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EX-99 - GlyEco, Inc.evcl123110exh9910.pdf
EX-31 - GlyEco, Inc.evcl123110kexh311.htm
EX-31 - GlyEco, Inc.evcl123110kexh312.htm
EX-32 - GlyEco, Inc.evcl123110kexh321.htm
EX-32 - GlyEco, Inc.evcl123110kexh322.htm
EX-99 - GlyEco, Inc.evcl123110kexh9910.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

[X]  

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

 

For the fiscal year ended December 31, 2010

 

or

 

 

[ ]  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

 

For the transition period from ____________________________to____________________________

 

Commission File Number:  000-28684

 

Environmental Credits, Ltd.
(Name of Small Business Issuer in Its Charter)

 

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

 

33-0824801
(I.R.S. Employer Identification No.)

 

5782 Caminito Empresa, La Jolla, California 92037
(Address of Principal Executive Offices)               (Zip Code)

 

(619) 895-6900
(Issuer's Telephone Number, Including Area Code)

 

Securities registered under Section 12(g) of the Exchange Act:

 


Title of Each Class

Common Stock (par value $0.001)

 

Name of Exchange
On Which Registered
_______________________________

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

  Yes  [  ]    No  [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

  Yes  [X]    No  [  ]

 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  Yes  [X]    No  [  ]

 

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 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.

[X]

 

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  [  ]

Accelerated filer  [  ]

Non-accelerated filer  [  ]
(Do not check if a smaller reporting company)

Smaller reporting company  [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

  Yes  [X]    No  [  ]

 

State 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, as of the last business day of the registrant's most recently completed second fiscal quarter:  $ 121,371.32 AS OF March 28, 2011.

 

Note - If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

  Yes  [X]    No  [  ]

 

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:  73,034,283 as of March 28, 2011.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 31, 2009).

 

ENVIRONMENTAL CREDITS, LTD.
INDEX TO ANNUAL REPORT
ON FORM 10-K

   

Page

 

PART I

 

Item 1.

Description of Business

6

Item1A.

Risk Factors

10

Item 1B.

Unresolved Staff Comments

13

Item 2.

Description of Property

13

Item 3.

Legal Proceedings

13

Item 4.

Reserved

13

 

   
 

PART II

 

Item 5.

Market for Common Equity, Related Stockholder Matters and

 
 

Issuer Purchases of Equity Securities

13

Item 6

Selected Financial Data

14

Item 7.

Management's Discussion and Analysis of Financial Condition or Plan of Operation

14

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 8.

Financial Statements and Supplementary Data

18

Item 9.

Changes and Disagreements With Accountants on Accounting and Financial Disclosure

18

Item 9A.

Controls and Procedures

18

Item 9B.

Other Information

19

 

   
 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

20

Item 11.

Executive Compensation

20

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

21

Item 13.

Certain Relationships and Related Transactions and Director Independence

21

Item 14.

Principal Accounting Fees and Services

22

 

   
 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedule

23

 

   

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

F-1

4

 

MATTER OF FORWARD-LOOKING STATEMENTS

THIS FORM 10-K CONTAINS "FORWARD-LOOKING STATEMENTS" THAT CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," OR "ANTICIPATES," OR THE NEGATIVE OF THESE WORDS OR OTHER VARIATIONS OF THESE WORDS OR COMPARABLE WORDS, OR BY DISCUSSIONS OF PLANS OR STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. MANAGEMENT WISHES TO CAUTION THE READER THAT THESE FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED TO, STATEMENTS REGARDING THE COMPANY'S MARKETING PLANS, GOALS, COMPETITIVE CONDITIONS, REGULATIONS THAT AFFECT PUBLIC COMPANIES THAT HAVE NO EXISTING BUSINESS AND OTHER MATTERS THAT ARE NOT HISTORICAL FACTS ARE ONLY PREDICTIONS. NO ASSURANCES CAN BE GIVEN THAT SUCH PREDICTIONS WILL PROVE CORRECT OR THAT THE ANTICIPATED FUTURE RESULTS WILL BE ACHIEVED. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY EITHER BECAUSE ONE OR MORE PREDICTIONS PROVE TO BE ERRONEOUS OR AS A RESULT OF OTHER RISKS FACING THE COMPANY. FORWARD-LOOKING STATEMENTS SHOULD BE READ IN LIGHT OF THE CAUTIONARY STATEMENTS AND IMPORTANT FACTORS DESCRIBED IN THIS FORM 10-KSB FOR ENVIRONMENTAL CREDITS, LTD., INCLUDING, BUT NOT LIMITED TO "THE FACTORS THAT MAY AFFECT FUTURE RESULTS" SHOWN AS ITEM 1A AND IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS ASSOCIATED WITH AN EARLY-STAGE COMPANY THAT HAS ONLY A LIMITED HISTORY OF OPERATIONS, THE COMPARATIVELY LIMITED FINANCIAL RESOURCES OF THE COMPANY, THE INTENSE COMPETITION THE COMPANY FACES FROM OTHER ESTABLISHED COMPETITORS, REGULATORY BURDENS PLACED ON PUBLIC SHELL COMPANIES, ANY ONE OR MORE OF THESE OR OTHER RISKS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FUTURE RESULTS INDICATED, EXPRESSED, OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT TO REFLECT EVENTS, CIRCUMSTANCES, OR NEW INFORMATION AFTER THE DATE OF THIS FORM 10-K OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED OR OTHER SUBSEQUENT EVENTS.

