Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year
ended December 31,
2009
or
oTRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition
period from ______________________ to ______________________
Commission file
number: 333-120682
ENVIRONMENTAL
CONTROL CORP.
(Exact name of
registrant as specified in its charter)
|
Nevada
|
20-3626387
|
|
|
(State or
other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
85 Kenmount
Road
St. John’s, Newfoundland,
Canada A1B 3N7
(Address of
principal executive offices)
888.669.3588
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes o No þ
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. Yes þ No o
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was require to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes þ No o
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (of for such shorter period that the registrant
was required to submit and post such files). Yes þ No
o
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained,
to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer o Smaller
reporting company þ
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of June 30, 2009 the aggregate
market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, was $1,337,431.
As of March 31, 2010 the
registrant’s outstanding common stock consisted of 45,869,068
shares.
Table
of Contents
Forward Looking
Statements
This annual report
contains forward-looking statements that involve risks and uncertainties. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology including
"could", "may", "will", "should", "expect", "plan", "anticipate", "believe",
"estimate", "predict", "potential" and the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially.
While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested in this report. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
Our financial
statements are stated in United States dollars and are prepared in accordance
with generally accepted accounting principles in the United States.
All dollar amounts
in this annual report refer to U.S. dollars unless otherwise
indicated.
As
used in this annual report, the terms “we”, “us” and “our” mean Environmental
Control Corp. a Nevada corporation, unless otherwise indicated, and the term
“ECC” means Environmental Control Corporation, a private Canadian company with
which we have acquired all of their principal assets.
Corporate
Overview
We
were incorporated under the laws of the State of Nevada on February 17, 2004
under the name “Boss Minerals, Inc.”. From our inception to March 20, 2006, we
were an exploration stage company engaged in the exploration of minerals
properties.
By
an agreement dated March 20, 2006, we agreed to acquire the principal assets of
Environmental Control Corporation (“ECC”), a Newfoundland, Canada based company
involved in the development of emission control devices for small spark ignition
combustion engines. Effective February 26, 2007, we completed the acquisition of
the principal assets of ECC. The asset acquisition was deemed to be a reverse
acquisition for accounting purposes. ECC, whose principal assets we acquired, is
regarded as the predecessor entity as of February 26, 2007.
Our common stock
was initially approved for quotation on the OTC Bulletin Board under the symbol
“BOSM” on April 19, 2006, and our trading symbol was changed to “EVCC” in
connection with our name change.
Other than as set
out in this annual report, we have not been involved in any bankruptcy,
receivership or similar proceedings, nor have we been a party to any material
reclassification, merger, consolidation or purchase or sale of a significant
amount of assets not in the ordinary course of our business.
2
Our
Business
We
are currently engaged in the development of emission control devices for small
spark ignition combustion engines. Our catalytic muffler, like any other
catalytic muffler, combines a muffler and a catalytic converter into one unit.
However, we have used a unique approach to develop this emission control device,
making it far more effective in reducing the emissions of spark ignition engines
(oxides of nitrogen, carbon monoxide, and hydrocarbons) without compromising
engine performance. This patented and patent-pending technology is linearly
designed and can be modified to fit virtually any combustion
engine.
Our plan for the
next 12 months is to establish new relationships with potential clients and to
translate both new and existing relationships into sales. We also intend to
complete a durability test on a two-stroke engine in accordance with U.S. and
Canadian regulations. Upon completion of this test, we intend to partner with
engine manufacturers and apply for certification with various regulatory bodies
worldwide. We will continue to pursue marketing activities on an international
scale.
Our catalytic
muffler technology is registered for two patents in the United States under the
titles of “Combined Catalytic Muffler” and “Reverse Flow Catalytic Muffler”. We
also hold two patents in Canada under the same titles and we also hold one
patent in Europe under the title of “Reverse Flow Catalytic Muffler”. The filing
numbers are located below:
|
Territory
|
Patent
Filing Number
|
|
U.S.A.
|
6,622,482
|
|
7,018,590
|
|
|
Canada
|
2,448,742
|
|
2,448,648
|
|
|
Europe
|
02742591.7
|
Numerous tests,
including tests at Carnot Emission Services in Texas, U.S.A., Bombardier Inc. in
Quebec, Canada and Environment Canada's Emissions Research and Measurement
Division in Ontario, Canada, have proven this technology to be extremely
effective in the reduction of harmful emissions.
Distribution
Methods
We
intend to use two different methods to sell our technology: licensing agreements
and product orders. For licensing agreements, we anticipate that it will be the
licensee’s responsibility to manufacture and distribute our products, whereas
for product orders, we plan to outsource all large-scale production requirements
and will collaboratively arrange a cost-effective distribution network with both
the manufacturer and the purchaser.
Research and
Development
We
anticipate spending approximately $105,000 during the next 12 months on research
and development activities.
Sales and
Marketing
We
currently target small spark-ignition engines, including personal transportation
devices, off-road recreational vehicles, personal watercrafts, water pumps and
in particular the lawn and garden industry. Included in the lawn and garden
segment are: walk behind rotary mowers, rear engine riding mowers, front engine
lawn tractors, riding garden tractors, walk-behind rotary tillers, snow
throwers, commercial turf intermediate walk-behind rotary mowers, commercial
turf riding rotary mowers, gasoline powered chainsaws, gasoline powered
hand-held blowers, gasoline powered backpack blowers, gasoline powered
trimmers/brushcutters and gasoline powered hedge trimmers. We are currently
focused on the North American market and is targeting Original Engine
Manufacturers (OEMs). The aftermarket parts segment represents a secondary
market.
Government
Regulation
Our activities and
products to date are not subject to any governmental regulations that would have
a significant impact on our business. We believe that we are in compliance with
all applicable regulations that apply to our business as it is presently
conducted. We will continue to have professional units produced for durability
testing in accordance with US and Canadian regulations. Upon completion of these
tests, we intend to partner with engine manufacturers and license them to use
our technology within catalytic mufflers to suit their specific engine
requirements.
3
Laboratory and Scientific
Testing
We
have performed a number of laboratory and scientific tests on our catalytic
muffler in order to gain increased market acceptance by manufacturers and by
governmental regulatory bodies. In October, 2002 ECC and Bombardier Inc.
assessed the effectiveness of our catalytic muffler when installed on a 4 stroke
644cc 2002 Bombardier production engine. In July, 2006 ECC and the Emissions
Research and Measurement Division of Environment Canada entered into a
cooperative program to test and evaluate 5 catalytic mufflers, designed and
built by ECC. In January, 2007 Carnot Emission Services released a preliminary
report detailing the results of durability test it had conducted on a Honda
four-stroke engine equipped with our catalytic muffler.
Competition
There are numerous
domestic and foreign companies of various sizes who manufacture catalytic
converters. Many of these companies have longer operating histories, greater
financial, sales, marketing, technological resources and longer established
client relationships than we have. However, we are unaware of any companies
whose products are able to reach comparable levels of emission reduction on
small spark-ignition engines. As a result, we believe that we do not face any
direct competition from competitors. Nonetheless, in the future we may face
competition as a result of shifts in market share due to technological
innovation, changes in product emphasis and applications and new companies
entering the market place who may have greater capabilities or better
prospects.
Manufacturing and
Engineering
Our engineering and
product design is led by Glenn Knight, our Chief Scientific Officer and the
inventor of our catalytic muffler technology. We intend to contract out the
manufacturing of our catalytic muffler to an outside source.
Intellectual
Property
As
described above, our catalytic muffler technology is registered for two patents
in the United States under the titles of “Combined Catalytic Muffler” and
“Reverse Flow Catalytic Muffler”, two patents in Canada under the same titles,
and one patent in Europe under the title of “Reverse Flow Catalytic
Muffler”.
Employees
As
of March 31, 2010, we had 1 full-time employee. Depending on the scale of our
growth and the development of our business we may hire additional employees in
the next 12 months.
Not
required.
None.
Our principal
executive offices are located at 85 Kenmount Road, St. John’s, Newfoundland,
Canada. In addition, we lease an office at Suite 605 – 1525 Robson Street,
Vancouver, British Columbia, Canada at a cost of $2,000 per month. We do not
anticipate that we will require any additional premises in the foreseeable
future.
We
are not aware of any legal proceedings to which we are a party. None of our
directors, officers, affiliates, any owner of record or beneficially of more
than 5% of our voting securities, or any associate of any such director,
officer, affiliate or security holder are (i) a party adverse to us in any legal
proceedings, or (ii) have a material interest adverse to us in any legal
proceedings. We are not aware of any other legal proceedings that have been
threatened against us.
4
Market
Information
Our common stock is
not traded on any exchange. Our common stock is quoted on the OTC Bulletin Board
under the trading symbol “EVCC”. Trading in stocks quoted on the OTC Bulletin
Board is often thin and is characterized by wide fluctuations in trading prices
due to many factors that may have little to do with a company's operations or
business prospects. We cannot assure you that there will be a market for our
common stock in the future.
OTC Bulletin Board
securities are not listed or traded on the floor of an organized national or
regional stock exchange. Instead, OTC Bulletin Board securities transactions are
conducted through a telephone and computer network connecting dealers in stocks.
OTC Bulletin Board issuers are traditionally smaller companies that do not meet
the financial and other listing requirements of a regional or national stock
exchange.
