ITEM 1. BUSINESS.
HISTORY
SavWatt USA, Inc. ("Company") was incorporated in the State of Delaware under the name of "Ludvik Capital, Inc." on October 20, 2006. Our name was changed to SavWatt USA, Inc. on April 5, 2010. The Company was originally formed for the purpose of becoming a successor and survivor corporation by merger with Patriot Advisors, Inc. and Templar Corporation pursuant to a plan of reorganization and merger approved by the United States Bankruptcy Court, District of Maine, Case No. 04-20328. The Company's prior business plan was to make investments in public and private companies by providing long-term debt and equity investment capital to fund the growth, acquisitions and recapitalizations of small and middle-market companies in a variety of industries, primarily located in the Untied States. Our prior management was not successful in carrying out its business plan.
CURRENT BUSINESS
Emitting more light per watt than incandescent bulbs and capable to lasting up to 100,000 hours, LED lights are revolutionizing the lighting industry. LED lights contain no harmful ultraviolet rays, do not flicker, or contain toxic substances. Additionally, by using LED lighting, energy consumption can decrease up to 80%. SavWatt USA, Inc (also referred to as "the Company") distributes LED technology through a network of independent distributors. Operating nationwide, the Company will create partnerships with manufacturers to secure the best selection of LED street lights, tubes, spot, and floodlights. SavWatt will supply commercial businesses and retailers, as well as municipalities and state governments, with warranty-guaranteed lighting technology. The Company will work closely with each client find the best solution to its lighting needs.
In the past year, the market for LED technology in the United States has grown from $7 billion to $10.7 billion. This tremendous growth is reflective of inherent benefits of LED technology: a longer product lifetime and greatly improved energy efficiency. To spur adoption of energy efficient products, federal law mandates that all light bulbs are 30% more efficient by 2012. Federal tax deductions of up to $.60 per square foot are additionally available if a lighting system reduces power usage by 25 to 40% of the standard lighting power values specified by AHSRAE standard 90.1-2001. By 2012, the LED market in the United States is expected to be valued at $20.4 billion.
PRODUCTION:
SavWatt will be sourcing LED products from factories in the FarEast. These factories assemble LED bulbs, fixtures and apparatuses based on SavWatt's specifications and bill of material requirements. UL or ETL certification for these products and factories are supervised by SavWatt technicians. SavWatt opened an office in Shenzen, China to supervise production schedules, shipment arrangements, samples and quality control inspections. All factories contracted by SavWatt will go through a quality control and performance test before becoming a master supplier for SavWatt products. An agreement which each supplier will protect SavWatt as to use of our brand, intellectual property and proprietary information to extent that is enforceable in China.
In addition, the Company will begin assembling certain LED tubes in its new Baltimore Facility in the 2nd quarter of 2011.
We are a development stage enterprise and have had nominal operations since inception.
Our fiscal year end is December 31.
HOW TO CONTACT US
The Company's principal executive offices are located at 1100 Wicomico Street, Suite 700, Baltimore, Maryland 21224. Our telephone number is (866) 641-3507.
COMPETITIVE BUSINESS CONDITIONS
The lighting industry is intensely competitive and many of our competitors are large, well funded companies that have substantially larger staffs, manufacturing and distribution facilities and financial resources than we have at the present time. In the LED market, we compete with companies that manufacture or sell nitride-based LED chips as well as those that sell LED components. Competitors are offering new blue, green and white LEDs with aggressive prices and improved performance. These competitors may reduce average sales prices faster than we are able to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average sales prices.
The Company will compete with major lighting manufacturers, including General Electric, Philips, and Sylvania. Although these companies have established reputations in the marketplace, each lacks the mobility and creativity to meet the new market demand for LED lighting in a competitive manner. SavWatt additionally faces competition from smaller U.S.-based lighting companies, but a majority of these lack the branding or marketing expertise that the Company possesses
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS
We purchase our products from overseas sources. As a result, our international sales and purchases are subject to numerous U.S. and foreign laws and regulations, including, without limitation, tariffs, trade barriers, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S. Export Administration Act. If we fail to comply with these laws and regulations, we could be liable for administrative, civil or criminal liabilities, and in the extreme case, we could be suspended or debarred from government contracts or our export privileges could be suspended, which could have a material adverse effect on our business.
International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations, collection issues and taxes. Our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S. Dollar and more competitive in countries with currencies that are increasing in value against the U.S. Dollar. In addition, our international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies in which we are billed. We have not entered into any foreign currency derivative financial instruments; however, we may choose to do so in the future in an effort to manage or hedge our foreign exchange rate risk.
The Company's common stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"). As a result of such registration, the Company is subject to Regulation 14A of the Exchange Act, which regulates proxy solicitations. Section 14(a) requires all companies with securities registered pursuant to Section 12(g) thereof to comply with the rules and regulations of the Commission regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to stockholders of the Company at a special or annual meeting thereof or pursuant to a written consent will require the Company to provide its stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the Commission at least 10 days prior to the date that definitive copies of this information are forwarded to stockholders.
The Company is also required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Commission on a regular basis, and will be required to disclose certain events in a timely manner, (e.g. changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.
WE ARE SUBJECT TO THE REQUIREMENTS OF SECTION 404 OF THE SARBANES-OXLEY ACT. IF WE ARE UNABLE TO TIMELY COMPLY WITH SECTION 404 OR IF THE COSTS RELATED TO COMPLIANCE ARE SIGNIFICANT, OUR PROFITABILITY, STOCK PRICE AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
The Company is required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002, which requires that we document and test our internal controls and certify that we are responsible for maintaining an adequate system of internal control procedures for the 2010 fiscal year. This section also requires that our independent registered public accounting firm opine on those internal controls and management's assessment of those controls. We are currently evaluating our existing controls against the standards adopted by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). During the course of our ongoing evaluation and integration of the internal controls of our business, we may identify areas requiring improvement, and we may have to design enhanced processes and controls to address issues identified through this review (see Item 9A, below for a discussion our internal controls and procedures).
We believe that the out-of-pocket costs, the diversion of management's attention from running the day-to-day operations and operational changes caused by the need to comply with the requirement of Section 404 of the Sarbanes-Oxley Act could be significant. If the time and costs associated with such compliance exceed our current expectations, our results of operations and the future Exchange Act filings of our Company could be materially adversely affected.
Aside from required compliance with federal and state securities laws, regulations and rules, and federal, state and local tax laws, regulations and rules, the Company is not aware of any other governmental regulations now in existence or that may arise in the future that would have a material effect on the business of the Company.
INTELLECTUAL PROPERTY RIGHTS
The Company presently holds no intellectual property rights. The Company intends to seek copyright and trademark protection of its trade names and products. The Company's success and ability to compete are dependent to a degree on the Company's name and product recognition. Accordingly, the Company will primarily rely on copyright, trade secret and trademark law to protect its product and brand names of our products or the name(s) under which the Company conducts its business. Effective trademark protection may not be available for the Company's trademarks.
The Company's competitors or others may adopt product or service names similar to the Company's, thereby impeding the Company's ability to build brand identity and possibly leading to customer confusion. The Company's inability to adequately protect its product, brand, trade names and trademarks would have a material adverse effect on the Company's business, financial condition and operating results. Despite any precautions the Company takes, a third party may be able to copy or otherwise obtain and use the Company's technology or other proprietary information without authorization or to develop similar technology independently.
Policing unauthorized use of the Company's products is made especially difficult by the global nature of the Internet and the difficulty in controlling the ultimate destination or security of products or other data. The laws of other countries may afford the Company little or no effective protection for the Company's intellectual property.
EMPLOYEES
We currently have 17 full-time employees. We also have five part-time consultants, including Isaac H. Sutton, our President. We believe that our relations with our employees are good. Our employees are not represented by a union or covered by a collective bargaining agreement.
REPORTS TO SECURITY HOLDERS
The public may view and obtain copies of the Company's reports, as filed with the Securities and Exchange Commission, at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Additionally, copies of the Company's reports are available and can be accessed and downloaded via the internet on the SEC's internet site at http://www.sec.gov.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Investing in the Company, involves a number of significant risks relating to our business and investment objective. As a result, there can be no assurance that we will achieve our investment objective.
BUSINESS RISKS
Business risks are risks that are associated with general business conditions, the economy, and the operations of the Company. Business risks are not risks associated with our specific investments or an offering of our securities.
OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION AND BUSINESS COULD BE HARMED IF WE WERE UNABLE TO BALANCE CUSTOMER DEMAND AND CAPACITY.
As customer demand for our products changes, the Company must be able to ramp up or adjust our production capacity to meet demand. We are continually taking steps to address our manufacturing capacity needs for our products. If we are not able to increase our capacity or if we increase our capacity too quickly, our business and results of operations could be adversely impacted. If we experience delays or unforeseen costs associated with adjusting our capacity levels, we may not be able to achieve our financial targets.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY THE GLOBAL ECONOMIC DOWNTURN, THE CONTINUING UNCERTAINTIES IN THE FINANCIAL MARKETS AND OUR, OR OUR CUSTOMERS' OR SUPPLIERS' ABILITY TO ACCESS THE CAPITAL MARKETS.
The global economy is currently in a pronounced economic downturn. Global financial markets are continuing to experience disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further deterioration in the global economy, the global financial markets and consumer confidence. We are unable to predict the likely duration and severity of the current global economic downturn or disruptions in the financial markets. If economic conditions deteriorate further, our business and results of operations could be materially and adversely affected.
IF WE FAIL TO EVALUATE, IMPLEMENT AND INTEGRATE STRATEGIC OPPORTUNITIES SUCCESSFULLY, OUR BUSINESS MAY SUFFER.
From time to time, we evaluate strategic opportunities available to us for product, technology or business acquisitions. If we choose to make acquisitions, we face certain risks, such as failure of the acquired business to meet our performance expectations, diversion of management attention, retention of existing customers of our current and acquired businesses, and difficulty in integrating the acquired business's operations, personnel and financial and operating systems into our current business.
We may not be able to adequately address these risks or any other problems that arise from any future acquisitions. Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any acquisition could adversely affect our business, results of operations or financial condition.
WE FACE SIGNIFICANT CHALLENGES MANAGING OUR GROWTH.
We will transform our business to support a global components and LED lighting product customer base. In order to manage our growth and change in our strategy effectively, we must continue to:
* maintain or contract for adequate manufacturing facilities and equipment to meet customer demand; * maintain a sufficient supply of raw materials to support our growth; * expand research and development, sales and marketing, technical support, distribution capabilities and administrative functions; * expand the skills and capabilities of our current management team; * add experienced senior level managers; and * attract and retain qualified employees.
While we intend to focus on managing our costs and expenses during the extremely challenging economic environment, over the long term, we expect to invest substantially to support our growth and may have additional unexpected costs. We may not be able to expand quickly enough to exploit potential market opportunities.
In connection with our efforts to cost-effectively manage our growth, we will initially produce our products overseas and will rely on subcontractors for production capacity, logistics support and certain administrative functions, such as payroll processing. If these service providers do not perform effectively, we may not be able to achieve the expected cost savings and may incur additional costs to correct errors or fulfill customer demand. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies or the loss of or damage to intellectual property through security breach, or impact employee morale. Our operations may also be negatively impacted if any of these service providers do not have the financial capability to withstand the continuing financial downturn.
LITIGATION COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION.
We may be involved in patent or trademark infringement litigation. Defending against potential litigation will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which could adversely affect our results unless covered by insurance or recovered from third parties. If our defenses are ultimately unsuccessful, or if we are unable to achieve a favorable resolution, we could be liable for damage awards that could materially adversely affect our results of operations and financial condition.
OUR BUSINESS MAY BE IMPAIRED BY CLAIMS THAT WE, OR OUR CUSTOMERS, INFRINGE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Vigorous protection and pursuit of intellectual property rights characterize our industry. These traits have resulted in significant and often protracted and expensive litigation. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation results in a determination favorable to us. In the event of an adverse result in such litigation, we could be required to:
* pay substantial damages; * indemnify our customers; * stop the manufacture, use and sale of products found to be infringing; * incur asset impairment charges; * discontinue the use of processes found to be infringing; * expend significant resources to develop non-infringing products and processes; and/or * obtain a license to use third party technology.