5

 

PART I

As used herein, the term "we," "us," "our," and the "Company" refers to Environmental Credits, Ltd., a Delaware corporation and our subsidiaries, unless otherwise noted.

 

Item 1.  Description of Business.

Company History

We were incorporated under the name Wagg Corp. in the State of Delaware on April 21, 1997.

In January 1998 we changed our name to Alternative Entertainment, Inc. (the same name of a Nevada corporation identified below as "AEI-Nevada") previously established for the operation of the Company's business) and in December 1998 we changed our name to BoysToys.com, Inc.

On May 8, 2001, the Company filed a petition with the United States Bankruptcy Court for the Northern District of California for relief under Chapter 11 of the United States Bankruptcy Code. The filing was in response to an unexpected attempt by the landlord to terminate the Company's long-term lease for the Company's then-existing upscale gentlemen's club in San Francisco, California (the "Club").

On September 12, 2002, the United States Bankruptcy Court for the Northern District of California transferred the Club and all of our assets and operations from us. Thus, from September 12, 2002 through the present, we have not had any assets or operations. Our prior proposed plan of reorganization was rejected by the Court. Currently, we have no assets or operations and we are a mere "public shell" company.

On October 6, 2002, the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court") entered an order for Chapter 7 dissolution.

On May 2, 2007, the Bankruptcy Court entered an order closing our bankruptcy case. As a result, we emerged from the jurisdiction of the Bankruptcy Court's jurisdiction on that date.

On March 7, 2008, we held our first-ever stockholder's meeting. At the meeting, our stockholders approved the following actions:

(A)

the proposed reverse split of our Common Stock (par value $0.01) so that upon effectuation of the split, one New Share (of our Common Stock) will be issued for each two hundred (200) shares of our Common Stock currently issued and outstanding with each fractional share rounded up to the next whole share (the "Reverse Split");

(B)

the proposed the amendment to our Certificate of Incorporation to change our name from BoysToys.com, Inc. to Environmental Credits, Ltd.;

(C)

the proposed appointment of Stan Lee, CPA as the Company's independent auditor; and

(D)

the proposed amendment to our Certificate of Incorporation to increase the authorized number of shares of our Common Stock (par value $0.01) from 20,000,000 to 300,000,000 (par value $0.01).

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We subsequently filed Form 8-K with the U.S. Securities and Exchange Commission and changed our trading symbol to EVCL.

As a result of the Reverse Split and the conversion of 150,000 shares of our Series A Preferred Stock previously issued to a non-affiliate stockholder, we have 3,034,283 shares of our Common Stock that are "freely tradable securities" and the balance or 70,000,000 shares of our Common Stock are "restricted securities" (as both of these terms are used in the Securities Act of 1933). All of the 70,000,000 shares are held and owned by our President, founder (and "supreme leader"), Ralph M. Amato.

Notwithstanding these actions, we have minimal financial resources and our very existence as a corporate enterprise can not be assured. We have continued to file the reports required by Section 13(a) of the Securities Exchange Act of 1934 in deference to our loyal stockholders and our former employees, especially the extraordinarily beautiful employees who worked at our Club.

Our Prior Business - Prior to September 12, 2002

Prior to September 12, 2002 and through its wholly-owned subsidiary, RMA of San Francisco, Inc., a California corporation ("RMA"), we owned and operated an upscale gentlemen's club in San Francisco, California (the "Club") under the name, "Boys Toys Club."

We originally intended to operate the Club through Boys Toys Cabaret Restaurants, Inc., a California corporation ("BTC Restaurants") that is currently a dormant corporation with no operations or assets. All assets and operations of BTC Restaurants were previously owned by RMA.

Previously, we had the following subsidiaries: RMA, BTC Restaurants, and Alternative Entertainment, Inc., a Nevada corporation ("AEI-Nevada") of which only RMA had any assets or operations. From January 26, 2000 to September 12, 2002, we operated the Club. It comprised 15,000 square feet. We held an alcoholic beverage license, a cabaret license, and all other licenses and permits required by the City and County of San Francisco, California. The Club and all of our assets and operations were transferred by the Court on September 12, 2002 and currently we have no business or operations.

Our Current Business & Change of Company Name

Since the loss of our assets and business on September 12, 2002, we have become a "shell company" (within the meaning of Rule 12b-2 of the Securities Exchange Act of 1934). From that date until May 2, 2007, we remained subject to the jurisdiction of the Bankruptcy Court. Since May 2, 2007, our sole officer and director, Ralph Amato has, to the extent that he has been able, to explore other business opportunities for us that may be appropriate and feasible in the context of our circumstances. Since we have almost no financial resources and we are financially dependent upon Mr. Amato for our very existence, these exploratory efforts have been limited.

The following are "Forward-Looking Statements. To the extent that we are able, we may undertake efforts to merge with or acquire an operating company with operating history and assets. The exact form and nature of any investment or activity that we may undertake has not yet been determined. In our current condition, the Securities and Exchange Commission has defined and designated our company as a "public shell" company with all of the unfortunate aspects of that moniker.