The following table
shows the high and low bid quotations for our common stock for each fiscal
quarter during our two most recently completed fiscal years. These quotations
are based on inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
|
OTC
Bulletin Board
|
||
|
Quarter
Ended
|
High
($)
|
Low
($)
|
|
December 31,
2009
|
0.07
|
0.04
|
|
September 30,
2009
|
0.08
|
0.04
|
|
June 30,
2009
|
0.10
|
0.06
|
|
March 31,
2009
|
0.23
|
0.05
|
|
December 31,
2008
|
0.14
|
0.04
|
|
September 30,
2008
|
0.24
|
0.09
|
|
June 30,
2008
|
0.29
|
0.09
|
|
March 31,
2008
|
0.29
|
0.18
|
Holders
As
of March 31, 2010, there were approximately 30 holders of record of our common
stock. We do not believe that a significant number of holders hold shares of our
common stock in street name.
Dividends
As
of March 31, 2010, we had not paid dividends on shares of our common stock and
we do not expect to declare or pay dividends on shares of our common stock for
the foreseeable future. We intend to retain earnings, if any, to finance the
development and expansion of our business. Our future dividend policy will be
subject to the discretion of our Board of Directors and will depend upon our
future earnings, if any, our financial condition, capital requirements, general
business conditions and other factors.
Equity Compensation
Plans
As
of March 31, 2010, we did not have any equity compensation plans.
Recent Sales of Unregistered
Securities
We
did not make any unregistered sales of our equity securities between October 1,
2009 and December 31, 2009.
Not
applicable.
5
The following
discussion should be read in conjunction with our consolidated financial
statements, including the notes thereto, appearing elsewhere in this annual
report. The discussions of results, causes and trends should not be construed to
imply any conclusion that these results or trends will necessarily continue into
the future.
Results of
Operations
Revenues
We
have limited operational history. From our inception on March 6, 1999 to
December 31, 2009 we did not generate any revenues and we sustained operational
losses. We anticipate that we will not earn revenues and that we anticipate that
we will incur substantial losses for the foreseeable future. Our ability to
generate any revenues in the next 12 months continues to be
uncertain.
Expenses
From our inception
on March 6, 1999 to December 31, 2009 we incurred total operating expenses of
$1,503,067, including $1,430,536 in general and administrative expenses, $75,963
in research and development expenses and $14,993 in depreciation, all of which
were partially offset by a foreign exchange gain of $18,425.
During the fiscal
year ended December 31, 2009 we incurred total expenses of $265,071, including
$282,413 in general and administrative expenses, $15,041 in research and
development expenses and $3,548 in depreciation, all of which were partially
offset by a foreign exchange gain of $35,931. In comparison, during the fiscal
year ended December 31, 2008 we incurred total expenses of $427,207, including
$399,397 in general and administrative expenses, $12,856 in research and
development expenses, $5,422 in depreciation and $9,532 in foreign exchange
loss.
Our general and
administrative expenses consisted primarily of professional fees, transfer agent
fees, rent expenses and general office expenses. Our professional fees include
legal, accounting and auditing fees.
Net
Loss
From our inception
on March 6, 1999 to December 31, 2009 we incurred a net loss of $1,901,858. For
the fiscal year ended December 31, 2009 we incurred a net loss of $298,280,
whereas for the fiscal year ended December 31, 2008 we incurred a net loss of
$630,449.
Liquidity and Capital
Resources
As
of December 31, 2009 we had $117,489 in cash, $152,149 in total assets, $366,203
in total liabilities and a working capital surplus of $51,798. As of December
31, 2008 we had $125,251 in cash, $141,298 in total assets, $194,552 in total
liabilities and a working capital surplus of $43,533. Our accumulated deficit
was $1,901,858 as of December 31, 2009, compared to $1,603,578 as of December
31, 2008.
We
are dependent on funds raised through equity financing and proceeds from related
parties. Our net loss of $1,901,858 from our inception on March 6, 1999 to
December 31, 2009 was funded primarily by such financing and
proceeds.
From our inception
on March 6, 1999 to December 31, 2009 we spent $1,318,395 on operating
activities. For the fiscal year ended December 31, 2009 we spent $310,312 on
operating activities, whereas during the fiscal year ended December 31, 2008 we
spent $331,443 on operating activities. The decrease in our expenditures on
operating activities during the fiscal year ended December 31, 2009 was
primarily due to a decrease in our stock-based compensation and net loss for the
period.
From our inception
on March 6, 1999 to December 31, 2009, we received $164,748 from investing
activities. We did not receive or spend any amounts in connection with investing
activities during our last two fiscal years.
From our inception
on March 6, 1999 to December 31, 2009 we received $1,271,136 from financing
activities, which consisted of $505,953 in proceeds from the issuance of our
stock, $398,621 in proceeds from convertible debt, $213,086 in advances from
related parties and $153,476 in proceeds from loan payable. During the fiscal
year ended December 31, 2009 we received $302,550 from financing activities, all
of which were proceeds from convertible debt. During the fiscal year ended
December 31, 2008 we received $410,502 from financing activities, which
consisted of $265,000 in proceeds from the issuance of our common stock, $96,071
in proceeds from convertible debt and $49,431 in proceeds from loan
payable.
6
Our decrease in
cash of $7,762 during the fiscal year ended December 31, 2009 was due to a
combination of our operating and financing activities.
We
estimate that our expenses over the next 12 months (beginning April 2010) will
be approximately $325,000 as described in the table below. These estimates may
change significantly depending on the nature of our business activities and our
ability to raise capital from our shareholders or other sources.
|
Description
|
Potential
Completion
Date
|
Estimated
Expenses
($)
|
|
Sales and
marketing expenses
|
12
months
|
110,000
|
|
Research and
development expenses
|
12
months
|
105,000
|
|
General and
administrative expenses
|
12
months
|
110,000
|
|
Total
|
325,000
|
Our general and
administrative expenses for the year will consist primarily of professional
fees, transfer agent fees, rent expenses and general office
expenses.
Based on our
planned expenditures, we will require approximately $325,000 to proceed with our
business plan over the next 12 months. If we secure less than the full amount of
financing that we require, we will not be able to carry out our complete
business plan and we will be forced to proceed with a scaled back business plan
based on our available financial resources.
We
intend to raise the balance of our cash requirements for the next 12 months from
private placements, loans from related parties or possibly a registered public
offering (either self-underwritten or through a broker-dealer). If we are
unsuccessful in raising enough money through such efforts, we may review other
financing possibilities such as bank loans. At this time we do not have a
commitment from any broker-dealer to provide us with financing. There is no
assurance that any financing will be available to us or if available, on terms
that will be acceptable to us.
Even though we plan
to raise capital through equity or debt financing, we believe that the latter
may not be a viable alternative for funding our operations as we do not have
tangible assets to secure any such financing. We anticipate that any additional
funding will be in the form of equity financing from the sale of our common
stock. However, we do not have any financing arranged and we cannot provide any
assurance that we will be able to raise sufficient funds from the sale of our
common stock to finance our operations. In the absence of such financing, we may
be forced to abandon our business plan.
Going
Concern
Our financial
statements for the period ended December 31, 2009 have been prepared on a going
concern basis and contain an additional explanatory paragraph in Note 1 which
identifies issues that raise substantial doubt about our ability to continue as
a going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
We
have not generated any revenues, have achieved losses since our inception, and
rely upon the sale of our common stock to fund our operations. We may not
generate any revenues in the future and if we are unable to raise equity or
secure alternative financing, we may not be able to continue our operations and
our business plan may fail.
If
our operations and cash flow improve, management believes that we can continue
to operate. However, no assurance can be given that management's actions will
result in profitable operations or an improvement in our liquidity situation.
The threat of our ability to continue as a going concern will cease to exist
only when our revenues have reached a level able to sustain our business
operations.
Off-Balance Sheet
Arrangements
We
have no significant off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to stockholders.
7
Critical Accounting
Policies
Our financial
statements are affected by the accounting policies used and the estimates and
assumptions made by management during their preparation. A complete summary of
these policies is included in Note 2 of the notes to our financial
statements. We have identified below the accounting policies that are of
particular importance in the presentation of our financial position, results of
operations and cash flows, and which require the application of significant
judgment by management.
Foreign
Currency Translation
Effective February
26, 2007, our functional and reporting currency changed to the Canadian dollar.
Monetary assets and liabilities denominated in foreign currencies are translated
in accordance with ASC 830, Foreign Currency Translation
Matters, using the exchange rate prevailing at the balance sheet date.
Gains and losses arising on settlement of foreign currency denominated
transactions or balances are included in the determination of income. Foreign
currency transactions are primarily undertaken in Canadian dollars. We have not
entered into derivative instruments to offset the impact of foreign currency
fluctuations.
Stock-based
Compensation
In
accordance with ASC 718, Compensation – Stock Based
Compensation, we account for share-based payments using the fair value
method. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.
Property
and Equipment
Property and
equipment consists of office furniture, equipment, and computer equipment which
are recorded at cost. Office furniture is amortized on a declining-balance basis
at 20% per annum, equipment is amortized on a declining-balance basis at 30% per
annum, and computer equipment is amortized on a declining-balance basis at 30%
per annum.
Not
required.
Environmental
Control Corp.
(A
Development Stage Company)
December 31,
2009
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
|
Balance Sheets
|
F-2
|
|
Statements of Operations
|
F-3
|
|
Statements of Cash Flows
|
F-4
|
|
Statements of Stockholders’ Deficit
|
F-5
|
|
Notes to the Financial Statements
|
F-6
|
8
Report of
Independent Registered Public Accounting Firm
To
the Directors and Stockholders
Environmental
Control Corp.