There can be no assurance that third parties will not attempt to assert infringement claims against us, or our customers, with respect to our products. In addition, our customers may face infringement claims directed to the customer's products that incorporate our products, and an adverse result could impair the customer's demand for our products. We may also promise certain of our customers that we will indemnify them in the event they are sued by our competitors for infringement claims directed to the products we supply. Under these indemnification obligations, we could be responsible for future payments to resolve infringement claims against them. From time to time we receive correspondence asserting that our products or processes are or may be infringing patents or other intellectual property rights of others. If we believe the assertions may have merit or in other appropriate circumstances, we will take appropriate steps to seek to obtain a license or to avoid the infringement. However, we cannot predict whether a license will be available; that we would find the terms of any license offered acceptable; or that we would be able to develop an alternative solution. Failure to obtain a necessary license or develop an alternative solution could cause us to incur substantial liabilities and costs and to suspend the manufacture of affected products.
In addition to patent protection, we also rely on trade secrets and other non-patented proprietary information relating to our product development and manufacturing activities. We try to protect this information through appropriate efforts to maintain its secrecy, including requiring employees and third parties to sign confidentiality agreements. We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached. We also cannot be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
IF WE ARE UNABLE TO EFFECTIVELY DEVELOP, MANAGE AND EXPAND OUR DISTRIBUTION CHANNELS FOR OUR PRODUCTS, OUR OPERATING RESULTS MAY SUFFER.
We have expanded into new business channels that are different from those that we have historically operated in as we grow our business and sell LED lighting products. If we are unable to effectively penetrate these new distribution channels to ensure our products are reaching the appropriate customer base, our financial results may be adversely impacted. In addition, if we successfully penetrate these new distribution channels, we cannot guarantee that customers will accept our products or that we will be able to manufacture and deliver them in the time line established by our customers.
IF OUR PRODUCTS FAIL TO PERFORM OR FAIL TO MEET CUSTOMER REQUIREMENTS OR EXPECTATIONS, WE COULD INCUR SIGNIFICANT ADDITIONAL COSTS, INCLUDING COSTS ASSOCIATED WITH THE RECALL OF THOSE ITEMS.
The manufacture of our products involves highly complex processes. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to replace or rework the products. In some cases, our products may contain undetected defects or flaws that only become evident after shipment. Even if our products meet standard specifications, our customers may attempt to use our products in applications they were not designed for or in products that were not designed or manufactured properly, resulting in product failures and creating customer satisfaction issues.
If we experience product quality, performance or reliability problems and defects or failures, we may need to recall our products. These recalls could result in significant losses due to: o costs associated with the removal, collection and destruction of the product recalled;
* payments made to replace recalled product; * a rise in warranty expense and costs associated with customer support; * the write down or destruction of existing inventory subject to the recall; * lost sales due to the unavailability of product for a period of time; * delays, cancellations or rescheduling of orders for our products; or * increased product returns.
We also may be the target of product liability lawsuits and could suffer losses from a significant product liability judgment against us if the use of our products at issue is determined to have caused injury. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of customer confidence in our products.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND HAVE EVOLVING TECHNICAL REQUIREMENTS.
The markets for our products are highly competitive. In the LED market, we compete with companies that manufacture or sell nitride-based LED chips as well as those that sell LED components. Competitors are offering new blue, green and white LEDs with aggressive prices and improved performance. These competitors may reduce average sales prices faster than we are able to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average sales prices.
AS A RESULT OF OUR CONTINUED EXPANSION IN LED COMPONENTS AND LED LIGHTING PRODUCTS, OUR CUSTOMERS MAY REDUCE ORDERS.
Through acquisitions and organic growth, we intend to continue to expand in new markets for LED lighting products. In these new markets, some of our customers may perceive us as a competitor. In response, our customers may reduce their orders for our products. This reduction in orders could occur faster than our sales growth in these new markets, which could adversely affect our business, results of operations or financial condition.
OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON THE DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS.
Our future success may depend on our ability to develop new and lower cost solutions for existing and new markets and for customers to accept those solutions. We must introduce new products in a timely and cost-effective manner, and we must secure production orders for those products from our customers. The development of new products is a highly complex process, and we historically have experienced delays in completing the development and introduction of new products. The successful development and introduction of these products depends on a number of factors, including the following:
* achievement of technology breakthroughs required to make commercially viable devices; * the accuracy of our predictions for market requirements and evolving standards; * acceptance of our new product designs; * acceptance of new technology in certain markets; * the availability of qualified research and development personnel; * our timely completion of product designs and development; * our ability to expand sales and influence key customers to adopt our products; * our ability to develop repeatable processes to manufacture new products in sufficient quantities and at low enough costs for commercial sales;
WE ARE SUBJECT TO RISKS RELATED TO INTERNATIONAL PURCHASES AND SALES.
We purchase our products from overseas sources. As a result, our international sales and purchases are subject to numerous U.S. and foreign laws and regulations, including, without limitation, tariffs, trade barriers, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S. Export Administration Act. If we fail to comply with these laws and regulations, we could be liable for administrative, civil or criminal liabilities, and in the extreme case, we could be suspended or debarred from government contracts or our export privileges could be suspended, which could have a material adverse effect on our business.
International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations, collection issues and taxes. Our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S. Dollar and more competitive in countries with currencies that are increasing in value against the U.S. Dollar. In addition, our international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies in which we are billed. We have not entered into any foreign currency derivative financial instruments; however, we may choose to do so in the future in an effort to manage or hedge our foreign exchange rate risk.
CHANGES IN OUR EFFECTIVE TAX RATE MAY HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
Our future effective tax rates may be adversely affected by a number of factors including:
* changes in government administrations, such as the Presidency and Congress of the U.S. as well as in the states and countries in which we operate, including the highly predicted expiration of the so-called "Bush Tax Cuts;" * changes in tax laws or interpretation of such tax laws and changes in generally accepted accounting principles; * the jurisdiction in which profits are determined to be earned and taxed; * the resolution of issues arising from tax audits with various authorities; * changes in the valuation of our deferred tax assets and liabilities; * adjustments to estimated taxes upon finalization of various tax returns; * increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions; * changes in available tax credits; * the recognition and measurement of uncertain tax positions; * the lack of sufficient excess tax benefits (credits) in our additional paid in capital ("APIC") pool in situations where our realized tax deductions for certain stock-based compensation awards (such as non-qualified stock options and restricted stock) are less than those originally anticipated; and * the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes, or any changes in legislation that may result in these earnings being taxed within the U.S., regardless of our decision regarding repatriation of funds.
For example, current proposals have been made by various U.S. governmental bodies to change the U.S. tax laws that include, among other things, limiting U.S. tax deductions for expenses related to un-repatriated foreign-source income and modifying the U.S. foreign tax credit rules. Although the scope of the proposed changes is unclear, it is possible that these or other changes in U.S. tax laws could increase our U.S. income tax liability and adversely affect our profitability. At this time, we cannot determine the timing that the proposed changes, if enacted, are to become effective.
Any significant increase in our future effective tax rates could adversely impact net income for future periods. In addition, the determination of our income tax provision requires complex estimations, significant judgments and significant knowledge and experience concerning the applicable tax laws. To the extent our income tax liability materially differs from our income tax provisions and accruals due to factors, including the above, which were not anticipated at the time we estimated our tax provision, our net income or cash flows could be adversely affected.
IN ORDER TO COMPETE, WE MUST ATTRACT, MOTIVATE AND RETAIN KEY EMPLOYEES, AND OUR FAILURE TO DO SO COULD HARM OUR RESULTS OF OPERATIONS.
In order to compete, we must attract, motivate and retain executives and other key employees, including those in managerial, technical, sales, marketing and support positions. Hiring and retaining qualified executives, scientists, engineers, technical staff and sales personnel are critical to our business, and competition for experienced employees in our industry can be intense. To help attract, motivate and retain key employees, we may use stock-based compensation awards such as non-qualified stock options and restricted stock. If the value of such stock awards does not appreciate, as measured by the performance of the price of our common stock, or if our share-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate employees could be weakened, which could harm our business and results of operations.
OUR OPERATIONS IN FOREIGN COUNTRIES, INCLUDING CHINA AND OTHER ASIAN COUNTRIES, EXPOSE US TO CERTAIN RISKS INHERENT IN DOING BUSINESS INTERNATIONALLY, WHICH MAY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
As a result of our operations, manufacturing facilities and subcontract arrangements in foreign countries that expose us to certain risks. For example, fluctuations in exchange rates may affect our revenues, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other types of risks, including the following:
* protection of intellectual property and trade secrets; * tariffs and other barriers; * timing and availability of export licenses; * rising labor costs; * disruptions in the infrastructure of the foreign countries where we operate; * difficulties in accounts receivable collections; * difficulties in staffing and managing international operations; * the burden of complying with foreign and international laws and treaties; and * the burden of complying with and changes in international taxation policies.
In addition, abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could result in an adverse effect on our business and results of operations.
CATASTROPHIC EVENTS MAY DISRUPT OUR BUSINESS.
A disruption or failure of our systems or operations in the event of a natural disaster or man-made catastrophic event could cause delays in completing sales, continuing production or performing other critical functions of our business, especially in the case of a single site for our operations and assembly. A catastrophic event that results in the destruction or disruption to our supply chain or any of our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our operating results could be adversely affected.
OUR RESULTS OF OPERATIONS COULD VARY AS A RESULT OF THE METHODS, ESTIMATES AND JUDGMENTS THAT WE USE IN APPLYING OUR ACCOUNTING POLICIES, INCLUDING CHANGES IN THE ACCOUNTING REGULATIONS TO BE APPLIED.
The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to
change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.
Likewise, our results of operations may be impacted due to changes in the accounting rules to be applied, such as the increased use of fair value measurement rules and the potential requirement that U.S. registrants prepare financial statements in accordance with International Financial Reporting Standards.
RISK FACTORS RELATED TO OUR COMMON STOCK
THERE IS NO LIQUID MARKET FOR OUR COMMON STOCK.
Our shares are traded Over the Counter and the trading volume has historically been very low. An active trading market for our shares may not develop or be sustained. We cannot predict at this time how actively our shares will trade in the public market or whether the price of our shares in the public market will reflect our actual financial performance.
OUR COMMON STOCK PRICE HAS FLUCTUATED CONSIDERABLY AND STOCKHOLDERS MAY NOT BE ABLE RESELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH SHARES WERE PURCHASED.
The market price of our common stock may fluctuate significantly. From July 2007, the day we began trading publicly as LDVK, until March 28, 2011 our share prices per share have fluctuated in dramatic fashion. Our share price has fluctuated in response to various factors. Speculation in the press or investment community about our strategic position, financial condition, results of operations, or significant transactions can also cause changes in our stock price. In particular, speculation around our market opportunities for energy efficient lighting may have dramatic effects on our stock price, especially as various government agencies announce their planned investments in energy efficient technology, including lighting.
OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.
The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock has been for much of its trading history since July 2007, and may continue to be less than $5.00 per share, and, therefore, may be designated as a "penny stock" according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.
COMPLIANCE AND CHANGING REGULATIONS AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSE.
Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from the achievement of revenue generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to uncertainties related to practice, our reputation might be harmed which would could have a significant impact on our stock price and our business. In addition, the ongoing maintenance of these procedures to be in compliance with these laws, regulations and standards could result in significant increase in costs.
OUR PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTERESTS OF ALL OTHER STOCKHOLDERS.
The Company's majority shareholder is Sutton Global Associates, Inc. ("Sutton Global"), which owns approximately 47% of our common stock. Sutton Global is beneficially owned and controlled by Isaac H. Sutton our Chairman and President. Mr. Sutton has voting and dispositive control of the shares held by Sutton Global. He may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may expedite approvals of Company decisions, or have the effect of delaying or preventing a change in control, adversely affect the market price of our common stock, or be in the best interests of all our stockholders.
YOU COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
As of March 28, 2011, there were 278,504,388 shares of common stock issued and outstanding and 5,000,000 shares of preferred stock outstanding. We are authorized to issue up to 2,000,000,000 shares of common stock and 200,000,000 shares of preferred stock. To the extent of such authorization, our Board of Directors will have the ability, without seeking stockholder approval, to issue additional shares of common stock or preferred stock in the future for such consideration as the Board of Directors may consider sufficient. The issuance of additional common stock or preferred stock in the future may reduce your proportionate ownership and voting power.
ITEM 2.
ITEM 2. PROPERTIES.
The Company does not own any real estate.
On July 1, 2010, the Company relocated its principal executive offices from New York City to 6801 Eastern Avenue, Suite 203, Baltimore, Maryland 21224. Our new offices contain approximately 2,000 square feet under a written lease for a term of three years at an annual rent of $23,000.