7

 

If we do not successfully acquire or develop some form of operating business, then our primary activity will likely involve seeking merger or acquisition candidates with whom we can either merge or acquire. While our stockholders on March 7, 2008 approved the change in our name to "Environmental Credits, Ltd.," the exact form and nature of any business that we may pursue has not been determined. Our plans are in the conceptual stage only and we may or may not pursue any specific investments or business activity.

We will not likely restrict our search to any specific business, industry or geographical location, and we may participate in a business venture of virtually any kind or nature. The discussion of the proposed business under this caption is a "forward-looking statement" and is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to search for and enter into potential business opportunities.

We may, if circumstances and opportunities are appropriate, obtain funds in one or more private placements to finance the operation of any acquired business. Persons purchasing securities in these placements and other shareholders will likely not have the opportunity to participate in the decision relating to any acquisition. Our existing status as a "shell company" will limit the ability of any purchaser of our securities in any private placement to undertake any resale of securities under Rule 144 of the Securities Act of 1933. This will likely adversely impact our ability to attract necessary capital and thus result in greater dilutive costs that we may incur should we ever obtain capital on a private placement basis.

On February 15, 2008, the Securities and Exchange Commission adopted amendments to Rule 144 which included the amendment to Rule 144(i). This change, among other changes, adversely impacts our ability to undertake any acquisitions and our ability to attract additional capital since we are a "shell company" within the meaning of Rule 144(i) of the Securities Act of 1933. As a result, stockholders who own or hold restricted securities are not able to assert a claim to the exemption to the registration requirements of Section 5 of the Securities Act of 1933 provided by Rule 144 there under.

Overall, our potential success is heavily dependent on our one office and director, Ralph M. Amato. Mr. Amato will have virtually unlimited discretion in searching for and entering into a business opportunity. There can be no assurance that we will be able to raise any funds in private placements.

To the extent that we are able, we will likely participate in one potential business venture. This lack of diversification should be considered a substantial risk in investing in us because it will not permit us to offset potential losses from one venture against gains from another.

We may seek a business opportunity with a firm which only recently commenced operations, or a developing company in need of additional funds for expansion into new products or markets, or seeking to develop a new product or service, or an established business which may be experiencing financial or operating difficulties and is in the need for additional capital which is perceived to be easier to raise by a public company. In some instances, a business opportunity may involve the acquisition or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock. We may purchase assets and establish wholly owned subsidiaries in various businesses or purchase existing businesses as subsidiaries.

We anticipate that the selection of a business opportunity in which we may participate will be complex and extremely risky. Because of general economic conditions (including the current recessionary environment), rapid technological advances being made in some industries, and shortages of available capital, management believes that there are numerous firms seeking the benefits of a publicly traded corporation. Such perceived benefits of a publicly traded corporation may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for the principals of a business, creating a means for providing incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all shareholders, and other factors. Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.

8

 

As is customary in the industry, we may pay a finder's fee for locating an acquisition prospect. If any such fee is paid, it will be approved by our Board of Directors and will be in accordance with the industry standards. Such fees are customarily between 1% and 5% of the size of the transaction, based upon a sliding scale of the amount involved. Such fees are typically in the range of 5% on a 41,000,000 transaction ratably down to 1% in a $4,000,000 transaction.

We have insufficient capital with which to provide the owners of business opportunities with any significant cash or other assets. However, management believes we will offer owners of business opportunities the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering.

The owners of the business opportunities will, however, incur significant post-merger or acquisition registration costs in the event they wish to register a portion of their shares for subsequent sale. We will also incur significant legal and accounting costs in connection with the acquisition of a business opportunity including the costs of preparing post-effective amendments, Forms 8-K, agreements and related reports and documents, nevertheless, the officers and directors of the Companies have not conducted market research and are not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity.

We do not currently intend to make any loans to any prospective merger or acquisition candidates or to unaffiliated third parties.

On September 17, 2007, we entered into a Letter of Intent with GHG Trading Platforms, Inc. ("GHG"). The terms of the Letter of Intent are set forth in the Company's Form 8-K that was filed September 20, 2007. In general, the Letter of Intent contemplated that we would complete negotiations with GHG for a contemplated acquisition transaction. While the Letter of Intent contained the usual and customary qualification that the Letter of Intent was a mere expression of intent and that it was not binding as a contract, we and GHG have not completed the negotiations with respect the contemplated acquisition. For these reasons, we have determined that the acquisition has been abandoned by GHG; we do not anticipate that any transaction with GHG will be forthcoming.

Evaluation of Opportunities

Our initial business ended in bankruptcy. Any new and prospective business, venture, or acquisition that we may undertake will be evaluated by our sole officer and director, Ralph M. Amato. However, in analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operation, if any; prospects for the future; present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services or trades; name identification; and other relevant factors. Officers and directors of each company will meet personally with management and key personnel of the firm sponsoring the business opportunity as part of their investigation. To the extent possible, we intend to utilize written reports and personal investigation to evaluate the above factors.

9

 

We will not acquire or merge with any company for which audited financial statements cannot be obtained. It may be anticipated that any opportunity in which we participate will present certain risks. Many of these risks cannot be adequately identified prior to selection of the specific opportunity, and our shareholders must, therefore, depend on the ability of management to identify and evaluate such risk. In the case of some of the opportunities available to us, it may be anticipated that the promoters thereof have been unable to develop a going concern or that such business is in its development stage in that it has not generated significant revenues from its principal business activities prior to our participation.