(A
Development Stage Company)
We have audited the
accompanying balance sheets of Environmental Control Corp. (A Development Stage
Company) as of December 31, 2009 and 2008, and the related statements of
operations, cash flows and stockholders’ deficit for the years then ended and
accumulated for the period from March 6, 1999 (Date of Inception) to December
31, 2009. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. An audit includes
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 internal
control over financial reporting. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material respects,
the financial position of Environmental Control Corp. (A Development Company) as
of December 31, 2009 and 2008, and the results of its operations, cash flows and
stockholders’ deficit for the years then ended and accumulated for the period
from March 6, 1999 (Date of Inception) to December 31, 2009 in conformity with
accounting principles generally accepted in the United States.
The accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. As discussed in Note 1 to the financial statements, the Company
has not generated any revenues and has incurred operating losses since
inception. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. Management’s plans in regard to these matters are
also discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
MANNING
ELLIOTT LLP
MANNING ELLIOTT
LLP
CHARTERED
ACCOUNTANTS
Vancouver,
Canada
March 29,
2010
F-1
Environmental
Control Corp.
(A
Development Stage Company)
Balance
Sheets
(Expressed
in Canadian Dollars)
|
December
31, 2009
$
|
December
31, 2008
$
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
|
117,489 | 125,251 | ||||||
|
Amounts
receivable
|
8,406 | – | ||||||
|
Investment
tax credit receivable (Note 2(m))
|
14,880 | – | ||||||
|
Prepaid
expenses
|
– | 1,125 | ||||||
|
Total Current
Assets
|
140,775 | 126,376 | ||||||
|
Property and
equipment (Note 3)
|
11,374 | 14,922 | ||||||
|
Total
Assets
|
152,149 | 141,298 | ||||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable
|
48,584 | 50,420 | ||||||
|
Accrued
liabilities
|
1,702 | 2,363 | ||||||
|
Accrued
convertible interest payable to related parties (Note 5)
|
11,785 | 3,154 | ||||||
|
Advances from
related parties (Note 6(a))
|
26,906 | 26,906 | ||||||
|
Total Current
Liabilities
|
88,977 | 82,843 | ||||||
|
Convertible
debentures issued to related parties (Note 5)
|
250,951 | 81,094 | ||||||
|
Advances from
related parties (Note 6(b))
|
26,275 | 30,615 | ||||||
|
Total
Liabilities
|
366,203 | 194,552 | ||||||
|
Contingencies
and Commitments (Notes 1 and 9)
|
||||||||
|
Subsequent
Event (Note 11)
|
||||||||
|
Stockholders’
Deficit
|
||||||||
|
Common stock,
75,000,000 shares authorized, US$0.001 par value; 45,869,068
shares issued and outstanding (2008 – 43,729,722 shares)
|
53,158 | 50,676 | ||||||
|
Additional
paid-in capital
|
1,632,019 | 1,391,975 | ||||||
|
Common stock
to be issued (Note 7(b))
|
2,627 | 107,673 | ||||||
|
Deficit
accumulated during the development stage
|
(1,901,858 | ) | (1,603,578 | ) | ||||
|
Total
Stockholders’ Deficit
|
(214,054 | ) | (53,254 | ) | ||||
|
Total
Liabilities and Stockholders’ Deficit
|
152,149 | 141,298 | ||||||
(The accompanying
notes are an integral part of these financial statements)
F-2
Environmental
Control Corp.
(A
Development Stage Company)
Statements
of Operations
(Expressed
in Canadian Dollars)
|
Accumulated
from
March
6, 1999
(Date
of Inception)
to
December 31, 2009
$
|
For
the
Year
Ended
December
31, 2009
$
|
For
the
Year
Ended
December
31, 2008
$
|
||||||||||
|
Revenue
|
– | – | – | |||||||||
|
Expenses
|
||||||||||||
|
Depreciation
|
14,993 | 3,548 | 5,422 | |||||||||
|
Foreign
exchange loss (gain)
|
(18,425 | ) | (35,931 | ) | 9,532 | |||||||
|
General and
administrative (Note 4)
|
1,430,536 | 282,413 | 399,397 | |||||||||
|
Research and
development (Note 2(m))
|
75,963 | 15,041 | 12,856 | |||||||||
|
Total
Operating Expenses
|
1,503,067 | 265,071 | 427,207 | |||||||||
|
Loss From
Operations
|
(1,503,067 | ) | (265,071 | ) | (427,207 | ) | ||||||
|
Other
Expenses
|
||||||||||||
|
Accretion of
discounts on convertible debentures
|
(341,182 | ) | (23,262 | ) | (184,195 | ) | ||||||
|
Interest
expense
|
(57,609 | ) | (9,947 | ) | (19,047 | ) | ||||||
|
Total Other
Expenses
|
(398,791 | ) | (33,209 | ) | (203,242 | ) | ||||||
|
Net Loss for
the Period
|
(1,901,858 | ) | (298,280 | ) | (630,449 | ) | ||||||
|
Net Loss Per
Share – Basic and Diluted
|
(0.01 | ) | (0.02 | ) | ||||||||
|
Weighted
Average Shares Outstanding
|
45,228,000 | 41,610,000 | ||||||||||
(The accompanying
notes are an integral part of these financial statements)
F-3
Environmental
Control Corp.
(A
Development Stage Company)
Statements
of Cash Flows
(Expressed
in Canadian Dollars)
|
Accumulated
from
March
6, 1999
(Date
of Inception)
to
December 31,
2009
$
|
For
the
Year
Ended
December
31,
2009
$
|
For
the
Year
Ended
December
31,
2008
$
|
||||||||||
|
Operating
Activities
|
||||||||||||
|
Net loss for
the period
|
(1,901,858 | ) | (298,280 | ) | (630,449 | ) | ||||||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Accretion of
discounts on convertible debentures
|
341,182 | 23,262 | 184,195 | |||||||||
|
Depreciation
|
14,993 | 3,548 | 5,422 | |||||||||
|
Stock-based
compensation
|
236,738 | 12,480 | 43,840 | |||||||||
|
Foreign
exchange translation loss (gain)
|
(25,791 | ) | (36,654 | ) | 10,863 | |||||||
|
Changes in
operating assets and liabilities:
|
||||||||||||
|
Amounts
receivable
|
(7,586 | ) | (8,406 | ) | 2,478 | |||||||
|
Investment
tax credit receivable
|
(14,880 | ) | (14,880 | ) | – | |||||||
|
Prepaid
expenses
|
1,125 | 1,125 | 1,446 | |||||||||
|
Accounts
payable and accrued liabilities
|
(18,954 | ) | (2,454 | ) | 31,599 | |||||||
|
Accrued
convertible interest payable
|
56,636 | 9,947 | 19,163 | |||||||||
|
Net Cash Used
In Operating Activities
|
(1,318,395 | ) | (310,312 | ) | (331,443 | ) | ||||||
|
Investing
Activities
|
||||||||||||
|
Purchase of
equipment
|
(13,617 | ) | – | – | ||||||||
|
Net cash
acquired on business acquisition
|
178,365 | – | – | |||||||||
|
Net Cash
Provided by Investing Activities
|
164,748 | – | – | |||||||||
|
Financing
Activities
|
||||||||||||
|
Proceeds from
issuance of convertible debentures
|
398,621 | 302,550 | 96,071 | |||||||||
|
Proceeds from
issuance of shares
|
505,953 | – | 265,000 | |||||||||
|
Advances from
related parties
|
366,562 | – | 49,431 | |||||||||
|
Net Cash
Provided by Financing Activities
|
1,271,136 | 302,550 | 410,502 | |||||||||
|
Decrease in
Cash
|
117,489 | (7,762 | ) | 79,059 | ||||||||
|
Cash -
Beginning of Period
|
– | 125,251 | 46,192 | |||||||||
|
Cash - End of
Period
|
117,489 | 117,489 | 125,251 | |||||||||
|
Non-Cash
Investing and Financing Activities Common shares
issued upon conversion of debt
|
360,914 | – | 360,914 | |||||||||
|
Supplemental
Disclosures
|
||||||||||||
|
Interest
paid
|
– | – | – | |||||||||
|
Income taxes
paid
|
– | – | – | |||||||||
(The accompanying
notes are an integral part of these financial statements)
F-4
Environmental
Control Corp.