On February 11, 2011, the Company entered into a lease for approximately 24,561 square feet at 1100 Wicomico Street, Suite 700, Baltimore, Maryland, under a written lease for a term of ten years. This new facility will be the Company's new principal executive offices, as well as a manufacturing and assembly facility. We will not have to pay rent on this facility until February 1, 2012. Thereaftter, we will pay rent as follows:
February 1, 2012 - January 31, 2013 $ 9,926.74 per month February 1, 2013 - January 31, 2016 $11,564.14 per month February 1, 2016 - January 31, 2019 $12,526.11 per month February 1, 2019 - January 31, 2021 $13,549.49 per month
ITEM. 3 LEGAL PROCEEDINGS.
The Company is not the subject of any pending legal proceedings to the knowledge of management, nor is there any presently contemplated against the Company by any federal, state, or local government agency. Further, to the knowledge of management, no director or executive officer is a party to any action in which his interest is adverse to the Company.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of the date of this Annual Report, the Company's Common Stock is quoted on the Pink Sheets under the symbol "SAVW.OB." The market for the Company's Common Stock is limited, volatile and sporadic and the price of the Company's Common Stock could be subject to wide fluctuations in response to quarterly variations in operating results, news announcements, trading volume, sales of Common Stock by officers, directors and principal shareholders of the Company, general market trends, changes in the supply and demand for the Company's shares, and other factors.
The following table sets forth the high and low sales prices for each quarter relating to the Company's Common Stock for the last two fiscal years. These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions, and may not reflect actual transactions.
High Low ------ ------- Fiscal 2009 First Quarter (2) $ .130 $ .0100 Second Quarter (1) $ .020 $ .0021 Third Quarter (1) $ .015 $ .0023 Fourth Quarter (1) $ .012 $ .0024
Fiscal 2010 First Quarter (2) $ .012 $ .0035 Second Quarter (1) $ .04 $ .0035 Third Quarter (1) $ .089 $ .0036 Fourth Quarter (1) $ .10 $ .0125
---------- (1) This represents the closing bid information for the stock on the Pink Sheets. The bid and ask quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions and have not been adjusted for stock dividends or splits. (2) This represents the closing price for the stock on the Pink Sheets.
Our common stock is considered a "penny stock." The application of the "penny stock" rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. The Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Shareholders should be aware that, according to SEC Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.
Our management is aware of the abuses that have occurred historically in the penny stock market.
HOLDERS
As of April 13, 2011 there were approximately 162 shareholders of record of the Company's Common Stock.
DIVIDENDS
The Company has not declared any cash dividends with respect to its common stock or preferred stock during the last two fiscal years and does not intend to declare dividends in the foreseeable future. There are no material restrictions limiting or that are likely to limit the Company's ability to pay dividends on its outstanding securities.
RECENT ISSUANCE OF UNREGISTERED SECURITIES
On August 17, 2007, the Company effected a 2:1 forward stock split of its issued and outstanding shares of common stock. The share numbers below have been adjusted for such stock split. Since October 20, 2006, the Company has issued the following common stock without registration under the Securities Act of 1933:
On February 7, 2007 the United States Bankruptcy Court for the District of Maine entered an order confirming the December 12, 2006 agreement with the Debtor whereby, there were 40,000,000 (post forward stock split) unrestricted shares of the Company's Common Stock issued to creditors and plan participants.
On June 19, 2007, the Company issued 24,196 common shares for the acquisition of CyberSentry. This investment was assessed to have no value.
On July 30, 2007, the Company issued 2,055,710 shares of common stock to unrelated parties for $10,000 in services.
October 1, 2007, the Company issued 4,325,000 shares of common stock for $64,875 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd., an entity controlled by Frank Kristan, who at time of issuance was the President of the Company.
On October 3, 2007, the Company issued 10,000,000 shares of common stock for $150,000 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd.
On January 15, 2008, the Company issued 15,000,000 shares of common stock for $225,000 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd.
June 27, 2008, the Company issued 3,069,269 shares of common stock for $44,375 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd.
On February 1, 2009, the Company issued 5,000,000 common shares to an unrelated party, for $50,000 in services.
On April 5, 2010, the Company amended its Articles of Incorporation changing the name of the Company to SavWatt USA, Inc and increasing the authorized capital stock from 100,000,000 to 2,000,000,000 shares of Common Stock and 200,000,000 shares of Preferred Stock, par value $.0001 per share.
On May 31, 2010 and June 10, 2010 the Company sold a total of 24,000,000 common shares for $240,000.
On July 10, 2010, the Company sold 5,000,000 shares of common stock for $50,000.
On September 17, 2010 the Company sold 8,333,333 shares of common stock for $25,000.
On October 14, 2010 the Company issued 500,000 shares of its common stock as additional consideration pursuant to a 90 day promissory note. The shares issued were valued at $21,249 and recorded as interest expense.
In November and December 2010, the Company issued 31,850,000 shares of Common Stock for services rendered by consultants valued at $1,311,325 which is recorded in the statement of operations as stock based compensation.
From October 2010 through December 2010, the Company's assignee debt holders converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock.
In December 2010, the Company recorded $51,556 related to the conversion expense resulting from a modification in the conversion price on two of the Company's notes, upon conversion.
During the period of January 2011 through the filing date, the company issued 133,752,022 common shares for converting $363,654 of indebtedness.
During the period of January 2011 through the filing date, the Company issued 4,600,000 shares of Common Stock for services.
On January 11, 2011, an officer of the Company converted $250,000 of indebtedness into 5,000,000 shares of Series A Preferred Stock of the Company.
The Company did not utilize or engage a principal underwriter in connection with any of the above securities transactions. The 40,000,000 shares issued on February 7, 2007, were issued based on a court order issued by the United States Bankruptcy Court, District of Maine, Case No. 04-20328, issued pursuant to Section 1145 of the Bankruptcy Code, and, therefore, did not require registration under Section 5 of the Securities Act of 1933, as amended.
Management believes that, except for the 40,000,000 shares issued pursuant to the bankruptcy preceding, all of above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with our financial statements and related notes.
Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:
* the volatile and competitive nature of our industry, * the uncertainties surrounding the rapidly evolving markets in which we compete, * the uncertainties surrounding technological change of the industry, * our dependence on its intellectual property rights, * the success of marketing efforts by third parties, * the changing demands of customers and * the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated. See also the disclosures under "Cautionary Statement" following the Table of Contents in this Annual Report.
RESULTS OF OPERATIONS
The Company has not generated any significant revenues since its inception on October 20,2006.
FOR THE YEAR ENDED DECEMBER 31, 2010 AND 2009
The Company's operations for years ended December 31, 2010 and 2009 consist of General and administrative expenses incurred in the amount of $274,243 and $0, and professional fees amounting to $453,273 and $410,000, respectively.
FOR THE PERIOD FROM OCTOBER 20, 2006 (INCEPTION) TO December 31, 2010.
Expenses from inception consist of professional fees of $1,685.873 and general and administrative expenses consisting of organization and related expenses of $291,654 and $36,011,369 related to stock based compensation.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception to date through the sale of common stock, amounting to $315,000, and through the issuance of a $50,000 loan payable.
We had minimal cash on hand as of December 31, 2010 and a working capital deficiency of $2,060,161 We will continue to need additional cash during the following twelve months and these needs will coincide with the cash demands resulting from implementing our business plan and remaining current with our Securities and Exchange Commission filings. There is no assurance that we will be able to obtain additional capital as required, or obtain the capital on acceptable terms and conditions.
GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has not begun generating revenue, is considered a development stage company, has experienced recurring net operating losses and had a net loss of $2,824,137 for the year ended December 31, 2010. These factors raise substantial doubt about the Company's ability to continue as a going concern.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. We will need to raise funds or implement our business plan to continue operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any 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 investors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS.
Our consolidated financial statements and supplementary data may be found beginning at Page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On June 2, 2010, the Company engaged Sherb & Co. LLP as its first certifying auditors. Sherb & Co. is located at 805 Third Avenue, New York, New York.
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2010, that our disclosure controls and procedures were effective as of December 31, 2010.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
1. pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; 2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and 3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROLS
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Company's directors and executive officers, and their ages as of March 23, 2011 are as follows:
MICHAEL F. HAUG, 45, CHIEF EXECUTIVE OFFICER
As an experienced insurance and financial representative since 1993, Michael has worked for well known companies such as Liberty Mutual, John Hancock, and AIG. He also formed his own insurance agencies called Financial Solutions in 1999 and Z-Group International in 2007. In 2007 Michael became heavily involved in commercial lighting, working as consultant to Global Green Works and later AEI lighting. A graduate of The University of Baltimore in 1990 in Business Administration, Michael has always had a passion for businesses to improve their Leadership in Energy & Environmental Design (LEED). His motivation and mission in life has been green projects and energy efficient lighting. Michael is proud to bring lighting education to the forefront. He has helped municipalities, private enterprises, and schools save money and energy by increasing their awareness of energy efficient lighting. Michael also has been affiliated with many LEED programs to stay on top of the ever changing energy environment. This diversification has helped propel Michael to the top of the financial and energy lighting work place.
ISAAC H. SUTTON, 57, PRESIDENT AND SOLE DIRECTOR
Mr. Sutton is a media-savvy strategic marketing executive. He combines in-depth global marketing experience with practical business knowledge. His experience includes founding positions at Aprica Juvenile Products, Fusen Usagi, Inc., Exus Networks, Inc., Starinvest Group, Inc., and, presently, GoIP Global, Inc. His career began at I.S. Sutton & Sons, Inc., an importer of products from the Far East. In 1978, he managed a major Ronald McDonald import Doll Promotion for one year overseas at the age of 24. Examples of his innovative marketing work and vision can be seen in the companies he founded. His goal-driven accomplishments in Uzbekistan drew upon his considerable aptitudes to successfully implement a World Bank project designed to assist the country in increasing its GNP for cotton. Media and information has been Ike's vision and goal during the past several years. Rooted in the belief that technology can facilitate supplying knowledge and information throughout the world inexpensively, GoIP was founded. Based on this premise and the licensing of various worldwide technologies, GoIP will deliver information and education over cell phones. From 2001 through 2006, Ike was the CEO of Starinvest Group, Inc., a public company elected to be a "Business Development Company," one of less than 50 in the United States. Mr Sutton earned his Bachelor of Arts degree from Pace University in New York.
FRANK KRISTAN, 51, FORMER PRESIDENT
Mr. Kristan served as the Company's President and Chief Executive Officer from October 20, 2006, until March 31, 2010. Mr. Kristan is currently a part-time consultant to the Company in charge of new business development. Mr. Kristan is the President of Ludvik Nominees Pty Ltd and was formerly the President and CEO of Patriot Advisors, Inc. Patriot Advisors provided business advisory services to investment funds, corporations and individuals. From 1994 to 2004, Patriot Advisors managed funds on behalf of private companies, producing an internal rate of return in excess of 25% per annum during that period. At the time Mr. Kristan concluded his involvement with the funds, total assets under management exceeded $50 million. Patriot Advisors had also performed on guarantees to deliver financing in excess of $ 50 million. Over the ten year period, Patriot Advisors had focused its business advisory and management efforts primarily on companies in the technology, telecommunications and internet related industries. Prior to forming Patriot Advisors, Mr. Kristan was the Principal and CEO of Kristan Associates, a financial consulting firm providing business advisory services for the telecommunications and financial services industries. Mr. Kristan began his career at Affiliated Computer Systems where he provided computer and operational advisory services to banking and financial services institutions involved in merger and acquisition transactions. Mr. Kristan earned his BS in Mathematics from University of Western Australia.
ADAM R KOLODNY, 48, CHIEF FINANCIAL OFFICER
Mr. Kolodny is a seasoned senior executive with cross-industry experience in the management of high growth, dynamic global companies. From 2008 through 2010, Mr. Kolodny served as an operational and financial consultant for companies engaged in, among other things, manufacturing and data services. From 2001 through 2007, Mr. Kolodny served as the Chief Operating Officer and Chief Financial Officer for PT-1 Communications. He was appointed to this position by that company's secured lenders. Mr.Kolodny was instrumental in the re-engineering of PT-1 Communications. Mr. Kolodny began his professional career as an accountant with Laventhol & Horwath, where he focused on technology and public companies. He received his Bachelor of Business Administration (Accounting) from Hofstra University n 1986.