There is a risk, even after our participation in the activity and the related expenditure of our funds, that the combined enterprises will still be unable to become a going concern or advance beyond the development stage. Many of the opportunities may involve new and untested products, processes, or market strategies which may not succeed. Such risks will be assumed by us and, therefore, by our shareholders.

We will not restrict its search for any specific kind of business, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is currently impossible to predict the status of any business in which we may become engaged, in that such business may need additional capital, may merely desire to have our shares publicly traded, or may seek other perceived advantages which we may offer.

As stated above, we entered into a Letter of Intent with GHG Trading Platforms, Inc. ("GHG") on September 17, 2007. Based on our current assessments, we determined that the acquisition has been abandoned by GHG and we do not anticipate that any transaction with GHG will be forthcoming in the near future.

Overall and notwithstanding the efforts that our sole officer and director has taken and anticipates taking in the future, there can be no assurance that we will enter into any business venture or complete any acquisition or otherwise achieve any business or financial success.

 

Item 1A.  Risk Factors

We have no material assets, business, or operations and there can be no assurance that we will ever have or acquire any assets, business, or operations at any time in the future. We are a mere "public shell" and currently we do not have any future prospect of ever holding any business or operations. An investment into the Company or the purchase of our common stock should be considered appropriate only for those persons who can accept the total loss of their investment since the Company and our securities involve continuing and substantial risks that are not suitable or appropriate for investment purposes. Overall, these risks arise from factors over which we will have little or no control. Some adverse events may be more likely than others and the consequence of some adverse events may be greater than others. No attempt has been made to rank risks in the order of their likelihood or potential harm. In addition to those general risks enumerated elsewhere, any purchaser of our Common Stock should also consider the following factors.

1.  Prior Bankruptcy. We emerged from bankruptcy on May 2, 2007. While we believe that our prior bankruptcy may serve to allow us to put our prior business failure and the claims of our creditors behind us, we have minimal financial resources and our sole officer and director has only a limited amount of time to serve the Company and our interests. As a result, there can be no assurance that we will successfully enter into any business venture or complete any acquisition or merger with any existing operating business or that the problems that afflicted us in bankruptcy may not trouble us further.

10

 

2.  Absence of Assets, Business, Operations & Extraordinary Uncertainties. All of our assets, business, and operations were transferred and taken from the Company on September 12, 2002 by action of the United States Bankruptcy Court. Our ability to undertake any business venture will likely be severely limited and there can be no assurance that we will ever acquire any other business venture or if such a venture is acquired, that any such venture can be acquired on any reasonable terms in light of our current financial circumstances. Our very existence is in doubt and there can be no assurance that we will continue to file its reports required by the Securities Exchange Act of 1934.

3.  Current Financial Structure, Limited Equity, No Working Capital & Need for Additional Financing. Currently, we have no assets, business or operations. We are a mere "public shell" and we rely upon loans and advances from Mr. Amato, a corporate officer to pay the costs of maintaining our corporate existence. The continuing payment of these costs can not be assured. In the event that we were to enter into or acquire another business or venture, we would likely require significant new financing. In that event, our current stockholders would likely incur significant and immediate dilution with the result that our current stockholders would then hold a small and insignificant fraction of our then outstanding common stock. The increase in our authorized Common Stock to 300,000,000 shares, as approved by our stockholders on March 7, 2008, will also adversely impact the control and influence of existing stockholders. As a result, our current stockholders would lose significant control as well as further losses on their investment. There can be no assurance that we will ever receiving any additional financing and we have not received any commitments or assurances from any underwriter, investment banker, venture capital fund, or other individual or institutional investor. There can be no assurance that we will obtain any new financing or, if we are successful, that such financing can be obtained on reasonable terms in light of our current circumstances.

4.  Limited Public Market . There is a limited trading market for our Common Shares, and there is no guarantee that a continuous liquid trading market will subsequently develop. Currently, 3,034,283 shares of our Common Stock are "freely tradable securities" (as that term is used in the Securities Act of 1933). In every respect, there can be no assurance that the Common Shares will ever gain any liquid trading volumes in any other market or gain listing on any stock exchange. Further, our Common Stock is a "Penny Stock" and as such, our to gain a liquid trading market for it will be inhibited by various regulations and there can be no assurance that any liquid trading market for our Common Stock will ever develop or, if it does develop, that it can be maintained. We became a "reporting company" on January 23, 2000.

5.  Dependence Upon Ralph M. Amato & Limited Management Time to Company Matters. We have no full time officers or directors and no full time employees. Further, we have no significant financial resources to employ any person and there is no present prospect that we will obtain financial resources in the near future which would provide the financial resources needed to allow us to employ any person on a full-time basis. As result, no one is able to devote time and energy to our affairs on a full time or on a part-time basis. Any attention that anyone may be able to give to us will be on a limited and sporadic basis and there can be no assurance that this will be sufficient for our purposes.

6.  Control by Ralph M. Amato. Mr. Amato, our founder and sole officer and director, is the holder of 70,000,000 shares or 95.85% of our outstanding Common Stock. In light of the shares held by Mr. Amato, Mr. Amato is in a position to control the Company and any holder of the Company's common stock likely will have little or no influence or control over the Company or its affairs.

