent Holders, using the Black-Scholes valuation method is $0.27 per share or $472,500. The 775,000 Employee Options and 500,000 Directors Options were valued at $0.30 per share or $382,500. The Company used the following assumptions in valuing the options: expected volatility 1.2; expected term 5 years for the Ten Percent Holders and 10 years for the Employee Options and the Directors Options; expected dividend yield 0%, and risk-free interest rate of 1.97%. At April 19, 2011, the Company expensed $150,000 in stock compensation for the 500,000 options vested any time after the date of grant, and recorded $705,000 of deferred stock compensation for the balance of the options granted, for a total value of the options granted of $855,000.
During 2011, a total of $518,100 in deferred compensation has been expensed. There remains $352,500 in deferred compensation at December 31, 2011.
Compensation of Directors
We reimburse our directors for expenses incurred in connection with attending board meetings. We have not paid any director's fees or other cash compensation for services rendered as a director since our inception to December 31, 2011.
We have no formal plan for compensating our directors for their service in their capacity as directors, however, our directors and certain officers have received stock options to purchase common shares under the Company’s 2009 Stock Option Plan and may receive additional stock options at the discretion of our board of directors or (as to future stock options) a compensation committee which may be established under the Plan in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. No director received and/or accrued any compensation for their services as a director, including committee participation and/or special assignments.
Employment Contracts and Termination of Employment and Change in Control Arrangements
On October 12, 2009 the Company entered into a consulting agreement with Huntington Chase, Ltd., a Nevada corporation wherein Edward W. Withrow III, Ecologic Transportation’s Chairman, owns a majority control. The consulting agreement provides for Huntington Chase, Ltd. to perform certain advisory functions, and to be paid $15,000 per month for a period of three years.
On July 1, 2010 the Company entered into an Advisory Agreement for Executive Services of Norman A. Kunin with Kunin Business Consulting (“KBC”), a division of Ace Investors, LLC (the “Advisory Agreement”.) The Advisory Agreement is for the non-exclusive services of Norman A. Kunin (the “Executive”) to serve as Chief Financial Officer of the Company. The term of the engagement is for one year commencing on July 1, 2010, with a one year option to continue upon mutually agreeable terms. Executive fee compensation is at the rate of $5,000 per month, payment of which is deferred until the Company is capitalized with a minimum of $1,000,000, but will continue to accrue on a monthly basis. The Company will reimburse KBC for services already rendered in the one-time amount of $25,000, which has been recorded as a fee payable as of December 31, 2011.
On April 1, 2011, the Company amended the Agreement for Executive Services dated July 1, 2010 with Kunin Business Consulting, a division of Ace Investors, LLC (the “Amendment”). The Amendment (i) increased the monthly Executive Fee from $5,000 to $7,500 effective October 1, 2010; (ii) defined payment terms of executive fee deferment; (iii) added an additional one-time deferred payment of $10,000; and (iv) provided for the issuance, not later than May 1, 2011, of 50,000 restricted shares of the Company’s common stock (“Kunin Shares”) the Kunin shares were issued on May 9, 2011. The Amendment also stipulates that KBC shall be paid accrued fees up to a maximum of 5% of the net amount of debt or equity capital received by the Company after payment of Placement Agent Fees. As of December 31, 2011, the Company has accrued $144,500 in Executive Fees and expense reimbursements payable to KBC, for which the Company executed a Convertible Promissory Note (the “Note”). The Note bears interest at 7% per annum and includes a provision to convert the Note into shares of the Company’s common stock at a price of $0.12 per share. On November 15, 2011, a modification was made to the Note, changing the conversion price to $0.32 per share. No other terms of the Note were modified.
In August, 2011, Mr. Kunin resigned as Chief Financial Officer if the Company due to certain health conditions. However, Mr. Kunin continues to provide advisory services to the Company. As such, the Advisory Agreement dated July 1, 2010, and subsequent amendment dated April 1, 2011, has been terminated, and a Consulting Agreement was negotiated.
On August 2, 2011 The Company entered into a Consulting Agreement with Kunin Business Consulting for the consulting services of Norman A. Kunin effective August 2, 2011. The Consulting Agreement is for an initial term of 2 years, and provides for monthly compensation in the amount of $5,000 for the first 12 months, increasing to $7,500 per month for an additional 12 months, a monthly allowance of $300 for transportation costs, and the issuance of 100,000 common stock warrants exercisable for three (3) years at a price of $0.001 per share. All cash compensation payable under this agreement shall be deferred until the Company meets certain funding goals.
On September 21, 2011, the Company engaged William B Nesbitt to serve as Chief Operating Officer of the Company. The engagement is to provide the Company with additional internal support for the daily operations of the Company. The terms of Mr. Nesbitt’s engagement includes compensation in the amount of $10,000 per month on a consultant basis for his services, reporting directly to the Company’s Chief Executive Officer and Board of Directors.
On October 10, 2011, William N. Plamondon III, the Company’s Chief Executive Officer, resigned from his position as Chief Executive Officer of the Company. Mr. Plamondon has claimed to the Company that he was constructively discharged on this date, but the Company denies such claim. The employment agreement with William N. Plamondon III, dated January 30, 2009, which provided for compensation in the amount of $35,000 per month and standard health benefits, was therefore terminated effective October 31, 2011. The employment agreement with Mr. Plamondon contains certain terms with respect to remuneration received or that may be received in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000. Mr. Plamondon’s employment agreement is included as Exhibit Number 10.1 - Material Contracts.