DIRECTORSHIPS
No Director of the Company or person nominated or chosen to become a Director holds any other directorship in any company with a class of securities registered pursuant to Section 12 of the 1934 Act or subject to the requirements of Section 15(d) of such Act or any other company registered as an investment company under the Investment Company Act of 1940.
EMPLOYMENT CONTRACTS
On July 1, 2010, the Company entered into an employment contract with Michael Haug, our Chief Executive Officer, for a one year term with a base salary of $84,000 per year. In addition, the Company agreed to issue 2,000,000 shares of common stock to Mr. Haug as a signing bonus and such shares vest at the end of the term of the agreement. Mr. Haug will also be entitled to participate in the Company's health care and bonus plans when implemented but not later than December 31, 2010.
SIGNIFICANT EMPLOYEES
No other significant employees exist.
FAMILY RELATIONSHIPS
There are no family relationships between or among our officers and directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, no present director, executive officer or person nominated to become a director or an executive officer of the Company:
(1) was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) was 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) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange 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.
AUDIT COMMITTEE FINANCIAL EXPERT AND IDENTIFICATION OF AUDIT COMMITTEE
The Company has no separately designated standing audit committee or other committee performing similar functions. The Board of Directors acts as the audit committee. None of the directors qualifies as an Audit Committee Financial Expert.
MATERIAL CHANGES TO THE METHOD BY WHICH THE SHAREHOLDERS MAY RECOMMEND NOMINEES TO THE BOARD OF DIRECTORS
None.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than ten percent of the Company's Common Stock, to file initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4 and an annual statement of beneficial ownership on Form 5, with the SEC. Such executive officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed. No one on the Company's management team was delinquent on such filings in 2010.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics applicable to its officers, including its principal executive officer, principal financial officer, principal accounting officer or controller and any other persons performing similar functions. The Code will be provided free of charge by the Company to interested parties upon request. Requests should be made in writing
and directed to the Company at the following address: 1100 Wicomico Street, Suite 700, Baltimore, Maryland 21224
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation paid by the Company to officers or directors of the Company during the periods indicated:
SUMMARY COMPENSATION TABLE
---------- (1) Represents consulting fees paid to Ludvik Nominees Pty. Ltd., a company owned and controlled by Mr. Kristan.
STOCK OPTIONS AND WARRANTS
There were no stock options or warrants outstanding on December 31, 2010
OPTION/SAR GRANTS TABLE
There were no stock options/SARS granted under the Company's stock option plans to executive officers and directors during fiscal 2010.
AGGREGATE OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
There were no exercises of stock options/SAR by executive officers during fiscal 2010.
LONG-TERM INCENTIVE PLAN AWARDS
There were no long-term incentive plan awards made during fiscal 2010.
COMPENSATION OF DIRECTORS
The Company has no formal or standard compensation arrangement with the members of its Board of Directors or with committee members.
REPRICING OPTIONS
During the fiscal year ended December 31, 2010, the Company did not reprice any stock options.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following tables set forth certain information regarding beneficial ownership of the Company's capital stock as of March 28, 2010 by (i) each person who is known by the Company to beneficially own more than five percent of any class of the Company's capital stock, (ii) each of the Company's directors and executive officers, and (iii) all directors and executive officers of the Company as a group.
---------- (1) Mr. Sutton has sole voting and dispositive power over these shares since he owns a majority of the common stock of Sutton Global Associates, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
Ludvik Nominees, Pty, Ltd. was the exclusive adviser to Company for the period October 10, 2006 through March 31, 2010. Ludvik Nominees Pty Ltd is 100% owned by Frank Kristan, our former President and Chief Executive Officer. During the period from inception to March 31, 2010 Ludvik Nominees was an advisor to the Company, fees were charged quarterly. A total of $2,017,417 including interest was billed. $484,250 was converted to 32,394,269 shares and $1,503,167 remains owing.
Mr Isaac H. Sutton, the Company's President and Sole Director, is also a shareholder in SavWatt Industries, LLC and a debtor of the Company. Mr Isaac H. Sutton the Company's President and Sole Director is a beneficial owner in Sutton Global Associates, Inc and GoIP Global, Inc both companies which have provided at certain times, short term loans to the Company.
We do not have any independent directors or director committee members.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
INDEPENDENT PUBLIC ACCOUNTANTS
On June 2, 2010, the Company engaged Sherb & Co. LLP, 805 Third Avenue, New York, New York as its certifying auditors to audit the Company's financial statements for the fiscal years ended December 31, 2009, 2008, 2007 and 2006. Prior to such engagement, the Company had not engaged a certifying audit firm.
(1) Audit Fees. For the fiscal years ended December 31, 2010, the Company's auditors charged us $12,000 for services rendered for the audit of our annual financial statements.
(2) Audit-Related Fees. For the fiscal year ended December 31, 2010, our auditors charged us $6,000 for audit-related services (review).
(3) Tax Fees. Our auditors did not provide tax compliance, tax advice, or tax planning advice for the fiscal year ended December 31, 2010.
(4) All Other Fees. None.
(5) Audit Committee's Pre-Approval Policies and Procedures. The Company had no audit committee during the fiscal year ended December 31, 2010; hence, there were no pre-approval policies or procedures in effect during such fiscal year.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
See the Exhibits Index below for a list of exhibits attached hereto or incorporated by reference pursuant to Item 601 of Regulation S-K.
EXHIBIT INDEX
Exhibit Description ------- ----------- 10.1** Commercial Office Lease 14* Code of Business Conduct Ethics 21** Subsidiaries of the Company 31.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 31.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 32.1** 906 Certification of Principal Executive Officer 32.2** 906 Certification of Principal Financial Officer
---------- * Exhibits incorporated herein by reference to Company's Form 10-K for the fiscal Year Ended December 31, 2006, filed with the Commission on August 17, 2010. ** Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SaVWatt USA, Inc.
Dated: April 15, 2011 /s/ Michael Haug ------------------------------------------ By: Michael Haug Its: Chief Executive Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SavWatt USA, Inc. (f/k/a Ludvik Capital, Inc. (A Development Stage Company):
We have audited the accompanying consolidated balance sheets of SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) and subsidiary as of December 31, 2010 and December 31, 2009, and the related statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 2010 and 2009 and for the period from inception, October 20, 2006 through December 31, 2010. These consolidated 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 audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. at December 31, 2010 and 2009, and the results of operations and cash flows for the years ended December 31, 2010 and 2009 and for the period from inception, October 20, 2006 through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant losses from operations. These issues raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sherb & Co., LLP ------------------------------------ Certified Public Accountants New York, New York April 13, 2011
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS
See Notes to the Financial Statements
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to the Financial Statements
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Financial Statements
SavWatt USA, Inc f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
See Notes to Financial Statements
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Ludvik Capital, Inc. (hereinafter "the Company") was incorporated on October 20, 2006 under the laws of the State of Delaware for the purpose of becoming a successor corporation by merger with Patriot Advisors, Inc. and Templar Corporation, pursuant to a plan of reorganization and merger approved by the United States Bankruptcy Court, District of Maine in Case No. 04-20328 whereby Ludvik Capital, Inc is the continuing entity.
The Company's business plan consisted of investing in public and private companies, providing long term equity and debt investment capital to fund growth and acquisitions and recapitalizations of small and middle market companies in a variety of industries primarily located in the United States.
Since inception, the Company has had minimal operations and no revenues earned.
On April 5, 2010, the Company amended its articles of incorporation and changed its name to SavWatt USA, Inc.
SavWatt USA, Inc. ("SavWatt") business plan is to capitalize on the largely unaddressed commercial and consumer market for energy-efficient LED lighting by investing in product and corporate marketing. With public relations and advertising throughout the media, a recognized, popular consumer LED brand will be cultivated, spearheading and establishing a leading market share in the growing energy-efficient bulb sector during the next three to five years. SavWatt has the exclusive marketing rights in the United States to sell LED street lighting for Unilumin (www.unilumin.com).
The Company is a development stage enterprise.
The Company's year end is December 31.
The Company's corporate headquarters were originally located in Virginia but are currently located in Baltimore MD.
GOING CONCERN AND BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the financial statements, the Company incurred net losses of $2,824,137 for the year ended December 31, 2010. In addition, the Company has incurred a net loss from inception (October 20, 2006) through December 31, 2010 and accumulated deficit amounting to $39,203,264. Since its inception, the Company has not generated any revenues and has minimal cash resources.
These circumstances 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. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses.
Management is taking steps to address this situation. The Company has determined that it cannot continue with its business operations as outlined in its original business plan because of a lack of financial resources; therefore, management has redirected their focus towards identifying and pursuing options regarding the development of a new business plan and direction. The Company intends to explore various business opportunities that have the potential to generate positive revenue, profits and cash flow in order to financially accommodate the costs of being a publicly held company. The Company is in the process of raising capital by implementing its business plan in Led lighting and expects to generate sufficient revenue by the fourth quarter of 2011 with a positive cash flow. Until then, the Company the Company will not have the required capital resources or credit lines available that are sufficient to fund operations.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
The Company has minimal operating costs and expenses at the present time due to its limited business activities. The Company, however, will be required to raise additional capital over the next twelve months to meet its current administrative expenses, and it may do so in connection with or in anticipation of possible acquisition transactions. This financing may take the form of additional sales of its equity securities and/or loans from its directors. There is no assurance that additional financing will be available, if required, or on terms favorable to the Company.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The accompanying financial statements have been prepared, in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC").
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the accompanying financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
ACCOUNTING METHOD The Company's financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of SavWatt USA, Inc., as well as Pro Eco Solutions, LLC for the period from November 1, 2010 through December 31, 2010 and are prepared in accordance with accounting principles generally accepted in the United States ("US GAAP"). All significant intercompany accounts and transactions between the Company and its subsidiary have been eliminated upon consolidation.
NONCONTROLLING INTERESTS Noncontrolling interests in our subsidiary are recorded in accordance with the provisions of ASC 810, "Consolidation" and are reported as a component of equity.
DEVELOPMENT STAGE ACTIVITIES The Company has been in the development stage since its formation.
From the Company's inception through March 2010, the Company was engaged in the business of providing long-term equity and debt investment capital to fund growth, acquisitions and recapitalizations of small and middle market companies in a variety of industries, primarily located in the United States. The Company during this time frame had been very active and had conducted substantial operations, as discussed in our numerous reports with the SEC during 2007-2010.
In 2010, the Company changed its name to SavWatt USA, Inc. to reflect our new primary business of producing, marketing and selling Light Emitting Diode ("LED") lighting. In furtherance of our new business, we have obtained the exclusive marketing rights in the United States to sell LED street lighting for Unilumin, a Chinese company as well as setting up its distribution and production center in Maryland.
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all short-term debt with original maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments may include cash, loans payable and related accrued interest, and accounts payable. All such instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2010 and December 31, 2009.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable are stated at the amount the Company expects to collect. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change.
Accounts receivable are presented net of an allowance for doubtful accounts of $0.
As of December 31, 2010 the Company wrote off a related party receivable amounting to $218,636 and recorded a bad debt expense, based on management's Company's evaluation of the balance and certainty that the balance would not be collectible in the future.
PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period.
Depreciation is provided for over the estimated useful lives of the related asset using the straight-line method. The estimated useful lives for significant property and equipment categories are as follows:
* Data processing equipment 3 to 5 years
INVENTORY The Company's inventory consists of entirely of finished goods, and is valued at lower of cost or market price. Cost is determined on a first-in, first-out ("FIFO") basis. To ensure inventory is carried at the lower of cost or market, the Company periodically evaluates the carrying value and also periodically performs an evaluation of inventory for excess and obsolete items. Such evaluations are based on management's judgment and use of estimates. Such estimates incorporate inventory quantities on-hand, aging of the inventory, sales forecasts for particular product groupings, planned dispositions of product lines and overall industry trends.
REVENUE RECOGNITION Revenue is recognized when all of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed and determinable; and, (4) collectability is reasonably assured. The Company has not earned any revenue since inception.
USE OF ESTIMATES The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
PROVISION FOR TAXES Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against the deferred tax asset if management does not believe the Company has met the "more likely than not" standard to allow recognition of such an asset.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive.
The average number of common shares outstanding for the period from Inception ( October 20, 2006) through December 31, 2010 has been retroactively adjusted for the 2:1 forward stock split effective August 17, 2007.