7.  Limited Number of Freely Tradable Shares of Common Stock. We have 73,034,283 shares of our Common Stock outstanding. Of this amount, 70,000,000 shares are "restricted securities" and are held by our President and founder, Ralph M. Amato. Another 3,000,000 shares are "freely tradable securities" and are held by a non-affiliate stockholder and the remaining 34,283 shares are "freely tradable securities" and are held by over 760 stockholders of record.

11

 

8.  Potential Dilution. In the event that we enter into or undertake efforts to acquire another business venture, we will likely incur finders' fees, investment banking fees, legal fees, and other similar costs and expenses which would likely result in further immediate, substantial, and irreversible dilution to our stockholders. Our stockholders approved an increase in the Company's authorized Common Stock to 300,000,000 common shares on March 7, 2008. Further, and the newly-revised Rule 144 of the Securities Act of 1933 as revised effective February 15, 2008, the value of the Company's Common Stock in any potential acquisition or merger transaction will likely be accorded a much lower value in view of the filing and 12 month of "periodic report" disclosure obligations that would need to be satisfied after any such transaction. For these reasons, existing stockholder can anticipate substantial and immediate dilution in view of these circumstances.

9.  One Director and Limited Oversight. We have only one Director and one officer: Ralph M. Amato. Although we believe that our Director is able to undertake and fulfill his obligations with respect to the corporate governance of the Company, we do not have an independent audit committee or any independent members of our Board of Directors and given our circumstances there is no present likelihood that we will be successful in obtaining the services of any persons who would be willing to serve as independent Directors or serve on an audit committee.

10.  Risks of Low Priced Stocks. Trading in our Common Stock is limited since our Common Stock is a Penny Stock and thereby the retail market for our Common Stock is subject to burdens that are imposed on brokers whose customers may wish to acquire the Company's Common Stock.

Consequently, a shareholder may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Company's securities. In the absence of a security being quoted on NASDAQ, or the Company having $2,000,000 in net tangible assets, trading in the Common Stock is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 for non-NASDAQ and non-exchange listed securities.

Under such rules, broker/dealers who recommend such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse) must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are also exempt from this rule if the market price is at least $5.00 per share, or for warrants, if the warrants have an exercise price of at least $5.00 per share. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure related to the market for penny stocks and for trades in any stock defined as a penny stock.

The Commission has adopted regulations under such Act which define a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market price or exercise price of less than $5.00 per share and allow for the enforcement against violators of the proposed rules.

In addition, unless exempt, the rules require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule prepared by the Commission explaining important concepts involving a penny stock market, the nature of such market, terms used in such market, the broker/dealer's duties to the customer, a toll-free telephone number for inquiries about the broker/dealer's disciplinary history, and the customer's rights and remedies in case of fraud or abuse in the sale.

Disclosure also must be made about commissions payable to both the broker/dealer and the registered representative, current quotations for the securities, and, if the broker/dealer is the sole market maker, the broker/dealer must disclose this fact and its control over the market. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

While many NASDAQ stocks are covered by the proposed definition of penny stock, transactions in NASDAQ stock are exempt from all but the sole market-maker provision for (i) issuers who have $2,000,000 in tangible assets has been in operation for at least three years ($5,000,000 if the issuer has not been in continuous operation for three years), (ii) transactions in which the customer is an institutional accredited investor, and (iii) transactions that are not recommended by the broker/dealer.

In addition, transactions in a NASDAQ security directly with the NASDAQ market maker for such securities, are subject only to the sole market-maker disclosure, and the disclosure with regard to commissions to be paid to the broker/dealer and the registered representatives. The Company's securities are subject to the above rules on penny stocks and the market liquidity for the Company's securities could be severely affected by limiting the ability of broker/dealers to sell the Company's securities.

12

 

Item 1B.  Unresolved Staff Comments.

None.

 

Item 2.  Description of Property

We maintain an office on a rent free basis under an oral agreement as provided by our President, Ralph M. Amato. We have only one part-time employee.

 

Item 3.  Legal Proceedings

None.

 

Item 4.  Reserved.

 

 

PART II

 

Item 5.  Market for Common Equity, Related Stockholder Matters, and Small Business Issuer Purchases of Equity Securities.

Our Common Stock is traded on the Bulletin Board And OTC Market under the symbol, "EVCL" only sporadically and with only limited and minimal interest by market makers.

Any investor who purchases the Company's Common Stock is not likely to find any liquid trading market for the Common Stock and there can be no assurance that any liquid trading market will ever develop. While we have 73,034,283 shares of our Common Stock, only 3,034,283 shares of our Common Stock are "freely tradable securities" (as that term is used in the Securities Act of 1933) and the remaining 70,000,000 shares are "restricted securities" since they are held by our President and founder ("supreme leader"), Ralph M. Amato.

The following table reflects the high and low prices of the Company's Common Stock for the two years ended December 31, 2010. The Company's Common Stock commenced trading on October 6, 1998. As of December 31, 2010, the Company had two market makers.

2010

High ($)

Low ($)

     

1st Quarter

$ 5.00

$ 4.00

     

2nd Quarter

$ 2.00

$ 0.20

     

3rd Quarter

$ 2.00

$ 0.20

     

4th Quarter

$ 0.04

$ 0.01

     

2009

   
     

1st Quarter

$5.00

$ 0.06

     

2nd Quarter

$5.00

$ 0.06

     

3rd Quarter

$5.00

$ 0.06

     

4th Quarter

$5.00

$ 0.06

The Company has followed the policy of reinvesting earnings, if any, and, consequently, has not paid any cash dividends. At the present time, no change in this policy is under consideration by the Board of Directors. The payment of cash dividends in the future will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors.