(A
Development Stage Company)
Statements
of Stockholders’ Deficit
From
March 6, 1999 (Date of Inception) to December 31, 2009
(Expressed
in Canadian Dollars)
|
Common
Stock
#
|
Amount
$
|
Additional
Paid-in
Capital
$
|
Common
Stock
To
Be Issued
$
|
Deficit
Accumulated
During
the
Development
Stage
$
|
Total
$
|
|||||||||||||||||||
|
Net loss for
the period from March 6, 1999 to December 31, 1999
|
– | – | – | – | (24,621 | ) | (24,621 | ) | ||||||||||||||||
|
Balance –
December 31, 1999 (unaudited)
|
– | – | – | – | (24,621 | ) | (24,621 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (22,836 | ) | (22,836 | ) | ||||||||||||||||
|
Balance –
December 31, 2000 (unaudited)
|
– | – | – | – | (47,457 | ) | (47,457 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (56,302 | ) | (56,302 | ) | ||||||||||||||||
|
Balance –
December 31, 2001 (unaudited)
|
– | – | – | – | (103,759 | ) | (103,759 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (20,257 | ) | (20,257 | ) | ||||||||||||||||
|
Balance –
December 31, 2002 (unaudited)
|
– | – | – | – | (124,016 | ) | (124,016 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (14,264 | ) | (14,264 | ) | ||||||||||||||||
|
Balance –
December 31, 2003 (unaudited)
|
– | – | – | – | (138,280 | ) | (138,280 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (52,369 | ) | (52,369 | ) | ||||||||||||||||
|
Balance –
December 31, 2004 (unaudited)
|
– | – | – | – | (190,649 | ) | (190,649 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (16,194 | ) | (16,194 | ) | ||||||||||||||||
|
Balance –
December 31, 2005 (unaudited)
|
– | – | – | – | (206,843 | ) | (206,843 | ) | ||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (105,758 | ) | (105,758 | ) | ||||||||||||||||
|
Balance –
December 31, 2006
|
– | – | – | – | (312,601 | ) | (312,601 | ) | ||||||||||||||||
|
February 26,
2007 – Recapitalization Transactions
|
||||||||||||||||||||||||
|
Shares of
Environmental Control Corp.
|
41,000,000 | 47,572 | (81,656 | ) | 34,084 | – | – | |||||||||||||||||
|
Return and
cancellation of shares
|
(25,000,000 | ) | (29,000 | ) | 29,000 | – | – | – | ||||||||||||||||
|
Shares issued
to shareholders of Environmental Control Corp. (private company) to effect
the reverse merger
|
22,500,000 | 26,107 | (26,107 | ) | – | – | – | |||||||||||||||||
|
Net assets
acquired in reverse merger
|
– | – | 117,283 | – | – | 117,283 | ||||||||||||||||||
|
Shares issued
for services – pre-recapitalization
|
62,500 | 73 | 34,011 | (34,084 | ) | – | – | |||||||||||||||||
|
Intrinsic
value of beneficial conversion feature of convertible
debentures
|
– | – | 317,379 | – | – | 317,379 | ||||||||||||||||||
|
Fair value of
share purchase warrants issued
|
– | – | 147,734 | – | – | 147,734 | ||||||||||||||||||
|
Shares issued
pursuant to the exercise of share purchase warrants
|
450,000 | 450 | 240,503 | – | – | 240,953 | ||||||||||||||||||
|
Common stock
subscribed
|
– | – | – | 32,684 | – | 32,684 | ||||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (660,528 | ) | (660,528 | ) | ||||||||||||||||
|
Balance –
December 31, 2007
|
39,012,500 | 45,202 | 778,147 | 32,684 | (973,129 | ) | (117,096 | ) | ||||||||||||||||
(The accompanying
notes are an integral part of these financial statements)
F-5
Environmental
Control Corp.
(A
Development Stage Company)
Statements
of Stockholders’ Deficit
From
March 6, 1999 (Date of Inception) to December 31, 2009
(Expressed
in Canadian Dollars)
|
Common
Stock
#
|
Amount
$
|
Additional
Paid-in
Capital
$
|
Common
Stock
To
Be Issued
$
|
Accumulated
During
the
Development
Stage
$
|
Total
$
|
|||||||||||||||||||
|
Balance –
December 31, 2007
|
39,012,500 | 45,202 | 778,147 | 32,684 | (973,129 | ) | (117,096 | ) | ||||||||||||||||
|
Shares issued
for cash (Note 7(d))
|
970,585 | 1,126 | 163,874 | – | – | 165,000 | ||||||||||||||||||
|
Issuance of
shares on conversion of convertible debt (Note 7(e))
|
3,609,137 | 4,188 | 356,726 | – | – | 360,914 | ||||||||||||||||||
|
Shares issued
for services (Note 7(g))
|
75,000 | 87 | 3,287 | – | – | 3,374 | ||||||||||||||||||
|
Shares issued
for services (Note 7(f))
|
62,500 | 73 | 32,611 | (32,684 | ) | – | – | |||||||||||||||||
|
Shares
issuable for services (Note 9(a))
|
– | – | – | 7,673 | – | 7,673 | ||||||||||||||||||
|
Common stock
subscribed (Note 7(a))
|
– | – | – | 100,000 | – | 100,000 | ||||||||||||||||||
|
Intrinsic
value of beneficial conversion feature (Note 5(a))
|
– | – | 6,523 | – | – | 6,523 | ||||||||||||||||||
|
Intrinsic
value of beneficial conversion feature (Note 5(b))
|
– | – | 16,889 | – | – | 16,889 | ||||||||||||||||||
|
Warrants
issued for services (Note 9(a))
|
– | – | 33,918 | – | – | 33,918 | ||||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (630,449 | ) | (630,449 | ) | ||||||||||||||||
|
Balance –
December 31, 2008
|
43,729,722 | 50,676 | 1,391,975 | 107,673 | (1,603,578 | ) | (53,254 | ) | ||||||||||||||||
|
Shares issued
for cash (Note 7(a))
|
1,639,346 | 1,902 | 98,098 | (100,000 | ) | – | – | |||||||||||||||||
|
Intrinsic
value of beneficial conversion feature (Note 5 (c))
|
– | – | 125,000 | – | – | 125,000 | ||||||||||||||||||
|
Shares
issuable for services (Note 7(b))
|
– | – | – | 2,627 | – | 2,627 | ||||||||||||||||||
|
Warrants
issued for services (Note 9(a))
|
– | – | 7,823 | – | – | 7,823 | ||||||||||||||||||
|
Shares issued
for services (Note 7(c))
|
125,000 | 145 | 9,558 | (7,673 | ) | – | 2,030 | |||||||||||||||||
|
Shares issued
in error (Note 7(c))
|
375,000 | 435 | (435 | ) | – | – | – | |||||||||||||||||
|
Net loss for
the year
|
– | – | – | – | (298,280 | ) | (298,280 | ) | ||||||||||||||||
|
Balance –
December 31, 2009
|
45,869,068 | 53,158 | 1,632,019 | 2,627 | (1,901,858 | ) | (214,054 | ) | ||||||||||||||||
(The accompanying
notes are an integral part of these financial statements)
F-6
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
1. Nature of Business
and Continuance of Operations
Environmental
Control Corp. (the “Company”) was incorporated in the State of Nevada on
February 17, 2004 under the name Boss Minerals, Inc. and, effective April 13,
2006, changed its name to Environmental Control Corp. Boss Minerals, Inc.’s
initial operations included the acquisition and exploration of mineral
resources.
On March 20, 2006,
management changed its primary business focus to that of development of emission
control devices for small spark ignition combustion engines. On March 20, 2006,
the Company entered into an Asset Acquisition Agreement (the “Agreement”) to
acquire the principal assets of Environmental Control Corp. (“ECC”), a private
Canadian based company. The Company is in the development stage as defined by
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 915, Development Stage
Entities. On April 4, 2006, the Company authorized a 5:1 stock split to
be applied retroactively. In addition, the Company increased its authorized
share capital to 200,000,000 common shares. All share amounts stated herein have
been restated to reflect the stock split. On February 26, 2007, the acquisition
of the business of ECC was completed through the issuance of 22,500,000 shares
of common stock. Prior to the acquisition of ECC, the Company was a
non-operating shell company. The acquisition was a capital transaction in
substance and therefore has been accounted for as a recapitalization, which is
outside the scope of ASC 805, Business Combinations. Under
recapitalization accounting, ECC was considered the acquirer for accounting and
financial reporting purposes, and acquired the assets and assumed the
liabilities of the Company. Assets acquired and liabilities assumed were
reported at their historical amounts. These financial statements include the
accounts of the Company since the effective date of the recapitalization
(February 26, 2007) and the historical accounts of the business of ECC since
inception on March 6, 1999.
These financial
statements have been prepared on a going concern basis, which assumes the
Company will continue to realize its assets and discharge its liabilities in the
normal course of business. The continuation of the Company as a going concern is
dependent upon the continued financial support from its shareholders, the
ability of the Company to obtain necessary equity financing to continue
operations, and the attainment of profitable operations. As at December 31,
2009, the Company has working capital of $51,798, has incurred losses totalling
$1,901,858 since inception, and has not yet generated any revenue from
operations. These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. These financial statements do not
include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Management
estimates expenditures of approximately $165,000 for research and development
activities, and approximately $220,000 for other operational costs over the next
twelve months. The Company had $117,489 in cash on hand at December 31, 2009.
The Company currently has no revenues and must rely on debt financing and the
sale of equity securities to fund operations. The Company does not have any
arrangements in place for any future equity or debt financings, and there is no
assurance that the Company will be able to obtain the necessary financings to
complete its objectives.
2. Summary of
Significant Accounting Policies
The financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States and are expressed in
Canadian dollars. The Company’s fiscal year end is December 31.
b) Use of
Estimates
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company regularly evaluates estimates and assumptions
related to the recoverability of receivables and investment tax credit
receivable, deferred income tax asset valuation allowances, stock-based
compensation and financial instrument valuations. The Company bases its
estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
F-7
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
2.
Summary of
Significant Accounting Policies (continued)
c) Cash and Cash
Equivalents
The Company
considers all highly liquid instruments with maturity of three months or less at
the time of issuance to be cash equivalents.
d) Financial
Instruments
The Company’s
financial instruments consist principally of cash, accounts payable, advances
from related parties and convertible debentures issued to related parties.