STOCK BASED COMPENSATION The Company accounts for stock based compensation transactions with employees under the provisions of ASC Topic No. 718, "Compensation, Stock Compensation" ("Topic No. 718"). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of the Company's equity instruments are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, "Equity-Based Payments to Non-Employees" ("Topic No. 505-50"). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, which ever is more reliably measurable. When the equity instrument is utilized for measurement the fair value of the equity instrument is estimated using the Black-Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to receive cash for the goods or services instead of paying with or using the equity instrument.
FORWARD STOCK SPLIT All references to the Company's outstanding shares, and options, have been adjusted to give effect to the 2 for 1 forward stock split effective August 17, 2007.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY The Financial Accounting Standards Board's ("FASB") Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, the ASC became FASB's officially recognized source of authoritative U.S. generally accepted accounting principles ("GAAP") applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), Emerging Issues Task Force ("EITF") and related literature. Rules and interpretive releases of the SEC under the
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.
In February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-08--Technical Corrections to Various Topics. This update's purpose is to eliminate GAAP inconsistencies, update outdated provisions, and provide needed clarifications. The adoption of ASU No. 2010-08 will not have a material impact on the Company's financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, could have a material effect on the accompanying financial statements.
NOTE 3 - FAIR VALUE MEASUREMENTS
The Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company's financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.
The Company did not have any Level 1, Level 2 or Level 3 assets or liabilities as of December 31, 2010 and December 31, 2009.
The Company discloses the estimated fair values for all financial instruments for which it is practicable to estimate fair value. As of December 31, 2010 and December 31, 2009, the fair value short-term financial instruments including subscriptions receivable, loans payable, accounts payable and accrued expenses, approximates book value due to their short-term duration.
In addition, the Financial Accounting Standards Board ("FASB") issued, "The Fair Value Option for Financial Assets and Financial Liabilities," effective for January 1, 2008. This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
NOTE 4 - OTHER ASSETS
The following is included in other assets:
Deposits for Imports $ 25,000 Prepaid Rent 5,385 -------- $ 30,385 ========
NOTE 5 - INCOME TAXES
At December 31, 2010 and December 31, 2009 the Company had a deferred tax asset of approximately $984,000 and $431,000, respectively, calculated at a combined federal and state expected rate of 38%. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been recorded.
The significant components of the deferred tax assets at December 31, 2010 and December 31, 2009 are as follows:
December 31, December 31, 2010 2009 ---------- ----------
Deferred tax asset-net operating losses $ 724,000 $ 171,000 Accrued compensation 260,000 260,000 Deferred tax asset valuation allowance (984,000) (431,000) ---------- ---------- Net deferred tax asset $ -- $ -- ========== ==========
The reconciliation between the statutory federal income tax rate of 35% to the actual rate is as follows:
December 31, December 31, 2010 2009 ---------- ----------
Expected Federal tax (benefit) $ (966,000) $ (321,000) Expected State tax (benefit), net of federal (114,000) (38,000) Permanent differences 527,000 152,000 Change in valuation allowance 553,000 207,000 ---------- ---------- Effective tax rate $ -- $ -- ========== ==========
At December 31, 2010 and December 31, 2009, the Company had a net operating loss carry forward of $1,904,000 and $449,000, respectively, which expires in the year 2030 and 2029, respectively.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
NOTE 6 - STOCKHOLDER LOANS
On December 14th 2006, the Company entered into an Advisory Agreement with Ludvik Nominees Pty Ltd (a Company 100% owned by Frank Kristan) for services to be rendered which were payable based on 3% assets under management and 20% of net profits of Ludvik Capital. The term of the agreement was approximately 11 years, maturing on December 31, 2017.
Frank Kristan served as President and Chief Executive Officer of the Company from inception, October 20, 2006 through March 31, 2010 and is also the President of Ludvik Nominees Pty Ltd. On March 31, 2010, Frank Kristan resigned as President and Director of the Company.
On March 31, 2010 the original 2006 agreement was terminated and a settlement agreement was created to resolve any outstanding obligations with respect to the 2006 agreement. In accordance with the settlement agreement both parties agreed that since advisory fees under the December 14th 2006 Agreement were based on the assets under management that had no value, the Advisor had the option to get paid a fee of $30,000 per month starting October 2006 including interest. Furthermore, the remaining principal balance plus accrued interest as of March 31, 2010 was rolled over into a Secured Convertible Note amounting to $1,503,167.
From the period from inception, October 20, 2006 through the termination of the original agreement, March 31, 2010, the Company issued its advisors 32,394,269 shares of common stock as payment for services amounting to $484,250
The parties agreed that following components made up the balance of the Secured Convertible Note as of March 31, 2010:
Advisory Fees $ 1,260,000 Accrued Interest 727,417 Value of shares issued for payment (484,250) ----------- $ 1,503,167 ===========
This note was payable on June 30, 2010 and bears an interest rate of 12% per annum payable at the end of the term. Upon default, the unpaid principal balance of this note and any accrued and unpaid interest bear interest at the rate of 18%. The outstanding balance and accrued interest, all or in part, is convertible at the option of the holder into the Company's common stock at a conversion price of 50% of the stock price, with a minimum of $.01 per share. As of December 31, 2010 and as of the date of this filing, this note was in default. In April 2011, the Company received a waiver of the default and extended the due date of the note to December 31, 2011, at an interest rate of 18%.
In the 3rd and 4th quarter of 2010 this stockholder assigned $373,469 of the loan payable to investors as discussed in Note 7. As of December 31, 2010, the stockholder loan balance and related accrued interest amounted to $1,129,698 and $175,596, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
On March 31, 2010, Isaac H. Sutton was elected to the Board of Directors and currently serves as the Company's new President and sole director.
As of December 31, 2010, the Company recorded $30,000 expense related to consulting fees earned by the Company's President for 6 months.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
During the Period of April 1, 2010 - December 31, 2010, the Company received short term funding from Sutton Global Associates, Inc., which is a related party since this company is controlled by Isaac H. Sutton the Company's President and Sole Director. As of December 31, 2010, the Company owes $479,600 to Sutton Global Associates, Inc.
During 2010, the Company advanced certain monies to GoIP Global, a related party controlled by Isaac H. Sutton the Company's President and Sole Director, to fund its operations. In addition, the Company entered into a one year agreement with GoIP where as GoIP provided messaging services to the Company. As of December 31, 2010, the Company's payable related to these services amounted to $25,000.
In December 2010, the Company wrote off $218,636 due from another affiliated company SavWatt Industries, LLC, a company later controlled by Isaac H. Sutton. The original owners are now employees of the Company. The Company determined that this amount would not be collectible and therefore recorded this amount as bad debt expense.
NOTE 8 - NONCONTROLLING INTEREST
In November 2010 the Company formed a joint venture in the form of a limited liability company Pro Eco Solutions LLC ("LLC"), whose purpose is specializing in comprehensive support services for all energy services companies and performance contractors. The Company is a 50.1% member/owner and the Company's President, Ike Sutton is also the chief executive officer of the LLC. Pursuant to the agreement, the members' initial contribution to the company capital is $10,000 of which 50.1% or $5,050 relates to the Company's portion. The initial contribution is payable in cash or in the form of a note payable on December 31, 2011. The Company and the non controlling has yet to make this initial contribution. The Company has committed to fund the LLC an additional $250,000 over the next 12 months. As of December 31, 2010 the Company has funded approximately $18,767. This amount has been eliminated upon consolidation. The net loss attributable to the non-controlling interest amounted to $16,945 as of December 31, 2010 and represents the non-controlling carrying value as of December 31, 2010, as shown in the accompanying balance sheet.
NOTE 9 - DEBT
ASSIGNMENT OF CONVERTIBLE DEBT In August 2010 through December 2010 a stockholder assigned $373,469 of his loan payable to investors transferring all the rights and interests of the original note (as disclosed in Note 5). As of December 31, 2010 the assignee debt holders have converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock resulting in the loan payable balance of $200,000.
LOAN PAYABLE In October 2010, the Company entered into a secured promissory note for $50,000. The note is payable within 90 days and bears an interest rate of 5%, due at maturity. In addition to the 5% interest rate the Company issued 500,000 shares of its common stock as additional consideration. The shares issued are valued at $21,249 and recorded as interest expense.
NOTE 10 - EQUITY TRANSACTIONS FROM INCEPTION TO THE FILING DATE
On October 20, 2006, Ludvik Capital, Inc. was formed to be the successor corporation by merger of Patriot Advisors, Inc. and Templar Corporation.
Pursuant to a court order in the US bankruptcy court and December 12th Stock Purchase Agreement between the Company and Ludvik Nominees Pty Ltd, Patriot Advisors, Inc. and Templar Corporation merged with the Ludvik Capital, Inc, whereby the surviving corporation became the registrant, Ludvik Capital, Inc.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
Ludvik Nominees Pty Ltd was issued 40,000,000 shares (post forward stock split), of which approximately 18 million shares of Ludvik common stock were issued to old creditors of Patriot Advisors and Templar Corp as payment for past outstanding services and approximately 22 million shares of Ludvik common stock were held by Ludvik Nominees Pty Ltd. for the initial capital of $20,000.
On February 7, 2007 the United States Bankruptcy Court for the District of Maine entered an order confirming the December 12, 2006 agreement with the Debtor whereby, there were 40,000,000 (post forward stock split) unrestricted shares of the Company's Common Stock issued to creditors and plan participants (as disclosed in Note 6-Equity Transactions).
On June 19, 2007, the Company issued 24,196 common shares for the acquisition of CyberSentry. This investment was assessed to have no value.
On July 30, 2007, the Company issued 2,055,710 shares of common stock to unrelated parties, valued at $5.52 per share for $10,000 in services and an additional 11,340,000 was recorded as stock based compensation in the Company's statement of operations.
On August 17, 2007, the Company effected a 2:1 forward stock-split of its issued and outstanding common stock. The issued and outstanding share capital increased from 21,042,098 shares of common stock to 42,084,196 shares of common stock. All per share amounts have been retroactively restated to reflect the forward stock-split.
On October 1, 2007, the Company issued 4,325,000 shares of common stock at $1.01 per share, totaling $4,368,250, in which $64,875 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $4,303,375 was recorded as stock based compensation in the statement of operations.
On October 3, 2007, the Company issued 10,000,000 shares of common stock at $1.01 per share, totaling $10,100,000 in which $150,000 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $9,950,000 was recorded as stock based compensation in the statement of operations.
On January 15, 2008, the Company issued 15,000,000 shares of common stock at $.52 per share, totaling $7,800,000 in which $225,000 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $7,575,000 was recorded as stock based compensation in the statement of operations.
On June 27, 2008, the Company issued 3,069,269 shares of common stock at $.40 per share, totaling $1,227,708 in which $44,375 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $1,181,669 was recorded as stock based compensation in the statement of operations.
On February 1, 2009, the Company issued 5,000,000 common shares to an unrelated party, valued at $.80 per share for $50,000 in services and an additional $350,001 was recorded as stock based compensation in the Company's statement of operations.
On April 5, 2010, the Company amended its Articles of Incorporation changing the name of the Company to SavWatt USA, Inc and increasing the authorized capital stock from 100,000,000 to 2,000,000,000 shares of Common Stock and 200,000,000 shares of Preferred Stock, par value $.0001 per share.
On May 31, 2010 and June 10, 2010 the Company sold a total of 24,000,000 common shares for $240,000.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
On July 10, 2010, the Company sold 5,000,000 shares of common stock for $50,000.
On September 17, 2010 the Company sold 8,333,333 shares of common stock for $25,000.
On October 14, 2010 the Company issued 500,000 shares of its common stock as additional consideration pursuant to a 90 day promissory note. The shares issued were valued at $21,249 and recorded as interest expense.
In November and December 2010, the Company issued 31,850,000 shares of Common Stock for services rendered by consultants valued at $1,311,325 which is recorded in the statement of operations as stock based compensation.
From October 2010 through December 2010, the Company's assignee debt holders converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock.
In December 2010, the Company recorded $51,556 related to the conversion expense resulting from a modification in the conversion price on two of the Company's notes, upon conversion.
During the period of January 2011 through the filing date, the company issued 133,752,022 common shares for converting $363,654 of indebtedness.
During the period of January 2011 through the filing date, the Company issued 4,600,000 shares of Common Stock for services.
On January 11, 2011, an officer of the Company converted $250,000 of indebtedness into 5,000,000 shares of Series A Preferred Stock of the Company.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
On July 1, 2010, the Company entered into an employment agreement with Michael Haug, as the Company's CEO, which responsibilities include running the daily operations of SavWatt USA, Inc. The term of the agreement is for one year at a salary of $84,000, and may be renewed upon mutual agreement by the Company and the employee.