The number of shareholders of record of Common Stock on December 31, 2010 was approximately 769.

13

 

Item 6.  Selected Financial Data

Not Applicable

  

Item 7.  Management's Discussion and Analysis or Plan of Operation.

We are currently a "shell company" (as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934). To the extent that we are able, we may undertake efforts to develop a business or merge with or acquire an operating company with operating history and assets. The exact form and nature of any investment or activity that we may undertake has not yet been determined.

If we do not successfully pursue some form of operating business, then our primary activity will likely involve seeking merger or acquisition candidates with whom we can either merge or acquire.

While our stockholders on March 7, 2008 approved the change in our name to "Environmental Credits, Ltd.," the exact form and nature of any business that we may pursue has not been determined. Our plans are in the conceptual stage only and we may or may not pursue any specific investments or business activity. See further discussion regarding our Plan of Operation above.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent liabilities. On an ongoing basis, management evaluates its estimates, including those that relate to income tax contingencies, revenue recognition, and litigation.

Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions and conditions. If actual results significantly differ from management's estimates, our financial condition and results of operations could be materially impaired.

14

 

Fiscal 2010 vs. Fiscal 2009

During the twelve months ending December 31, 2010 ("Fiscal 2010"), our Revenues were $0 which compares to the Company's Revenues of $0 for the twelve month period ending December 31, 2009 ("Fiscal 2009"). The absence of revenues during both periods reflects the lack of any assets or business the transfer of our business, assets, and operations on September 12, 2002 pursuant to the order of the United States Bankruptcy Court of that date. After September 12, 2002, we had no business or operations. On October 6, 2002, the Court entered an order for a Chapter 7 dissolution and liquidation of the Company.

Cost of Sales for Fiscal 2010 was $0 compared to Fiscal 2009 when Cost of Sales was $0. The lack of any Cost of Sales was primarily due to the cessation of our business and operations on September 12, 2002.

We recorded $0 in General and Administrative Expenses in Fiscal 2010 compared to $0 in General and Administrative Expenses in Fiscal 2009. These expenses are typically composed of: office and management expenses; and accounting, legal, and other general and administrative expenses.

During both Fiscal 2010 and Fiscal 2009, we had no Depreciation and Amortization Expenses since we had no assets (the only assets shown on the balance sheet were the assets held by the Bankruptcy Trustee).

We also recorded a Net Loss of $0 during Fiscal 2010, the same as Fiscal 2009.

The number of shares of our common stock outstanding remained the same during Fiscal 2010 and Fiscal 2009: during both years we had 73,034,283 shares of our Common Stock outstanding of which 70,000,000 were "restricted securities" owned and held by Ralph M. Amato and the remaining 3,034,283 shares were "freely tradable securities" held by other non-affiliate stockholders.

The Company anticipates that in its current financial condition it has no present prospect of generating any revenues.

Critical Accounting Policies

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires us 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 amount of revenues and expenses during the reporting periods. We are required to make judgments and estimates about the effect of matters that are inherently uncertain. Actual results could differ from our estimates. While we are a development-stage company, the most significant areas involving our judgments and estimates are principally those involving our current liabilities and current assets.

Safe Harbor for Forward-Looking Statements

This Form 10-K contains forward-looking statements as defined by federal securities laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements concerning plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying (express or implied) assumptions and other statements which are other than historical facts. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "intends," "plans," "anticipates," "contemplates," "believes," "estimates," "predicts," "projects," and other similar terminology or the negative of these terms. From time to time we may publish or otherwise make available forward-looking statements of this nature. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by the cautionary statements described in this Form 10-K, including those set forth in Section 1A entitled "Risk Factors." In addition, we undertake no obligation to update or revise any forward-looking statement to reflect events, circumstances, or new information after the date of this Form 10-K or to reflect the occurrence of unanticipated or other subsequent events, and we disclaim any such obligation.

15

 

Liquidity and Capital Resources

As of December 31, 2010 we had Total Current Liabilities of $0 compared to $0 as of December 31, 2009.

We lack liquidity and lacks access to any significant source of capital or financing needed to support its corporate existence. We remain dependent upon our President, Ralph M. Amato for funds needed to pay all accounting, auditing, corporate franchise taxes, preparation of all corporate income tax returns, and other expenses needed to sustain our mere existence as a corporate enterprise. There can be no assurance that anyone will continue to support us by making loans or advancing funds to us in support of our financial needs.

As a result, on December 31, 20010, we had no assets.

Impact of Inflation

Because of our current status, we do not believe that inflation had a significant impact on our sales or profits.

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

Our operations and our securities are subject to a number of substantial risks, including those described below. If any of these or other risks actually occur, our business, financial condition and operating results, as well as the trading price or value of its securities could be materially adversely affected. No attempt has been made to rank these risks in the order of their likelihood or potential harm. In addition to those general risks enumerated elsewhere in this Form 10-K, any purchaser of our common stock should also consider the following risk factors:

16

 

Risks Related to Our Status

We are a "Shell Company."