Pursuant to ASC 820, Fair
Value Measurements and Disclosures, and ASC 825, Financial Instruments the
fair value of the Company’s cash equivalents is determined based on “Level 1”
inputs, which consist of quoted prices in active markets for identical assets.
The Company believes that the recorded values of all of the Company’s other
financial instruments approximate their current fair values because of their
nature or respective relatively short maturity dates.
The Company’s
operations are in Canada, which results in exposure to market risks from changes
in foreign currency rates. The financial risk is the risk to the Company’s
operations that arise from fluctuations in foreign exchange rates and the degree
of volatility of these rates.Currently, the Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
e) Earnings (Loss) Per
Share
The Company
computes net income (loss) per share in accordance with ASC 260, Earnings per Share. ASC 260
requires presentation of both basic and diluted earnings per share (EPS) on the
face of the income statement. Basic EPS is computed by dividing net income
(loss) available to common shareholders (numerator) by the weighted average
number of shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period
using the treasury stock method and convertible preferred stock using the
if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive. At December 31, 2009, the
Company has 9,934,539 potentially dilutive securities outstanding.
ASC 220,
Comprehensive Income,
establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As at December 31, 2009 and 2008,
the Company has no items that represent a comprehensive loss and, therefore, has
not included a schedule of comprehensive loss in the financial
statements.
g) Foreign Currency
Translation
Effective on
the closing of the Agreement on February 26, 2007 (see Note 1), the Company’s
functional and reporting currency changed to the Canadian dollar. Monetary
assets and liabilities denominated in foreign currencies are translated in
accordance with ASC 830, Foreign Currency Translation
Matters, using the
exchange rate prevailing at the balance sheet date. Gains and losses arising on
settlement of foreign currency denominated transactions or balances are included
in the determination of income. Foreign currency transactions are primarily
undertaken in Canadian dollars. The Company has not, to the date of these
financials statements, entered into derivative instruments to offset the impact
of foreign currency fluctuations.
h) Stock-based
Compensation
In accordance
with ASC 718, Compensation –
Stock Based Compensation, the Company accounts for share-based payments
using the fair value method. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable.
i) Property and
Equipment
Property and
equipment consists of office furniture, equipment, and computer equipment which
are recorded at cost. Office furniture is amortized on a declining-balance basis
at 20% per annum, equipment is amortized on a declining-balance basis at 30% per
annum, and computer equipment is amortized on a declining-balance basis at 30%
per annum.
F-8
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
2.
Summary of
Significant Accounting Policies (continued)
j) Long-lived
Assets
In
accordance with ASC 360, Property Plant and Equipment,
the Company tests long-lived assets or asset groups for recoverability when
events or changes in circumstances indicate that their carrying amount may not
be recoverable. Circumstances which could trigger a review include, but are not
limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed significantly before the end of its estimated useful
life. Recoverability is assessed based on the carrying amount of the asset and
its fair value which is generally determined based on the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset, as well as specific appraisal in certain instances. An
impairment loss is recognized when the carrying amount is not recoverable and
exceeds fair value.
k) Research and
Development Costs
In
accordance with ASC 730, Research and Development,
research costs are expensed in the period in which they are incurred.
Development costs are also expensed unless they meet the criteria for deferral.
When development costs meet the criteria for deferral, the development costs are
deferred to the extent their recoverability can be reasonably assured. Deferred
development costs represent the cost of developing specific products and are
amortized on a straight line basis over the expected commercial life of the
product.
l) Income
Taxes
The
Company accounts for income taxes using the asset and liability method in
accordance with ASC 740, Income Taxes. The asset and
liability method provides that deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using the currently enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company records a
valuation allowance to reduce deferred tax assets to the amount that is believed
more likely than not to be realized.
The
Company incurs research and development expenditures that may qualify for
investment tax credits recoverable from Canadian tax authorities. Investment tax
credits received or receivable are deducted from research and development
expenditures when the Company has made the qualifying expenditures, provided
that there is reasonable assurance that the credits will be realized.
Realization is assessed based on the Company’s collection history. During the
year ended December 31, 2009, the Company recognized $14,880 in investment tax
credits (2008 - $nil) which have been applied against research and development
expenditures in the statement of operations. As at December 31, 2009, the
Company has accrued $14,880 in investment tax credits receivable (2008 - $nil).
The investment tax credits must be examined and approved by the tax authorities
and the amounts granted may differ from the amounts recorded.
n) Recent Accounting
Pronouncements
In June
2009, the FASB issued guidance now codified as ASC 105, Generally Accepted Accounting
Principles as the single source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with U.S. GAAP, aside from
those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is
intended to simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one
place. The adoption of ASC 105 did not have a material impact on the
Company’s financial statements, but did eliminate all references to
pre-codification standards
In May
2009, FASB issued ASC 855, Subsequent Events, which
establishes general standards of for the evaluation, recognition and disclosure
of events and transactions that occur after the balance sheet date. Although
there is new terminology, the standard is based on the same principles as those
that currently exist in the auditing standards. The adoption of ASC 855-10 did
not have a material effect on the Company’s financial statements.
F-9
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
2. Summary
of Significant Accounting Policies (continued)
n) Recent Accounting
Pronouncements (continued)
In August 2009, the
FASB issued an amendment to the accounting standards related to the measurement
of liabilities that are recognized or disclosed at fair value on a recurring
basis. This standard clarifies how a company should measure the fair value of
liabilities and that restrictions preventing the transfer of a liability should
not be considered as a factor in the measurement of liabilities within the scope
of this standard. This standard became effective on October 1, 2009. The
adoption of this amendment did not have a material effect on the Company’s
financial statements.
The Company has
implemented all new accounting pronouncements that are in effect and that may
impact its financial statements and does not believe that there are any other
new accounting pronouncements that have been issued that might have a material
impact on its financial position or results of operations.
3. Property and
Equipment
|
Cost
$
|
Accumulated
Amortization
$
|
December
31, 2009
Net
Carrying
Value
$
|
December
31, 2008
Net
Carrying
Value
$
|
|||||||||||||
|
Equipment
|
13,617 | 7,686 | 5,931 | 8,102 | ||||||||||||
|
Computer
equipment
|
3,283 | 2,282 | 1,001 | 1,367 | ||||||||||||
|
Office
furniture
|
9,467 | 5,025 | 4,442 | 5,453 | ||||||||||||
| 26,367 | 14,993 | 11,374 | 14,922 | |||||||||||||
4. Related Party
Transaction
During the year
ended December 31, 2009, the Company recognized $24,000 (2008 – $24,000) for
rent due to a company controlled by a director of the Company. The transaction
was in the normal course of operations and was recorded at the exchange amount,
which is the amount agreed upon by the related parties.
5. Convertible
Debentures Issued to Related Parties
a) On July 30, 2008,
the Company entered into a convertible debenture agreement with a company
controlled by the President of the Company. The Company received US$36,376
($36,960) which bears interest at 10% per annum and is due five years from the
advancement date. No interest shall be payable for the first year from the
advancement date but shall accrue from the advancement date and all accrued
interest shall be payable annually, on the subsequent anniversaries of the
advancement date. Proceeds of the loan are to be used to acquire certain patents
and intellectual property rights and the loan amount is secured against such
intellectual property. The loan and any unpaid interest at the conversion date
are convertible into shares of common stock at a conversion price of US$0.17 per
share. The Company recognized the intrinsic value of the embedded beneficial
conversion feature of US$6,419 ($6,523) as additional paid-in capital and
reduced the carrying value of the convertible debenture to US$29,957 ($30,437).
The carrying value will be accreted over the term of the convertible debenture
up to its face value of US$36,376. As at December 31, 2009, the carrying values
of the convertible debenture and accrued convertible interest payable thereon
were $32,923 and $5,436, respectively, after translation into Canadian
dollars.
b) On October 16,
2008, the Company entered into a convertible debenture agreement with the
President of the Company. The Company received US$50,000 ($59,110) which bears
interest at 10% per annum and is due five years from the advancement date. No
interest shall be payable for the first year from the advancement date but shall
accrue from the advancement date and all accrued interest shall be payable
annually, on the subsequent anniversaries of the advancement date. Proceeds of
the loan are to be used to repay an outstanding loan and to further business
development and research and development activities. The loan and any unpaid
interest at the conversion date are convertible into shares of common stock at a
conversion price of US$0.07 per share. The Company recognized the intrinsic
value of the embedded beneficial conversion feature of US$14,286 ($16,889) as
additional paid-in capital and reduced the carrying value of the convertible
debenture to US$35,714 ($42,221). The carrying value will be accreted over the
term of the convertible debenture up to its face value of US$50,000. As at
December 31, 2009, the carrying values of the convertible debenture and accrued
convertible interest thereon were $39,904 and $6,349, respectively, after
translation into Canadian dollars.
F-10
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
5. Convertible
Debentures Issued to Related Parties (continued)
c) On April 9, 2009,
the Company entered into a convertible loan agreement with a company controlled
by directors of the Company. The Company received US$202,920 ($250,000) which
bears interest at 10% per annum and is due five years from the advancement date.
No interest shall accrue for the first year from the advancement date but shall
begin to accrue on the second anniversary of the advancement date and all
accrued interest shall be payable annually, on the subsequent anniversaries of
the advancement date. Proceeds from the loan are to be used to further advance
current business development and marketing initiatives, and to complete testing.