NOTE 12 - SUBSEQUENT EVENTS
In February 2011, the company entered 10 year lease for office and manufacturing space in Baltimore Md. The company will occupy approximately 23,000 square feet with annual base rentals beginning at $9,926 per year in the second year.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of the date of this Annual Report, the Company's Common Stock is quoted on the Pink Sheets under the symbol "SAVW.OB." The market for the Company's Common Stock is limited, volatile and sporadic and the price of the Company's Common Stock could be subject to wide fluctuations in response to quarterly variations in operating results, news announcements, trading volume, sales of Common Stock by officers, directors and principal shareholders of the Company, general market trends, changes in the supply and demand for the Company's shares, and other factors.
The following table sets forth the high and low sales prices for each quarter relating to the Company's Common Stock for the last two fiscal years. These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions, and may not reflect actual transactions.
High Low ------ ------- Fiscal 2009 First Quarter (2) $ .130 $ .0100 Second Quarter (1) $ .020 $ .0021 Third Quarter (1) $ .015 $ .0023 Fourth Quarter (1) $ .012 $ .0024
Fiscal 2010 First Quarter (2) $ .012 $ .0035 Second Quarter (1) $ .04 $ .0035 Third Quarter (1) $ .089 $ .0036 Fourth Quarter (1) $ .10 $ .0125
---------- (1) This represents the closing bid information for the stock on the Pink Sheets. The bid and ask quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions and have not been adjusted for stock dividends or splits. (2) This represents the closing price for the stock on the Pink Sheets.
Our common stock is considered a "penny stock." The application of the "penny stock" rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. The Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Shareholders should be aware that, according to SEC Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.
Our management is aware of the abuses that have occurred historically in the penny stock market.
HOLDERS
As of April 13, 2011 there were approximately 162 shareholders of record of the Company's Common Stock.
DIVIDENDS
The Company has not declared any cash dividends with respect to its common stock or preferred stock during the last two fiscal years and does not intend to declare dividends in the foreseeable future. There are no material restrictions limiting or that are likely to limit the Company's ability to pay dividends on its outstanding securities.
RECENT ISSUANCE OF UNREGISTERED SECURITIES
On August 17, 2007, the Company effected a 2:1 forward stock split of its issued and outstanding shares of common stock. The share numbers below have been adjusted for such stock split. Since October 20, 2006, the Company has issued the following common stock without registration under the Securities Act of 1933:
On February 7, 2007 the United States Bankruptcy Court for the District of Maine entered an order confirming the December 12, 2006 agreement with the Debtor whereby, there were 40,000,000 (post forward stock split) unrestricted shares of the Company's Common Stock issued to creditors and plan participants.
On June 19, 2007, the Company issued 24,196 common shares for the acquisition of CyberSentry. This investment was assessed to have no value.
On July 30, 2007, the Company issued 2,055,710 shares of common stock to unrelated parties for $10,000 in services.
October 1, 2007, the Company issued 4,325,000 shares of common stock for $64,875 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd., an entity controlled by Frank Kristan, who at time of issuance was the President of the Company.
On October 3, 2007, the Company issued 10,000,000 shares of common stock for $150,000 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd.
On January 15, 2008, the Company issued 15,000,000 shares of common stock for $225,000 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd.
June 27, 2008, the Company issued 3,069,269 shares of common stock for $44,375 which was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd.
On February 1, 2009, the Company issued 5,000,000 common shares to an unrelated party, for $50,000 in services.
On April 5, 2010, the Company amended its Articles of Incorporation changing the name of the Company to SavWatt USA, Inc and increasing the authorized capital stock from 100,000,000 to 2,000,000,000 shares of Common Stock and 200,000,000 shares of Preferred Stock, par value $.0001 per share.
On May 31, 2010 and June 10, 2010 the Company sold a total of 24,000,000 common shares for $240,000.
On July 10, 2010, the Company sold 5,000,000 shares of common stock for $50,000.
On September 17, 2010 the Company sold 8,333,333 shares of common stock for $25,000.
On October 14, 2010 the Company issued 500,000 shares of its common stock as additional consideration pursuant to a 90 day promissory note. The shares issued were valued at $21,249 and recorded as interest expense.
In November and December 2010, the Company issued 31,850,000 shares of Common Stock for services rendered by consultants valued at $1,311,325 which is recorded in the statement of operations as stock based compensation.
From October 2010 through December 2010, the Company's assignee debt holders converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock.
In December 2010, the Company recorded $51,556 related to the conversion expense resulting from a modification in the conversion price on two of the Company's notes, upon conversion.
During the period of January 2011 through the filing date, the company issued 133,752,022 common shares for converting $363,654 of indebtedness.
During the period of January 2011 through the filing date, the Company issued 4,600,000 shares of Common Stock for services.
On January 11, 2011, an officer of the Company converted $250,000 of indebtedness into 5,000,000 shares of Series A Preferred Stock of the Company.
The Company did not utilize or engage a principal underwriter in connection with any of the above securities transactions. The 40,000,000 shares issued on February 7, 2007, were issued based on a court order issued by the United States Bankruptcy Court, District of Maine, Case No. 04-20328, issued pursuant to Section 1145 of the Bankruptcy Code, and, therefore, did not require registration under Section 5 of the Securities Act of 1933, as amended.
Management believes that, except for the 40,000,000 shares issued pursuant to the bankruptcy preceding, all of above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with our financial statements and related notes.
Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:
* the volatile and competitive nature of our industry, * the uncertainties surrounding the rapidly evolving markets in which we compete, * the uncertainties surrounding technological change of the industry, * our dependence on its intellectual property rights, * the success of marketing efforts by third parties, * the changing demands of customers and * the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated. See also the disclosures under "Cautionary Statement" following the Table of Contents in this Annual Report.
RESULTS OF OPERATIONS
The Company has not generated any significant revenues since its inception on October 20,2006.
FOR THE YEAR ENDED DECEMBER 31, 2010 AND 2009
The Company's operations for years ended December 31, 2010 and 2009 consist of General and administrative expenses incurred in the amount of $274,243 and $0, and professional fees amounting to $453,273 and $410,000, respectively.
FOR THE PERIOD FROM OCTOBER 20, 2006 (INCEPTION) TO December 31, 2010.
Expenses from inception consist of professional fees of $1,685.873 and general and administrative expenses consisting of organization and related expenses of $291,654 and $36,011,369 related to stock based compensation.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception to date through the sale of common stock, amounting to $315,000, and through the issuance of a $50,000 loan payable.
We had minimal cash on hand as of December 31, 2010 and a working capital deficiency of $2,060,161 We will continue to need additional cash during the following twelve months and these needs will coincide with the cash demands resulting from implementing our business plan and remaining current with our Securities and Exchange Commission filings. There is no assurance that we will be able to obtain additional capital as required, or obtain the capital on acceptable terms and conditions.
GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has not begun generating revenue, is considered a development stage company, has experienced recurring net operating losses and had a net loss of $2,824,137 for the year ended December 31, 2010. These factors raise substantial doubt about the Company's ability to continue as a going concern.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. We will need to raise funds or implement our business plan to continue operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any 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 investors.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS.
Our consolidated financial statements and supplementary data may be found beginning at Page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On June 2, 2010, the Company engaged Sherb & Co. LLP as its first certifying auditors. Sherb & Co. is located at 805 Third Avenue, New York, New York.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2010, that our disclosure controls and procedures were effective as of December 31, 2010.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
1. pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; 2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and 3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROLS
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Company's directors and executive officers, and their ages as of March 23, 2011 are as follows:
MICHAEL F. HAUG, 45, CHIEF EXECUTIVE OFFICER
As an experienced insurance and financial representative since 1993, Michael has worked for well known companies such as Liberty Mutual, John Hancock, and AIG. He also formed his own insurance agencies called Financial Solutions in 1999 and Z-Group International in 2007. In 2007 Michael became heavily involved in commercial lighting, working as consultant to Global Green Works and later AEI lighting. A graduate of The University of Baltimore in 1990 in Business Administration, Michael has always had a passion for businesses to improve their Leadership in Energy & Environmental Design (LEED). His motivation and mission in life has been green projects and energy efficient lighting. Michael is proud to bring lighting education to the forefront. He has helped municipalities, private enterprises, and schools save money and energy by increasing their awareness of energy efficient lighting. Michael also has been affiliated with many LEED programs to stay on top of the ever changing energy environment. This diversification has helped propel Michael to the top of the financial and energy lighting work place.
ISAAC H. SUTTON, 57, PRESIDENT AND SOLE DIRECTOR
Mr. Sutton is a media-savvy strategic marketing executive. He combines in-depth global marketing experience with practical business knowledge. His experience includes founding positions at Aprica Juvenile Products, Fusen Usagi, Inc., Exus Networks, Inc., Starinvest Group, Inc., and, presently, GoIP Global, Inc. His career began at I.S. Sutton & Sons, Inc., an importer of products from the Far East. In 1978, he managed a major Ronald McDonald import Doll Promotion for one year overseas at the age of 24. Examples of his innovative marketing work and vision can be seen in the companies he founded. His goal-driven accomplishments in Uzbekistan drew upon his considerable aptitudes to successfully implement a World Bank project designed to assist the country in increasing its GNP for cotton. Media and information has been Ike's vision and goal during the past several years. Rooted in the belief that technology can facilitate supplying knowledge and information throughout the world inexpensively, GoIP was founded. Based on this premise and the licensing of various worldwide technologies, GoIP will deliver information and education over cell phones. From 2001 through 2006, Ike was the CEO of Starinvest Group, Inc., a public company elected to be a "Business Development Company," one of less than 50 in the United States. Mr Sutton earned his Bachelor of Arts degree from Pace University in New York.
FRANK KRISTAN, 51, FORMER PRESIDENT
Mr. Kristan served as the Company's President and Chief Executive Officer from October 20, 2006, until March 31, 2010. Mr. Kristan is currently a part-time consultant to the Company in charge of new business development. Mr. Kristan is the President of Ludvik Nominees Pty Ltd and was formerly the President and CEO of Patriot Advisors, Inc. Patriot Advisors provided business advisory services to investment funds, corporations and individuals. From 1994 to 2004, Patriot Advisors managed funds on behalf of private companies, producing an internal rate of return in excess of 25% per annum during that period. At the time Mr. Kristan concluded his involvement with the funds, total assets under management exceeded $50 million. Patriot Advisors had also performed on guarantees to deliver financing in excess of $ 50 million. Over the ten year period, Patriot Advisors had focused its business advisory and management efforts primarily on companies in the technology, telecommunications and internet related industries. Prior to forming Patriot Advisors, Mr. Kristan was the Principal and CEO of Kristan Associates, a financial consulting firm providing business advisory services for the telecommunications and financial services industries. Mr. Kristan began his career at Affiliated Computer Systems where he provided computer and operational advisory services to banking and financial services institutions involved in merger and acquisition transactions. Mr. Kristan earned his BS in Mathematics from University of Western Australia.
ADAM R KOLODNY, 48, CHIEF FINANCIAL OFFICER
Mr. Kolodny is a seasoned senior executive with cross-industry experience in the management of high growth, dynamic global companies. From 2008 through 2010, Mr. Kolodny served as an operational and financial consultant for companies engaged in, among other things, manufacturing and data services. From 2001 through 2007, Mr. Kolodny served as the Chief Operating Officer and Chief Financial Officer for PT-1 Communications. He was appointed to this position by that company's secured lenders. Mr.Kolodny was instrumental in the re-engineering of PT-1 Communications. Mr. Kolodny began his professional career as an accountant with Laventhol & Horwath, where he focused on technology and public companies. He received his Bachelor of Business Administration (Accounting) from Hofstra University n 1986.
DIRECTORSHIPS
No Director of the Company or person nominated or chosen to become a Director holds any other directorship in any company with a class of securities registered pursuant to Section 12 of the 1934 Act or subject to the requirements of Section 15(d) of such Act or any other company registered as an investment company under the Investment Company Act of 1940.
EMPLOYMENT CONTRACTS
On July 1, 2010, the Company entered into an employment contract with Michael Haug, our Chief Executive Officer, for a one year term with a base salary of $84,000 per year. In addition, the Company agreed to issue 2,000,000 shares of common stock to Mr. Haug as a signing bonus and such shares vest at the end of the term of the agreement. Mr. Haug will also be entitled to participate in the Company's health care and bonus plans when implemented but not later than December 31, 2010.