On November 1, 2011, the Board of Directors of the Company accepted the resignation of Mr. Plamondon, and appointed William B. Nesbitt, Chief Operating Officer of the Company, as successor in the position of President and Chief Executive Officer. The Company entered into an employment agreement with Mr. Nesbitt effective November 1, 2011, for his services as President and Chief Executive Officer of the Company. The Agreement supersedes any other existing engagement for Mr. Nesbitt’s services. The initial term of the Agreement is for a period of twelve (12) months and is automatically renewed annually unless terminated by either party. The Agreement provides for initial compensation of $10,000 per month for the first six months, increasing to $20,833 thereafter, contingent upon certain funding of the Company. Any unpaid compensation shall be converted to a Senior Note Payable on a monthly basis, accruing interest at a rate of five percent (5%) per annum. In addition, the Agreement provides for expense reimbursements, an initial Stock Option grant upon certain funding, and annual Performance Options.
We have not entered into any employment agreement or consulting agreement with our directors and executive officers except for the Employment agreement dated January 30, 2009 between our company and Mr. Plamondon (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009), the consulting agreement dated October 21, 2009 between our company and Huntington Chase, Ltd. (incorporated by reference from our Annual Report on Form 10-K filed on April 14, 2010), the Advisory agreement dated July 1, 2010 between our company and Kunin Business Consulting (incorporated by reference from our Quarterly Report on Form 10-Q filed on August 16, 2010) and the Employment Agreement effective November 1, 2011 between our company and William B. Nesbitt (included in this filing as Exhibit 10.17).
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and certain officers have received stock options under the Company’s 2009 Stock Option Plan and may receive additional stock options at the discretion of our board of directors under the Plan 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.
The Company’s employment agreement with William Plamondon, our chief executive officer, contains certain terms with respect to remuneration received or that may be received in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000. Mr. Plamondon’s employment agreement is included as Exhibit Number 10.1 - Material Contracts, incorporated by reference from our Current Report on Form 8-K filed on April 30, 2009.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of April 6, 2012, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person 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.
Name and Address of
Beneficial Owner
Amount and Nature of Beneficial Ownership
Percentage
of Shares of
Common Stock (1)
William N. Plamondon III
4240 Galt Ocean Drive Ste. 404
Fort Lauderdale, FL 33308
4,059,750 (3)
15.469%
Edward W. Withrow III
1327 Ocean Ave. Suite B
Santa Monica, CA 90401
3,613,741
13.769%
Erin E. Davis
4240 Galt Ocean Drive Ste. 404
Fort Lauderdale, FL 33308
1,000,000 (4)
3.810%
Katsuka Sandoval
1327 Ocean Ave. Suite B
Santa Monica, CA 90401
1,000,000 (5)
3.810%
John L. Ogden
675 Bering Drive Suite 675
Houston, TX 77057
727,500 (2)
2.772%
William B. Nesbitt
549 Carcaba Road
Saint Augustine, FL 32084
750,000
2.858%
Norman A. Kunin
1390 Redsail Circle
Westlake Village, CA 91361
562,214
2.142%
Edward W. Withrow Jr.
133 Cumberland Way
Alameda, CA 94502
300,000
1.143%
(1) Based on 26,245,038 shares outstanding as of April 6, 2012.
(2) On January 18, 2011 Mr. Ogden acquired 100% of the issued and outstanding stock of Chapelco, Inc., (“Chapelco”) a corporation that owned 266,666 shares of common stock of the Company. On March 18, 2011 ownership of the Company’s common stock was transferred from Chapelco to John Ogden.
(3) More than 5% ownership
(4) More than 5% owner by direct relation (wife of William B. Plamondon).
(5) More than 5% owner by direct relation (wife of Edward W. Withrow III).
Directors and Officers as a Group (5 individuals)
5,953,455
22.68%
More than 5% ownership (3 individuals)
6,059,750
23,09%
Total (8 individuals)
12,013,205
45.77%
Changes in Control
We are unaware of any contract or other arrangement or provisions of our Articles or Bylaws the operation of which may at a subsequent date result in a change of control of our company. There are not any provisions in our Articles or Bylaws, the operation of which would delay, defer, or prevent a change in control of our company.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Except as disclosed herein, there have been no transactions or proposed transactions in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years in which any of our directors, executive officers or beneficial holders of more than 5% of the outstanding shares of our common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.
Director Independence
We currently act with five directors, consisting of John L. Ogden, Edward W. Withrow III, William B. Nesbitt, Edward W. Withrow Jr., and Dr. Martin A. Blake. We have determined that Dr. Martin A. Blake is an “independent director” as defined in NASDAQ Marketplace Rule 4200(a)(15).
Item 14.
Item 14.
Principal Accountants Fees and Services
The aggregate fees billed or to be billed for the most recently completed fiscal year ended December 31, 2011 and for fiscal year ended December 31, 2010 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
PART IV
Item 15.
Item 15.
Exhibits, Financial Statement Schedules
Exhibits required by Item 601 of Regulation S-B
* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ECOLOGIC TRANSPORTATION, INC.
Dated: April 16, 2012
/s/ William B. Nesbitt
William B. Nesbitt
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Dated: April 16, 2012
/s/ Calli R. Bucci
Calli R. Bucci
Chief Financial Officer
(Principal Financial Officer and Principal Financial Officer)
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: April 16, 2012
/s/ William B. Nesbitt
William B. Nesbitt
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Dated: April 16, 2012
/s/ John L. Ogden
John L. Ogden
Director
Dated: April 16, 2012
/s/ Edward W. Withrow III
Edward W. Withrow III
Director
Dated: April 16, 2012
/s/ Edward W. Withrow Jr.
Edward W. Withrow Jr.
Director
Dated: April 16, 2012
/s/ Martin A.Blake
Martin A. Blake
Director
Dated: April 16, 2012
/s/ Calli R. Bucci
Calli R. Bucci
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)