The loan amount is secured against intellectual property rights owned by the
Company. The loan and any unpaid interest at the conversion date are convertible
into shares of common stock at a conversion price of US$0.06 per share. The
Company recognized the intrinsic value of the embedded beneficial conversion
feature of US$101,460 ($125,000) as additional paid-in capital and reduced the
carrying value of the convertible debenture to US$101,460 ($125,000). The
carrying value will be accreted over the term of the convertible debenture up to
its face value of US$202,920. As at December 31, 2009, the carrying value of the
convertible debenture was $125,574, after translation into Canadian
dollars.
d) On December 31,
2009, the Company entered into a convertible loan agreement with a company
controlled by the President of the Company. The Company received US$50,000
($52,550) which bears interest at 10% per annum and is due five years from the
advancement date. Interest shall accrue from the advancement date and shall be
payable on the fifth anniversary of the advancement date. Proceeds of the loan
are to be used to continue with current business development activities. The
loan and any unpaid interest at the conversion date are convertible into shares
of common stock at a conversion price of US$0.05 per share. As at December 31,
2009, the carrying value of the convertible debenture was $52,550, after
translation into Canadian dollars.
6. Advances From
Related Parties
a) On December 9,
2008, the Company received $25,000 from a company controlled by the President of
the Company. The amount owing is unsecured, non-interest bearing, and has no
specified repayment terms. As at December 31, 2009, the Company owed this
company $1,906 (December 31, 2008 - $1,906) for payment of expenses on behalf of
the Company.
b) On September 5,
2008, the Company entered into a loan agreement with a company controlled by the
President of the Company. The Company received US$25,000 ($26,388) which is
non-interest bearing and is due five years from the advancement date. As at
December 31, 2009, the loan payable was $26,275 (December 31, 2008 - $30,615)
after translation into Canadian dollars.
7. Common
Stock
a) On February 5,
2009, the Company issued 1,639,346 units at US$0.05 per unit for gross proceeds
of $100,000 (US$81,967). These proceeds were received during the year ended
December 31, 2008 and included in common stock to be issued at December 31,
2008. Each unit issued consists of one share of common stock and two share
purchase warrants. Each share purchase warrant entitles the holder to purchase
one share of common stock at US$0.11 per share expiring on February 5,
2011.
b) On July 8, 2009,
the Company was to issue 75,000 shares of common stock at a value of $2,627 as
compensation for investor relations and marketing services per the terms of an
agreement dated July 1, 2009. This amount is included in common stock to be
issued at December 31, 2009. Refer to Notes 9(d) and 11.
c) On December 16,
2009, the Company issued 125,000 shares of common stock to a former employee
according to the employment agreement referred to in Note 9(a) for services
performed for the years ended July 28, 2008 and 2009. As at December 31, 2009,
the 375,000 shares purchase warrants that were to have been issued under the
agreement have not been issued. However, 375,000 shares were issued in error.
The Company is in the process of cancelling the additional 375,000 shares and
replacing them with share purchase warrants. At December 31, 2009, the par value
of these shares has been recorded as additional paid-in capital and 250,000 of
the share purchase warrants have been presented as issued (see Note
8).
d) On February 12,
2008, the Company issued 970,585 units at US$0.17 per unit for gross proceeds of
$165,000 (US$165,000). Each unit consisted of one share of common stock and one
share purchase warrant. Each share purchase warrant entitles the holder to
purchase one share of common stock at US$0.30 per share expiring two years from
the closing date.
F-11
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
7. Common
Stock (continued)
e) On July 10, 2008,
the Company issued 3,609,137 shares of common stock pursuant to the conversion
of convertible notes issued on February 26, 2007, and accrued interest thereon.
Upon conversion, 2,401,464 shares of common stock were issued to a company in
which the President of the Company holds a minority interest and 1,207,673
shares of common stock were issued to a company controlled by another director
of the Company.
f) On August 19, 2008,
the Company issued 62,500 shares of common stock with a fair value of $32,684 to
a former employee of the Company. Refer to Note 9(a).
g) On November 24,
2008, the Company issued 75,000 restricted shares of common stock with a fair
value of $3,374 for investor relations services.
8. Share Purchase
Warrants
A
summary of the changes in the Company’s common share purchase warrants is
presented below:
|
Number
of Warrants
|
Weighted
Average Exercise Price
|
|
|
Balance –
December 31, 2007
|
4,925,000
|
US$0.52
|
|
Issued
|
1,158,085
|
US$0.25
|
|
Expired
|
(4,737,500)
|
US$0.50
|
|
Balance –
December 31, 2008
|
1,345,585
|
US$0.39
|
|
Issued
|
3,466,192
|
US$0.11
|
|
Expired
|
(187,500)
|
US$1.04
|
|
Balance –
December 31, 2009
|
4,624,277
|
US$0.15
|
As
at December 31, 2009, the following common share purchase warrants were
outstanding:
|
Number
of Warrants
|
Exercise
Price
|
Expiry
Date
|
|
970,585
|
US$0.30
|
February 12,
2010
|
|
3,278,692
|
US$0.11
|
February 5,
2011
|
|
187,500
|
US$0.23
|
July 28,
2010
|
|
187,500
|
US$0.07
|
July 28,
2011
|
|
4,624,277
|
F-12
Environmental
Control Corp.
(A
Development Stage Company)
Notes
to the Financial Statements
(Expressed
in Canadian Dollars)
9. Commitments
a) On July 28, 2006,
the Company’s board of directors resolved to issue certain share-based payments
to an employee of the Company over a three year period. Under the arrangement,
the employee was to be issued 62,500 shares of common stock and 187,500 share
purchase warrants, each on July 28, 2006, 2007, 2008, and 2009. The Company
issued 62,500 shares on each of March 15, 2007 and August 19, 2008, and issued
125,000 shares on December 16, 2009. On September 12, 2008, the employee
resigned and became a consultant to the Company (refer to Note 9(b)). It was
mutually agreed that the former employee was entitled to the remaining shares
and warrants to be issued under the arrangement. For the year ended December 31,
2009, stock-based compensation of $7,823 (2008 - $33,918) was recorded for the
187,500 warrants earned on July 28, 2009 (2008 – July 28, 2008).
b) On September 15,
2008, the Company entered into a consulting agreement with the former employee
in Note 9(a), for administrative services. Pursuant to the agreement, the
Company agreed to pay the former employee $6,800 per month. This agreement may
be terminated upon three months prior written notice.
c) On December 4,
2008, the Company entered into a contribution agreement with National Research
Council Canada (“NRC”) to bring the Company’s catalytic muffler technology to
commercialization through a two phase research and development project. This
agreement became effective on April 1, 2009 and was scheduled to terminate on
November 30, 2010. Under the agreement, NRC was to reimburse 80% of supported
internal salaries up to a maximum of $115,832 and 50% of supported contractor
fees up to a maximum of $119,645 incurred on the project. NRC was to contribute
a maximum of $125,717 and $109,760 during the fiscal years of the Canadian
government ending March 31, 2010 and 2011, respectively. This agreement was
terminated on September 11, 2009 by mutual agreement.
d) On July 1, 2009,
the Company entered into an investor relations agreement. Pursuant to
the agreement, the Company agreed to pay a fee of $1,000 per month for a period
of six months beginning on August 1, 2009, and ending January 1, 2010. The
Company must also issue 75,000 shares within 7 days of signing the agreement.
Any payments over 45 days will be subject to a penalty fee of 10% per week. As
of December 31, 2009, the shares had not been issued and have been included in
common stock to be issued. Refer to Note 11.
e) On October 15,
2009, the Company entered into a license agreement with a licensee to grant a
non-exclusive license to use, market and sell the Company’s intellectual
property for a period of two years. License and royalty fees are to
be determined prior to the first sale. At the end of the two
year period, the agreement can be renewed for a successive two year period by
mutual agreement.
10. Income
Taxes
The Company is
subject to United States federal and state income taxes at an approximate rate
of 35% (2008 – 35%). The reconciliation of the provision for income taxes at the
United States federal and state statutory rate compared to the Company’s income
tax recovery as reported is as follows:
|
Year
Ended
December
31, 2009
$
|
Year
Ended
December
31, 2008
$
|
|||||||
|
Income tax
recovery computed at the statutory rate
|
104,398 | 220,657 | ||||||
|
Permanent
differences
|
(15,991 | ) | (86,479 | ) | ||||
|
Income tax
rate change
|
– | 3,192 | ||||||
|
Change in
valuation allowance
|
(88,407 | ) | (137,370 | ) | ||||
|
Income tax
recovery
|
– | – | ||||||
Significant
components of the Company’s deferred income tax assets as at December 31, 2009
and 2008, after applying enacted corporate income tax rates, are as
follows:
|
December
31, 2009
$
|
December
31, 2008
$
|
|||||||
|
Deferred
income tax assets
|
||||||||
|
Cumulative
net operating losses
|
334,316 | 245,909 | ||||||
|
Valuation
allowance
|
(334,316 | ) | (245,909 | ) | ||||
|
Net deferred
income tax assets
|
– | – | ||||||
The Company has net
operating loss carryforwards of $955,189 which expire commencing in
2027.
11. Subsequent
Events
On
February 8, 2010, the Company issued 75,000 shares as compensation for investor
relations and marketing services. Refer to Notes 7(b) and
9(d).
F-13
None.
Evaluation of Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and
Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
In
designing and evaluating our disclosure controls and procedures, our management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management is required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As
of December 31, 2009, the end of the period covered by this annual report, our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of our
disclosure controls and procedures. Based on the foregoing, our management
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this annual report.