SIGNIFICANT EMPLOYEES
No other significant employees exist.
FAMILY RELATIONSHIPS
There are no family relationships between or among our officers and directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, no present director, executive officer or person nominated to become a director or an executive officer of the Company:
(1) was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) was 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) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange 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.
AUDIT COMMITTEE FINANCIAL EXPERT AND IDENTIFICATION OF AUDIT COMMITTEE
The Company has no separately designated standing audit committee or other committee performing similar functions. The Board of Directors acts as the audit committee. None of the directors qualifies as an Audit Committee Financial Expert.
MATERIAL CHANGES TO THE METHOD BY WHICH THE SHAREHOLDERS MAY RECOMMEND NOMINEES TO THE BOARD OF DIRECTORS
None.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than ten percent of the Company's Common Stock, to file initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4 and an annual statement of beneficial ownership on Form 5, with the SEC. Such executive officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed. No one on the Company's management team was delinquent on such filings in 2010.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics applicable to its officers, including its principal executive officer, principal financial officer, principal accounting officer or controller and any other persons performing similar functions. The Code will be provided free of charge by the Company to interested parties upon request. Requests should be made in writing
and directed to the Company at the following address: 1100 Wicomico Street, Suite 700, Baltimore, Maryland 21224
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation paid by the Company to officers or directors of the Company during the periods indicated:
SUMMARY COMPENSATION TABLE
---------- (1) Represents consulting fees paid to Ludvik Nominees Pty. Ltd., a company owned and controlled by Mr. Kristan.
STOCK OPTIONS AND WARRANTS
There were no stock options or warrants outstanding on December 31, 2010
OPTION/SAR GRANTS TABLE
There were no stock options/SARS granted under the Company's stock option plans to executive officers and directors during fiscal 2010.
AGGREGATE OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
There were no exercises of stock options/SAR by executive officers during fiscal 2010.
LONG-TERM INCENTIVE PLAN AWARDS
There were no long-term incentive plan awards made during fiscal 2010.
COMPENSATION OF DIRECTORS
The Company has no formal or standard compensation arrangement with the members of its Board of Directors or with committee members.
REPRICING OPTIONS
During the fiscal year ended December 31, 2010, the Company did not reprice any stock options.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following tables set forth certain information regarding beneficial ownership of the Company's capital stock as of March 28, 2010 by (i) each person who is known by the Company to beneficially own more than five percent of any class of the Company's capital stock, (ii) each of the Company's directors and executive officers, and (iii) all directors and executive officers of the Company as a group.
---------- (1) Mr. Sutton has sole voting and dispositive power over these shares since he owns a majority of the common stock of Sutton Global Associates, Inc.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
Ludvik Nominees, Pty, Ltd. was the exclusive adviser to Company for the period October 10, 2006 through March 31, 2010. Ludvik Nominees Pty Ltd is 100% owned by Frank Kristan, our former President and Chief Executive Officer. During the period from inception to March 31, 2010 Ludvik Nominees was an advisor to the Company, fees were charged quarterly. A total of $2,017,417 including interest was billed. $484,250 was converted to 32,394,269 shares and $1,503,167 remains owing.
Mr Isaac H. Sutton, the Company's President and Sole Director, is also a shareholder in SavWatt Industries, LLC and a debtor of the Company. Mr Isaac H. Sutton the Company's President and Sole Director is a beneficial owner in Sutton Global Associates, Inc and GoIP Global, Inc both companies which have provided at certain times, short term loans to the Company.
We do not have any independent directors or director committee members.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
INDEPENDENT PUBLIC ACCOUNTANTS
On June 2, 2010, the Company engaged Sherb & Co. LLP, 805 Third Avenue, New York, New York as its certifying auditors to audit the Company's financial statements for the fiscal years ended December 31, 2009, 2008, 2007 and 2006. Prior to such engagement, the Company had not engaged a certifying audit firm.
(1) Audit Fees. For the fiscal years ended December 31, 2010, the Company's auditors charged us $12,000 for services rendered for the audit of our annual financial statements.
(2) Audit-Related Fees. For the fiscal year ended December 31, 2010, our auditors charged us $6,000 for audit-related services (review).
(3) Tax Fees. Our auditors did not provide tax compliance, tax advice, or tax planning advice for the fiscal year ended December 31, 2010.
(4) All Other Fees. None.
(5) Audit Committee's Pre-Approval Policies and Procedures. The Company had no audit committee during the fiscal year ended December 31, 2010; hence, there were no pre-approval policies or procedures in effect during such fiscal year.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
See the Exhibits Index below for a list of exhibits attached hereto or incorporated by reference pursuant to Item 601 of Regulation S-K.
EXHIBIT INDEX
Exhibit Description ------- ----------- 10.1** Commercial Office Lease 14* Code of Business Conduct Ethics 21** Subsidiaries of the Company 31.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 31.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 32.1** 906 Certification of Principal Executive Officer 32.2** 906 Certification of Principal Financial Officer
---------- * Exhibits incorporated herein by reference to Company's Form 10-K for the fiscal Year Ended December 31, 2006, filed with the Commission on August 17, 2010. ** Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SaVWatt USA, Inc.
Dated: April 15, 2011 /s/ Michael Haug ------------------------------------------ By: Michael Haug Its: Chief Executive Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SavWatt USA, Inc. (f/k/a Ludvik Capital, Inc. (A Development Stage Company):
We have audited the accompanying consolidated balance sheets of SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) and subsidiary as of December 31, 2010 and December 31, 2009, and the related statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 2010 and 2009 and for the period from inception, October 20, 2006 through December 31, 2010. These consolidated 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 audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. at December 31, 2010 and 2009, and the results of operations and cash flows for the years ended December 31, 2010 and 2009 and for the period from inception, October 20, 2006 through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant losses from operations. These issues raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sherb & Co., LLP ------------------------------------ Certified Public Accountants New York, New York April 13, 2011
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS
See Notes to the Financial Statements
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to the Financial Statements
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Financial Statements
SavWatt USA, Inc f/k/a Ludvik Capital, Inc. (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
See Notes to Financial Statements
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Ludvik Capital, Inc. (hereinafter "the Company") was incorporated on October 20, 2006 under the laws of the State of Delaware for the purpose of becoming a successor corporation by merger with Patriot Advisors, Inc. and Templar Corporation, pursuant to a plan of reorganization and merger approved by the United States Bankruptcy Court, District of Maine in Case No. 04-20328 whereby Ludvik Capital, Inc is the continuing entity.
The Company's business plan consisted of investing in public and private companies, providing long term equity and debt investment capital to fund growth and acquisitions and recapitalizations of small and middle market companies in a variety of industries primarily located in the United States.
Since inception, the Company has had minimal operations and no revenues earned.
On April 5, 2010, the Company amended its articles of incorporation and changed its name to SavWatt USA, Inc.
SavWatt USA, Inc. ("SavWatt") business plan is to capitalize on the largely unaddressed commercial and consumer market for energy-efficient LED lighting by investing in product and corporate marketing. With public relations and advertising throughout the media, a recognized, popular consumer LED brand will be cultivated, spearheading and establishing a leading market share in the growing energy-efficient bulb sector during the next three to five years. SavWatt has the exclusive marketing rights in the United States to sell LED street lighting for Unilumin (www.unilumin.com).
The Company is a development stage enterprise.
The Company's year end is December 31.
The Company's corporate headquarters were originally located in Virginia but are currently located in Baltimore MD.
GOING CONCERN AND BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the financial statements, the Company incurred net losses of $2,824,137 for the year ended December 31, 2010. In addition, the Company has incurred a net loss from inception (October 20, 2006) through December 31, 2010 and accumulated deficit amounting to $39,203,264. Since its inception, the Company has not generated any revenues and has minimal cash resources.
These circumstances 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. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses.
Management is taking steps to address this situation. The Company has determined that it cannot continue with its business operations as outlined in its original business plan because of a lack of financial resources; therefore, management has redirected their focus towards identifying and pursuing options regarding the development of a new business plan and direction. The Company intends to explore various business opportunities that have the potential to generate positive revenue, profits and cash flow in order to financially accommodate the costs of being a publicly held company. The Company is in the process of raising capital by implementing its business plan in Led lighting and expects to generate sufficient revenue by the fourth quarter of 2011 with a positive cash flow. Until then, the Company the Company will not have the required capital resources or credit lines available that are sufficient to fund operations.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
The Company has minimal operating costs and expenses at the present time due to its limited business activities. The Company, however, will be required to raise additional capital over the next twelve months to meet its current administrative expenses, and it may do so in connection with or in anticipation of possible acquisition transactions. This financing may take the form of additional sales of its equity securities and/or loans from its directors. There is no assurance that additional financing will be available, if required, or on terms favorable to the Company.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The accompanying financial statements have been prepared, in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC").
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the accompanying financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
ACCOUNTING METHOD The Company's financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of SavWatt USA, Inc., as well as Pro Eco Solutions, LLC for the period from November 1, 2010 through December 31, 2010 and are prepared in accordance with accounting principles generally accepted in the United States ("US GAAP"). All significant intercompany accounts and transactions between the Company and its subsidiary have been eliminated upon consolidation.
NONCONTROLLING INTERESTS Noncontrolling interests in our subsidiary are recorded in accordance with the provisions of ASC 810, "Consolidation" and are reported as a component of equity.
DEVELOPMENT STAGE ACTIVITIES The Company has been in the development stage since its formation.
From the Company's inception through March 2010, the Company was engaged in the business of providing long-term equity and debt investment capital to fund growth, acquisitions and recapitalizations of small and middle market companies in a variety of industries, primarily located in the United States. The Company during this time frame had been very active and had conducted substantial operations, as discussed in our numerous reports with the SEC during 2007-2010.
In 2010, the Company changed its name to SavWatt USA, Inc. to reflect our new primary business of producing, marketing and selling Light Emitting Diode ("LED") lighting. In furtherance of our new business, we have obtained the exclusive marketing rights in the United States to sell LED street lighting for Unilumin, a Chinese company as well as setting up its distribution and production center in Maryland.
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all short-term debt with original maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments may include cash, loans payable and related accrued interest, and accounts payable. All such instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2010 and December 31, 2009.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable are stated at the amount the Company expects to collect. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change.
Accounts receivable are presented net of an allowance for doubtful accounts of $0.
As of December 31, 2010 the Company wrote off a related party receivable amounting to $218,636 and recorded a bad debt expense, based on management's Company's evaluation of the balance and certainty that the balance would not be collectible in the future.
PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period.
Depreciation is provided for over the estimated useful lives of the related asset using the straight-line method. The estimated useful lives for significant property and equipment categories are as follows:
* Data processing equipment 3 to 5 years
INVENTORY The Company's inventory consists of entirely of finished goods, and is valued at lower of cost or market price. Cost is determined on a first-in, first-out ("FIFO") basis. To ensure inventory is carried at the lower of cost or market, the Company periodically evaluates the carrying value and also periodically performs an evaluation of inventory for excess and obsolete items. Such evaluations are based on management's judgment and use of estimates. Such estimates incorporate inventory quantities on-hand, aging of the inventory, sales forecasts for particular product groupings, planned dispositions of product lines and overall industry trends.
REVENUE RECOGNITION Revenue is recognized when all of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed and determinable; and, (4) collectability is reasonably assured. The Company has not earned any revenue since inception.
USE OF ESTIMATES The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
PROVISION FOR TAXES Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against the deferred tax asset if management does not believe the Company has met the "more likely than not" standard to allow recognition of such an asset.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive.
The average number of common shares outstanding for the period from Inception ( October 20, 2006) through December 31, 2010 has been retroactively adjusted for the 2:1 forward stock split effective August 17, 2007.
STOCK BASED COMPENSATION The Company accounts for stock based compensation transactions with employees under the provisions of ASC Topic No. 718, "Compensation, Stock Compensation" ("Topic No. 718"). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of the Company's equity instruments are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, "Equity-Based Payments to Non-Employees" ("Topic No. 505-50"). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, which ever is more reliably measurable. When the equity instrument is utilized for measurement the fair value of the equity instrument is estimated using the Black-Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to receive cash for the goods or services instead of paying with or using the equity instrument.
FORWARD STOCK SPLIT All references to the Company's outstanding shares, and options, have been adjusted to give effect to the 2 for 1 forward stock split effective August 17, 2007.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY The Financial Accounting Standards Board's ("FASB") Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, the ASC became FASB's officially recognized source of authoritative U.S. generally accepted accounting principles ("GAAP") applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), Emerging Issues Task Force ("EITF") and related literature. Rules and interpretive releases of the SEC under the
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.