We are considered a "shell company" under the definitions applied by the U.S. Securities and Exchange Commission. As a result, our Common Stock will not likely have any sustained liquidity and trading volumes, due to our reverse stock split (approved on March 7, 2008) will likely remain limited.

We have no Assets or Business.

We emerged from bankruptcy and we have no assets or business. While we remain hopeful that we may be able to develop or acquire a controlling interest in a business, there can be no assurance that we will be able to undertake these efforts or if we do, that our existing stockholders will not incur immediate and substantial dilution.

We have only one Part-time Officer and Director.

Our only officer and Director is Ralph M. Amato, our founder and ""supreme leader" who also owns 70,000,000 of the 73,034,283 shares of our Common Stock outstanding. While Mr. Amato has other business interests and is only able to devote a limited amount of time to our corporate affairs, we remain dependent upon him for all management of our affairs and his ability to financially support the Company.

We Need Capital & We Have No Record of Success

If we are to develop a business, we would need to raise additional capital. We have not received any indications that any third party is prepared to provide us with additional capital and there can be no assurance that such additional capital is forthcoming at any time in the near future. Further, we have an unbroken record of losses and we have no record of achieving any success in operating a business.

Risks of Our Common Stock

Current Recessionary Environment

Our Common Stock, represents shares of a company that has no business or assets and it likely is viewed as a "nano-cap" stock. Given the current recessionary economic environment and the limited interest and ability of investors to invest in "high risk" ventures, it is very unlikely that we will attract any real interest from any investment group or other interest from persons who seek to have their company become acquired by a "shell company" such as us. For these and other reasons, any purchase of our Common Stock involves HIGH LEVEL OF RISK and is not suitable for anyone who cannot afford the total loss of their investment.

Economic Cycles & High Risk Securities

While the term of most post-World War II recessions have averaged 9-11 months, the current recession is likely to last much longer given the financial collapse of many large and well-known banks and other financial institutions, the dramatic decline in the value real estate assets, and for other reasons. As a result, it is unlikely that our Common Stock will attract any interest from the trading market at any time in the near future and not until the current economic recession has ended and expansionary economic conditions return.

Absence of any Real Trading Market for Our Common Stock

Trading in our Common Stock is limited and sporadic and there is no basis to believe that any liquid trading market will develop or if it does develop, that it can be sustained. A total of 3,034,283 shares of our Common Stock are "freely tradable securities" (out of 73,034,283 shares of our Common Stock outstanding). However, we have been informed that trading in our Common Stock has been minimal or nonexistent over the past two years.

For these and other reasons, our Common Stock is not suitable for any investor who seeks to preserve their investment capital and who is not willing to accept the total loss of their investment.

17

 

Item 8.  Financial Statements and Supplementary Data

The financial statements and related financial information required to be filed hereunder are indexed on page F-1 of this report and are incorporated herein by reference.

 

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

 

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures: We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2010, that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Management's Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The internal controls for the Company are provided by executive management's review and approval of all transactions.  Our internal control over financial reporting also includes those policies and procedures that:

      1. pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
      2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
      3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

18

 

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls.

Based on this assessment, management has concluded that as of December 31, 2010, our internal control over financial reporting was effective to provide 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.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting: There were no changes in our internal control over financial reporting during our year ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.  Other Information

None

19

 

PART III

 

Item 10.  Directors, Executive Officers, Promoters, and Corporate Governance.

Directors and Executive Officers

The Company's By-laws authorize four directors. Currently the Company has only one Director and intends, as opportunities become available, to identify additional directors to serve on the Company's Board of Directors. The Directors serve until the next annual meeting of shareholders or until their successors are elected. The officers serve at the pleasure of the Board of Directors.

Information as to the directors and executive officers of the Company is as follows:

Name

Age

Position

Date
Elected

Ralph M. Amato
5782 Caminito Empresa
La Jolla, California 92037

60

President, Chairman, & Chief Financial Officer

12/06/93

Mr. Amato may be deemed a "promoter" of the Company, as that term is defined in the rules and regulations promulgated under the Securities Act of 1933. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified.

Ralph M. Amato, age 60, is the founder of the Company and has been its President and Chairman since the December 6, 1993 incorporation of Alternative Entertainment, Inc., a Nevada corporation ("AEI-Nevada"). In August of 1998, Mr. Amato assumed the additional responsibilities of Chief Financial Officer. In addition to his position as President, Chairman, and Chief Financial Officer, Mr. Amato is also President of Ventana Capital Partners, Inc., an investment banking firm located in La Jolla, California ("VCP"). VCP specializes in assisting emerging growth companies in obtaining capital throughout the United States, Canada, and China. From November 1988 to November 1990, Mr. Amato was a Senior Account Executive for PaineWebber in its San Diego, California office.

 

Item 11.  Executive Compensation

Compensation Discussion and Analysis

During 2009 and during 2010, the Company did not pay or compensate the Company's officers or directors.

Due to the lack of cash resources, the Company did not have the funds to pay any of its officers or directors any cash compensation. In fact, the Company was dependent upon Ralph M. Amato for financial assistance to allow the Company to maintain its mere existence.