Management Report on
Internal Control over Financial Reporting
Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting. Responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of control
procedures. The objectives of internal control include providing management with
reasonable, but not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition, and that transactions are executed in
accordance with management’s authorization and recorded properly to permit the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States. Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2009. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control-Integrated Framework. Our management has concluded that, as
of December 31, 2009, our internal control over financial reporting is effective
in providing reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. Our management
reviewed the results of their assessment with our Board of
Directors.
This annual report
does not include an attestation report of our registered public accounting firm
regarding our internal control over financial reporting. Management’s report was
not subject to attestation by our registered public accounting firm due to
temporary rules of the SEC that permit us to provide only the conclusions to
management’s report in this annual report.
Changes in Internal
Control
During the fiscal
year ended December 31, 2009 there were no changes in our internal control over
financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the
Exchange Act) that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Not
applicable.
None.
9
The following table
sets forth the name, age and position of our executive officers and directors as
of March 31, 2010.
|
Name
|
Age
|
Position
|
|
Albert E.
Hickman
|
67
|
President,
Chief Executive Officer, Chairman and Director
|
|
Gary
Bishop
|
49
|
Chief
Financial Officer and Director
|
|
Nils
Rodeblad
|
64
|
Director
|
|
Michael J.
Mugford
|
42
|
Director
|
|
Edward P.
Noonan
|
69
|
Director
|
Our current
directors will hold office until our next annual stockholder meeting or until
their successors have been elected and qualified. Our officers are appointed by
our Board of Directors and hold office until their death, resignation or removal
from office. There are no arrangements, agreements or understandings between
non-management security holders and management under which non-management
security holders may directly or indirectly participate in or influence the
management of our affairs.
Albert
E. Hickman, President, Chief Executive Officer, Chairman and
Director
Mr. Hickman was
appointed as our President, Chief Executive Officer, Chairman and Director on
September 22, 2006. He is currently the Chairman of the Hickman Group of
Companies, a group with diversified activities in Atlantic Canada that includes
Hickman Motors Limited, Hickman Leasing Limited, Hickman Saturn SAAB, Budget
Rent-A-Car, and Body Works Limited.
After 16 years on
the Board of Directors of Canadian Imperial Bank of Commerce, Mr. Hickman
retired from in 2006. He is currently a Director of Buchans River Ltd. and
Churchill Falls (Labrador) Corporation Ltd., and is a former Director of Fishery
Products International (as Lead Director), Newtel Enterprises and Aliant Inc.
Throughout his career, Mr. Hickman has served on many national committees and
advisory boards associated with the automotive industry.
Gary
Bishop, Chief Financial Officer and Director
Mr. Bishop was
appointed as our Chief Financial Officer and Director on September 22, 2006. He
is currently the Vice-President, Finance and Chief Financial Officer of the
Hickman Group of Companies.
Mr. Bishop is a
Chartered Accountant who graduated from Memorial University in St. John’s,
Newfoundland, Canada with a Bachelor of Commerce degree and a Masters of
Business Administration degree. He has served on the Board of Directors for a
number of private corporations as well as been the Chairman of the Board of The
Credit Bureau of St. John’s Limited.
Nils
Rodeblad, Director
Mr. Rodeblad was
appointed as our Director on September 22, 2006.
Mr. Rodeblad has
acted as the owner and operator of N.B.R. Consulting Ltd. in St. John’s,
Newfoundland, Canada for over 28 years. He has gained significant consulting
experience worldwide, including over 15 years of full-time consulting work for
the Hickman Group of Companies as well as consulting work for various
transportation companies in Sweden.
Michael
J. Mugford, Director
Mr. Mugford was
appointed as our Director on September 22, 2006. Mr. Mugford is currently a
Director of MJM Enterprises Inc., a multimillion dollar international business
practice that he founded in 2003.
Mr. Mugford
formerly worked in a sales capacity for Xerox Corporation, and has held several
executive positions with publicly traded companies over the course of his
career.
Edward
P. Noonan, Director
Mr. Noonan was
appointed as our Director on September 22, 2006. He is currently a partner of
Noonan, Oakley Barristers and Solicitors, located in St. John's, Newfoundland,
Canada.
Mr. Noonan was
admitted to the Law Society of Newfoundland in 1970, and was appointed Queen's
Counsel in 1993. He currently serves as Director of the St. John's Port
Authority.
None of our
directors currently serve as directors of any other public company or any
company registered as an investment company.
10
Significant
Employees
There are no
individuals other than our executive officers who make a significant
contribution to our business.
Family
Relationships
There are no family
relationships among our directors, executive officers or persons nominated or
chosen by us to become directors or executive officers.
Legal
Proceedings
None of our
directors, executive officers, promoters or control persons has been involved in
any of the following events during the past five years:
|
●
|
any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that
time;
|
|
●
|
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
|
●
|
being subject
to any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
●
|
being found
by a court of competent jurisdiction (in a civil action), the SEC or the
Commodity Futures Trading Commission to have violated any federal or state
securities or commodities law, and the judgment has not been subsequently
reversed, suspended or vacated.
|
Section 16(a) Beneficial
Ownership Compliance Reporting
Section 16(a) of
the Exchange Act requires our directors, executive officers and persons who own
more than ten percent (10%) of our common stock to file reports regarding
ownership of, and transactions in, our securities with the SEC and to provide us
with copies of those filings. Based solely on our review of the copies of such
forms received by us, or written representations from certain reporting persons,
we believe that during fiscal year ended December 31, 2009 our directors,
executive officers and ten percent (10%) stockholders complied with all
applicable filing requirements.
Code of
Ethics
We
have adopted a Code of Ethics and Business Conduct (the “Code”) that applies to
our principal executive officer, principal financial officer and principal
accounting officer, or persons performing similar functions (the “Senior
Officers”), as well as our directors and employees. As adopted, the Code sets
forth written standards that are designed to deter wrongdoing and to
promote:
|
●
|
honest and
ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
|
●
|
full, fair,
accurate, timely, and understandable disclosure in reports and documents
that we file with, or submit to, the SEC and in other public
communications made by us;
|
|
●
|
compliance
with applicable governmental laws, rules and
regulations;
|
|
●
|
the prompt
internal reporting of violations of the Code to an appropriate person or
persons identified in the Code; and
|
|
●
|
accountability
for adherence to the Code.
|
11
The Code requires
that, among other things, our Senior Officers commit to the timely, accurate and
consistent disclosure of information; maintain confidential information; and act
with honesty and integrity. In addition, it emphasizes that our Senior Officers,
directors and employees have a responsibility for maintaining our financial
integrity, consistent with generally accepted accounting principles and federal
and state securities laws. Any Senior Officer who becomes aware of any incidents
involving financial or accounting manipulation or other irregularities, whether
by witnessing the incident or being told of it, must report it to us. Any
failure to report such inappropriate or irregular conduct is to be treated as a
severe disciplinary matter. It is not our policy to retaliate against any
individual who reports in good faith any violation or potential violation of the
Code.
The Code was
included as an exhibit to our annual report on Form 10-KSB filed with the SEC on
April 15, 2008. We undertake to provide a copy of the Code to any person without
charge, upon request sent to either of our executive offices.
Audit
Committee
On
September 30, 2009 we established an audit committee and directed the audit
committee to carry out its duties in accordance with a charter. A current copy
of our audit committee charter is not yet available to our security holders on
our website, but we plan to make the charter available there in the near future.
Gary Bishop, our Chief Financial Officer and Director, is the sole member of our
audit committee.
Our audit committee
has:
|
●
|
reviewed and
discussed our audited financial statements with
management;
|
|
●
|
recommended
to our Board of Directors that the audited financial statements be
included this annual report on Form
10-K;
|
|
●
|
discussed
with our independent auditors the matters required to be discussed by the
statement on Auditing Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1, AU section 380), as adopted by the Public Company
Accounting Oversight Board (the “PCAOB”) in Rule 3200T;
and
|
|
●
|
received the
written disclosures and the letter from the independent accountant
required by applicable requirements of the PCAOB regarding the independent
accountant’s communications with the audit committee concerning
independence, and discussed with the independent accountant the
independent accountant's
independence.
|
Our Board has
determined that we do not have an audit committee financial expert on our Board
carrying out the duties of the audit committee. The Board has determined that
the cost of hiring a financial expert to act as a director and to be a member of
the audit committee or otherwise perform audit committee functions outweighs the
benefits of having an audit committee financial expert on the
Board.
Nominating
Committee
We
do not have a nominating committee. Our Board of Directors selects individuals
to stand for election as members of the Board. Since the Board of Directors does
not include a majority of independent directors, the decision of the Board as to
director nominees is made by persons who have an interest in the outcome of the
determination. The Board will consider candidates for directors proposed by
security holders, although no formal procedures for submitting candidates have
been adopted. Unless otherwise determined, not less than 90 days prior to the
next annual meeting of the Board of Directors at which the slate of Board
nominees is adopted, the Board will accept written submissions of proposed
nominees that include the name, address and telephone number of the proposed
nominee; a brief statement of the nominee’s qualifications to serve as a
director; and a statement as to why the security holder submitting the proposed
nominee believes that the nomination would be in the best interests of security
holders. If the proposed nominee is not the same person as the stockholder
submitting the name of the nominee, a letter from the nominee agreeing to the
submission of his or her name for consideration should be provided at the time
of submission. The letter should be accompanied by a résumé supporting the
nominee's qualifications to serve on the Board of Directors, as well as a list
of references.