In February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-08--Technical Corrections to Various Topics. This update's purpose is to eliminate GAAP inconsistencies, update outdated provisions, and provide needed clarifications. The adoption of ASU No. 2010-08 will not have a material impact on the Company's financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, could have a material effect on the accompanying financial statements.
NOTE 3 - FAIR VALUE MEASUREMENTS
The Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company's financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.
The Company did not have any Level 1, Level 2 or Level 3 assets or liabilities as of December 31, 2010 and December 31, 2009.
The Company discloses the estimated fair values for all financial instruments for which it is practicable to estimate fair value. As of December 31, 2010 and December 31, 2009, the fair value short-term financial instruments including subscriptions receivable, loans payable, accounts payable and accrued expenses, approximates book value due to their short-term duration.
In addition, the Financial Accounting Standards Board ("FASB") issued, "The Fair Value Option for Financial Assets and Financial Liabilities," effective for January 1, 2008. This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
NOTE 4 - OTHER ASSETS
The following is included in other assets:
Deposits for Imports $ 25,000 Prepaid Rent 5,385 -------- $ 30,385 ========
NOTE 5 - INCOME TAXES
At December 31, 2010 and December 31, 2009 the Company had a deferred tax asset of approximately $984,000 and $431,000, respectively, calculated at a combined federal and state expected rate of 38%. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been recorded.
The significant components of the deferred tax assets at December 31, 2010 and December 31, 2009 are as follows:
December 31, December 31, 2010 2009 ---------- ----------
Deferred tax asset-net operating losses $ 724,000 $ 171,000 Accrued compensation 260,000 260,000 Deferred tax asset valuation allowance (984,000) (431,000) ---------- ---------- Net deferred tax asset $ -- $ -- ========== ==========
The reconciliation between the statutory federal income tax rate of 35% to the actual rate is as follows:
December 31, December 31, 2010 2009 ---------- ----------
Expected Federal tax (benefit) $ (966,000) $ (321,000) Expected State tax (benefit), net of federal (114,000) (38,000) Permanent differences 527,000 152,000 Change in valuation allowance 553,000 207,000 ---------- ---------- Effective tax rate $ -- $ -- ========== ==========
At December 31, 2010 and December 31, 2009, the Company had a net operating loss carry forward of $1,904,000 and $449,000, respectively, which expires in the year 2030 and 2029, respectively.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
NOTE 6 - STOCKHOLDER LOANS
On December 14th 2006, the Company entered into an Advisory Agreement with Ludvik Nominees Pty Ltd (a Company 100% owned by Frank Kristan) for services to be rendered which were payable based on 3% assets under management and 20% of net profits of Ludvik Capital. The term of the agreement was approximately 11 years, maturing on December 31, 2017.
Frank Kristan served as President and Chief Executive Officer of the Company from inception, October 20, 2006 through March 31, 2010 and is also the President of Ludvik Nominees Pty Ltd. On March 31, 2010, Frank Kristan resigned as President and Director of the Company.
On March 31, 2010 the original 2006 agreement was terminated and a settlement agreement was created to resolve any outstanding obligations with respect to the 2006 agreement. In accordance with the settlement agreement both parties agreed that since advisory fees under the December 14th 2006 Agreement were based on the assets under management that had no value, the Advisor had the option to get paid a fee of $30,000 per month starting October 2006 including interest. Furthermore, the remaining principal balance plus accrued interest as of March 31, 2010 was rolled over into a Secured Convertible Note amounting to $1,503,167.
From the period from inception, October 20, 2006 through the termination of the original agreement, March 31, 2010, the Company issued its advisors 32,394,269 shares of common stock as payment for services amounting to $484,250
The parties agreed that following components made up the balance of the Secured Convertible Note as of March 31, 2010:
Advisory Fees $ 1,260,000 Accrued Interest 727,417 Value of shares issued for payment (484,250) ----------- $ 1,503,167 ===========
This note was payable on June 30, 2010 and bears an interest rate of 12% per annum payable at the end of the term. Upon default, the unpaid principal balance of this note and any accrued and unpaid interest bear interest at the rate of 18%. The outstanding balance and accrued interest, all or in part, is convertible at the option of the holder into the Company's common stock at a conversion price of 50% of the stock price, with a minimum of $.01 per share. As of December 31, 2010 and as of the date of this filing, this note was in default. In April 2011, the Company received a waiver of the default and extended the due date of the note to December 31, 2011, at an interest rate of 18%.
In the 3rd and 4th quarter of 2010 this stockholder assigned $373,469 of the loan payable to investors as discussed in Note 7. As of December 31, 2010, the stockholder loan balance and related accrued interest amounted to $1,129,698 and $175,596, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
On March 31, 2010, Isaac H. Sutton was elected to the Board of Directors and currently serves as the Company's new President and sole director.
As of December 31, 2010, the Company recorded $30,000 expense related to consulting fees earned by the Company's President for 6 months.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
During the Period of April 1, 2010 - December 31, 2010, the Company received short term funding from Sutton Global Associates, Inc., which is a related party since this company is controlled by Isaac H. Sutton the Company's President and Sole Director. As of December 31, 2010, the Company owes $479,600 to Sutton Global Associates, Inc.
During 2010, the Company advanced certain monies to GoIP Global, a related party controlled by Isaac H. Sutton the Company's President and Sole Director, to fund its operations. In addition, the Company entered into a one year agreement with GoIP where as GoIP provided messaging services to the Company. As of December 31, 2010, the Company's payable related to these services amounted to $25,000.
In December 2010, the Company wrote off $218,636 due from another affiliated company SavWatt Industries, LLC, a company later controlled by Isaac H. Sutton. The original owners are now employees of the Company. The Company determined that this amount would not be collectible and therefore recorded this amount as bad debt expense.
NOTE 8 - NONCONTROLLING INTEREST
In November 2010 the Company formed a joint venture in the form of a limited liability company Pro Eco Solutions LLC ("LLC"), whose purpose is specializing in comprehensive support services for all energy services companies and performance contractors. The Company is a 50.1% member/owner and the Company's President, Ike Sutton is also the chief executive officer of the LLC. Pursuant to the agreement, the members' initial contribution to the company capital is $10,000 of which 50.1% or $5,050 relates to the Company's portion. The initial contribution is payable in cash or in the form of a note payable on December 31, 2011. The Company and the non controlling has yet to make this initial contribution. The Company has committed to fund the LLC an additional $250,000 over the next 12 months. As of December 31, 2010 the Company has funded approximately $18,767. This amount has been eliminated upon consolidation. The net loss attributable to the non-controlling interest amounted to $16,945 as of December 31, 2010 and represents the non-controlling carrying value as of December 31, 2010, as shown in the accompanying balance sheet.
NOTE 9 - DEBT
ASSIGNMENT OF CONVERTIBLE DEBT In August 2010 through December 2010 a stockholder assigned $373,469 of his loan payable to investors transferring all the rights and interests of the original note (as disclosed in Note 5). As of December 31, 2010 the assignee debt holders have converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock resulting in the loan payable balance of $200,000.
LOAN PAYABLE In October 2010, the Company entered into a secured promissory note for $50,000. The note is payable within 90 days and bears an interest rate of 5%, due at maturity. In addition to the 5% interest rate the Company issued 500,000 shares of its common stock as additional consideration. The shares issued are valued at $21,249 and recorded as interest expense.
NOTE 10 - EQUITY TRANSACTIONS FROM INCEPTION TO THE FILING DATE
On October 20, 2006, Ludvik Capital, Inc. was formed to be the successor corporation by merger of Patriot Advisors, Inc. and Templar Corporation.
Pursuant to a court order in the US bankruptcy court and December 12th Stock Purchase Agreement between the Company and Ludvik Nominees Pty Ltd, Patriot Advisors, Inc. and Templar Corporation merged with the Ludvik Capital, Inc, whereby the surviving corporation became the registrant, Ludvik Capital, Inc.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
Ludvik Nominees Pty Ltd was issued 40,000,000 shares (post forward stock split), of which approximately 18 million shares of Ludvik common stock were issued to old creditors of Patriot Advisors and Templar Corp as payment for past outstanding services and approximately 22 million shares of Ludvik common stock were held by Ludvik Nominees Pty Ltd. for the initial capital of $20,000.
On February 7, 2007 the United States Bankruptcy Court for the District of Maine entered an order confirming the December 12, 2006 agreement with the Debtor whereby, there were 40,000,000 (post forward stock split) unrestricted shares of the Company's Common Stock issued to creditors and plan participants (as disclosed in Note 6-Equity Transactions).
On June 19, 2007, the Company issued 24,196 common shares for the acquisition of CyberSentry. This investment was assessed to have no value.
On July 30, 2007, the Company issued 2,055,710 shares of common stock to unrelated parties, valued at $5.52 per share for $10,000 in services and an additional 11,340,000 was recorded as stock based compensation in the Company's statement of operations.
On August 17, 2007, the Company effected a 2:1 forward stock-split of its issued and outstanding common stock. The issued and outstanding share capital increased from 21,042,098 shares of common stock to 42,084,196 shares of common stock. All per share amounts have been retroactively restated to reflect the forward stock-split.
On October 1, 2007, the Company issued 4,325,000 shares of common stock at $1.01 per share, totaling $4,368,250, in which $64,875 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $4,303,375 was recorded as stock based compensation in the statement of operations.
On October 3, 2007, the Company issued 10,000,000 shares of common stock at $1.01 per share, totaling $10,100,000 in which $150,000 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $9,950,000 was recorded as stock based compensation in the statement of operations.
On January 15, 2008, the Company issued 15,000,000 shares of common stock at $.52 per share, totaling $7,800,000 in which $225,000 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $7,575,000 was recorded as stock based compensation in the statement of operations.
On June 27, 2008, the Company issued 3,069,269 shares of common stock at $.40 per share, totaling $1,227,708 in which $44,375 was for repayment of advisory fees payable to a related party, Ludvik Nominees Pty Ltd, and $1,181,669 was recorded as stock based compensation in the statement of operations.
On February 1, 2009, the Company issued 5,000,000 common shares to an unrelated party, valued at $.80 per share for $50,000 in services and an additional $350,001 was recorded as stock based compensation in the Company's statement of operations.
On April 5, 2010, the Company amended its Articles of Incorporation changing the name of the Company to SavWatt USA, Inc and increasing the authorized capital stock from 100,000,000 to 2,000,000,000 shares of Common Stock and 200,000,000 shares of Preferred Stock, par value $.0001 per share.
On May 31, 2010 and June 10, 2010 the Company sold a total of 24,000,000 common shares for $240,000.
SavWatt USA, Inc. f/k/a Ludvik Capital, Inc (A Development Stage Company) Notes to Consolidated Financial Statements From Inception, October 20, 2006 through December 31, 2010
On July 10, 2010, the Company sold 5,000,000 shares of common stock for $50,000.
On September 17, 2010 the Company sold 8,333,333 shares of common stock for $25,000.
On October 14, 2010 the Company issued 500,000 shares of its common stock as additional consideration pursuant to a 90 day promissory note. The shares issued were valued at $21,249 and recorded as interest expense.
In November and December 2010, the Company issued 31,850,000 shares of Common Stock for services rendered by consultants valued at $1,311,325 which is recorded in the statement of operations as stock based compensation.
From October 2010 through December 2010, the Company's assignee debt holders converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock.
In December 2010, the Company recorded $51,556 related to the conversion expense resulting from a modification in the conversion price on two of the Company's notes, upon conversion.
During the period of January 2011 through the filing date, the company issued 133,752,022 common shares for converting $363,654 of indebtedness.
During the period of January 2011 through the filing date, the Company issued 4,600,000 shares of Common Stock for services.
On January 11, 2011, an officer of the Company converted $250,000 of indebtedness into 5,000,000 shares of Series A Preferred Stock of the Company.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
On July 1, 2010, the Company entered into an employment agreement with Michael Haug, as the Company's CEO, which responsibilities include running the daily operations of SavWatt USA, Inc. The term of the agreement is for one year at a salary of $84,000, and may be renewed upon mutual agreement by the Company and the employee.
NOTE 12 - SUBSEQUENT EVENTS
In February 2011, the company entered 10 year lease for office and manufacturing space in Baltimore Md. The company will occupy approximately 23,000 square feet with annual base rentals beginning at $9,926 per year in the second year.