12
The Board
identifies director nominees through a combination of referrals from different
people, including management, existing Board members and security holders. Once
a candidate has been identified, the Board reviews the individual's experience
and background and may discuss the proposed nominee with the source of the
recommendation. If the Board believes it to be appropriate, Board members may
meet with the proposed nominee before making a final determination whether to
include the proposed nominee as a member of management's slate of director
nominees submitted to security holders for election to the Board.
Among the factors
that the Board considers when evaluating proposed nominees are their knowledge
of and experience in business matters, finance, capital markets and mergers and
acquisitions. The Board may request additional information from any candidate
prior to reaching a determination. The Board is under no obligation to formally
respond to all recommendations, although as a matter of practice, it will
endeavor to do so.
None of our
directors or executive officers has received any compensation from us during our
last three fiscal years. Pursuant to Item 402(a)(5) of Regulation S-K we have
omitted all tables and columns since no compensation has been awarded to, earned
by, or paid to these individuals.
Pension, Retirement or
Similar Benefit Plans
There are no
arrangements or plans in which we provide pension, retirement or similar
benefits to our directors or executive officers. We have no material bonus or
profit sharing plans pursuant to which cash or non-cash compensation is or may
be paid to our directors or executive officers, except that stock options may be
granted at the discretion of the Board of Directors or a committee
thereof.
Compensation
Committee
We
currently do not have a compensation committee of the Board of Directors or a
committee performing a similar function. It is the view of the Board that it is
appropriate for us not to have such a committee because of our size and because
the Board as a whole determines executive compensation.
Compensation of
Directors
We
reimburse our directors for expenses incurred in connection with attending board
meetings but did not pay director's fees or other cash compensation for services
rendered during the fiscal year ended December 31, 2009.
We
have no formal plan for compensating our directors for their service in their
capacity as directors, although such directors are expected in the future to
receive options to purchase our common stock as awarded by our Board of
Directors or any committee thereof. Our Board may also award special
remuneration to any director undertaking any special services on our behalf
other than services ordinarily required of a director. No director received
and/or accrued any compensation for their services as a director, including
committee participation and/or special assignments.
Change of
Control
As
of March 31, 2010 we had no pension plans or compensatory plans or other
arrangements which provide compensation in the event of a termination of
employment or a change in our control.
13
We
do not have any compensation plans or individual compensation arrangements under
which our securities are authorized for issuance to either employees or
non-employees.
The following table
sets forth, as of March 31, 2010, certain information with respect to the
beneficial ownership of our common stock by each of our directors, by all of our
executive officers and directors as a group and by each person known to us who
is the beneficial owner of more than 5% of any class of our securities. As of
March 31, 2010, there were 45,869,068 issued and outstanding shares of our
common stock. All persons named have sole voting and investment power with
respect to the shares, except as otherwise noted. The number of shares described
below includes shares which the beneficial owner described has the right to
acquire within 60 days of the date of this annual report.
|
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class
|
|
Common
Stock
|
Albert E.
Hickman (1)
85 Rennie’s
Mill Road
St. John’s,
Newfoundland
Canada A1C
3P9
|
2,416,464
(2)
|
5.3
|
|
Common
Stock
|
Gary Bishop
(3)
5 Lamanch
Place
St. John’s,
Newfoundland
Canada A1E
4P6
|
0
|
0
|
|
Common
Stock
|
Nils Rodeblad
(4)
13 Cedarhurst
Place
St. John’s,
Newfoundland
Canada A1G
1T8
|
0
|
0
|
|
Common
Stock
|
Michael J.
Mugford (5)
15365
Brookside Avenue
West
Vancouver, British Columbia
Canada V7W
1N2
|
1,861,452
(6)
|
4.1
|
|
Common
Stock
|
Edward P.
Noonan (7)
381 Pine
Line
Torbay,
Newfoundland
Canada A1K
1A2
|
0
|
0
|
|
All
Officers and Directors as a Group
|
4,277,916
|
9.4
|
|
|
Common
Stock
|
Environmental
Control Corporation (8)
85 Kenmount
Road
St. John’s,
Newfoundland
Canada A1B
3N7
|
22,500,000
|
49.1
|
|
Common
Stock
|
Hickman
Motors Limited (9)
PO Box 8340,
Stn A
St. John’s,
Newfoundland
Canada A1B
3N7
|
2,401,464
|
5.2
|
14
|
(1)
|
Mr. Hickman
is our President, Chief Executive Officer, Chairman and
Director.
|
|
(2)
|
Includes
2,401,464 shares held by Hickman Motors, a company over which Mr. Hickman
has shared voting and investment power, and 15,000 shares held by Mr.
Hickman directly.
|
|
(3)
|
Mr. Bishop is
our Chief Financial Officer and
Director.
|
|
(4)
|
Mr. Rodeblad
is our Director.
|
|
(5)
|
Mr. Mugford
is our Director.
|
|
(6)
|
These shares
are held by MJM Enterprises Ltd., a company over which Mr. Mugford has
sole voting and investment power.
|
|
(7)
|
Mr. Noonan is
our Director.
|
|
(8)
|
The shares of
Environmental Control Corporation are held as follows: 20.05% in a blind
trust over which Edward P. Noonan, our Director, has sole voting and
investment power; 18.02% by Banco Holdings, a company over which Nils
Rodeblad, our Director, has sole voting and investment power; 9.01% by
Gary Bishop, our Chief Financial Officer and Director; and the remaining
52.92% by other investors.
|
|
(9)
|
Albert E.
Hickman, our President, Chief Executive Officer, Chairman and Director,
has shared voting and investment power over the 2,401,464 shares held by
Hickman Motors Limited.
|
Other than as
disclosed in this annual report, we have not entered into any transactions with
our officers, directors, persons nominated for these positions, beneficial
owners of 5% or more of our common stock, or family members of these persons
wherein the amount involved in the transaction or a series of similar
transactions exceeded the lesser of $120,000 or 1% of the average of our total
assets for the last three fiscal years.
Director
Independence
The OTC Bulletin
Board on which our common stock is quoted on does not have any director
independence requirements.
We
currently use NASDAQ’s general definition for determining director independence,
which states that “independent director” means a person other than an officer or
employee of the company or its subsidiaries or any other individual having a
relationship, that, in the opinion of the company’s Board of Directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of the director.
Three of our five
current directors, Nils Rodeblad, Michael J. Mugford and Edward P. Noonan, meet
this definition of independence.
15
Audit and Non-Audit
Fees
The following table
sets forth the fees for professional audit services and the fees billed for
other services rendered by our auditors in connection with the audit of our
financial statements for the years ended December 31, 2009 and 2008, and any
other fees billed for services rendered by our auditors during these
periods.
|
Manning
Elliott LLP Period
from January 1, 2009 to December 31, 2009
|
||||||||
|
Audit
fees
|
$ | 17,000 | ||||||
|
Audit-related
fees
|
$ | 6,000 | ||||||
|
Tax
fees
|
$ | 0 | ||||||
|
All other
fees
|
$ | 0 | ||||||
|
Total
|
$ | 23,000 | ||||||
|
Manning
Elliott LLP Period
from January 1, 2007 to December 31, 2008
|
||||||||
|
Audit
fees
|
$ | 24,000 | ||||||
|
Audit-related
fees
|
$ | 0 | ||||||
|
Tax
fees
|
$ | 0 | ||||||
|
All other
fees
|
$ | 9,000 | ||||||
|
Total
|
$ | 33,000 | ||||||
From our inception
on March 6, 1999 to September 30, 2009, our Board of Directors, performing the
duties of the audit committee, reviewed all audit and non-audit related fees at
least annually. Since October 1, 2009 this review has been carried out by our
audit committee. Our audit committee pre-approved all audit related services for
the year ended December 31, 2009.
16
(a)(1) Financial
Statements
See the “Index to
Consolidated Financial Statements” set forth on page F-1.
(a)(2) Financial
Statement Schedules
None. The financial
statement schedules are omitted because they are inapplicable or the requested
information is shown in our financial statements or the notes related
thereto.
|
Exhibit
Number
|
Exhibit
Description
|
|
3.1
|
Contribution
Agreement with National Research Council of Canada Industrial Research
Program (1)
|
(1) Included
as an exhibit to our Current Report on Form 8-K filed on February 4,
2009.
17
Pursuant to the
requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Date:
March 31, 2010
|
Environmental Control
Corp.
|
|
|
(Registrant)
|
||
| By: |
/s/
Albert E. Hickman
|
|
|
Albert
Hickman
|
||
|
President,
Chief Executive Officer, Chairman and Director
|
||
|
|
/s/
Gary Bishop
|
|
|
Gary
Bishop
|
||
|
Chief
Financial Officer and Director
|
Pursuant to the
requirements of the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
||
|
/s/
Albert E. Hickman
|
President,
Chief Executive Officer, Chairman and Director
|
March 31,
2010
|
||
|
Albert E.
Hickman
|
||||
|
/s/
Gary Bishop
|
Chief
Financial Officer and Director
|
March 31,
2010
|
||
|
Gary
Bishop
|
||||
|
/s/
Nils Rodeblad
|
Director
|
March 31,
2010
|
||
|
Nils
Rodeblad
|
||||
|
/s/
Michael J. Mugford
|
Director
|
March 31,
2010
|
||
|
Michael J.
Mugford
|
||||
|
/s/
Edward P. Noonan
|
Director
|
March 31,
2010
|
||
|
Edward P.
Noonan
|
18