The Company's Board of Directors has authorized the compensation of its officers with the following annual cash salaries:

SUMMARY COMPENSATION TABLE (1)

Name and
Principal Position
(a)

Year
(b)

Annual Compensation


Long-term Compensation

All Other
Compen-
sation
($)
(i)

Awards

Payouts

Salary
($)
(c)

Bonus
($)
(d)

Other
Annual
Compen-
sation
($)
(e)*

Restricted
Stock
Awards
(s)
($)
(f)

Securities
Underlying
Options/
SARs
(#)
(g)

LTIP
Payouts
($)
(h)

Ralph M. Amato
Chairman, President and CFO

2008

$0

$0

$0

$0

0

$0

$0

2009

$0

$0

$0

$0

0

$0

$0

2010

$0

$0

$0

$0

0

$0

$0

Footnotes:

*

No other compensation was paid, accrued or received by any of the Company officers or director for any of the years shown.

(1)

No stock options were issued or granted at any time in 2008, 2009, or 2010.

20

 

With respect to cash salaries, the Company may change or increase salaries as the Company's profits and cash flow allow. The amount of any increase in salaries and compensation for existing officers has not been determined at this time and the number and dollar amount to be paid to additional management staff that will likely be employed has not been determined.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information relating to the beneficial ownership of Company common stock by those persons beneficially holding more than 5% of the Company's capital stock, by the Company's directors and executive officers, and by all of the Company's directors and executive officers as a group as of March 28, 2011.

Name of Stockholder

Common Stock Held

Percentage of
Total Votes
Outstanding (1)

Ralph M. Amato,
President, CEO,
Treasurer, Chairman

70,000,000 Shares

95.85%

OPTION/SAR GRANTS IN LAST TWO FISCAL YEARS
(2010 Fiscal Year Individual Grants)

Name
(a)

No. of Securities
Underlying
Options/SARs
Granted
(#) (1)
(b)

Percent of
Total Options/
SARs Granted to
Employees in
Fiscal Year
(c) (1)

Exercise of
Base Price
($/Sh)
(d)

Expiration Date
(e)

Ralph M. Amato

0
0

0%

$0
$0

 

Footnote:

     

(1)

The Company did not have any outstanding exercisable stock options as of December 31, 2009.

Stock Options

The Company did not grant or issue any stock options in 2007, 2008, or 2009. The only stock options that were granted are those that were granted in 1999 which have expired.

 

Item 13.  Certain Relationships and Related Transactions.

None.

21

 

Item 14.  Principal Accounting Fees and Services

(1)  Accountant Fees

The aggregate fees billed for the 2010 fiscal year for professional services rendered by our accountants, Stan J.H. Lee, CPA for the audit of the Company's annual financial statements and review of financial statements included in the Company's Form 10-K (17 CFR 249.308a) or 10-Q (17 CFR 249.308b) or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for such period were $2,500.00.

The aggregate fees billed for the 2009 fiscal year for professional services rendered by Stan J.H. Lee, CPA for the audit of the Company's annual financial statements and review of financial statements included in the Company's Form 10-K (17 CFR 249.308a) or 10-QSB (17 CFR 249.308b) or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for such period were $0.

There were no fees billed for the 2009 and 2010 fiscal year for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company's financial statements.

There were no fees billed for the 2009 and 2010 fiscal year for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.

There were no other fees billed for the 2009 and 2010 fiscal year for products and services provided by the principal accountant, other than the services reported above.

Pre-Approval Policies and Procedures

Before the accountant is engaged by the Company to render audit or non-audit services the engagement is approved by the Company's the board of directors acting as the audit committee.

22

 

Item 15.  Exhibits and Financial Statement Schedules

Audited Financial Statements (pages F-1 through F-12)

The following exhibits were filed with the Company's Form 10-SB and are hereby incorporated by reference.

3

Certificate of Incorporation - Wagg Corp.

3.1

Amendment to Certificate of Incorporation - Wagg Corp.

3.2

Amendment to Certificate of Incorporation - Wagg Corp.

3.3

By-Laws of Wagg Corp. (Delaware)

3.4

Articles of Incorporation - Alternative Entertainment, Inc. (NV)

3.5

By-Laws of Alternative Entertainment, Inc. (NV)

4.1

Specimen of Common Stock Certificate

   

10

Agreement for the Purchase of Common Stock

10.1

Lease for Office Space in La Jolla, California

10.2

Lease of Real Property from Roma Café, Inc.

10.3

Lease of Apartment Units in San Francisco, California

10.4

Indemnification Agreement between the Company and Ralph M. Amato

10.5

Agreement with Itex Corporation

10.6

Employment Agreement Between the Company and Gary Marlin

10.7

Loan Agreement with Unsecured Convertible Note

10.8

Unsecured Promissory Note (C. Palozzi)

10.9

Settlement Agreement With Bowne of Los Angeles, Inc.

10.10

Unsecured Promissory Note (V. Amato)

10.11

Unsecured Promissory Note (V. Amato)

10.12

Secured Promissory Note (R. Smith)

10.13

Secured Promissory Note (I. Weeda Family Trust)

10.14

Secured Promissory Note (I. Weeda Family Trust)

10.15

Secured Promissory Note (K. Marc)

10.16

Secured Promissory Note (G. W. Smith)

10.17

Secured Promissory Note (D. Hylton)

10.18

Secured Promissory Note (M. Yonika)

10.19

Unsecured Promissory Note (R. Kaelan)

10.20

Unsecured Convertible Promissory Note ($300,000 - Chin)

10.21

Addendum to Promissory Note (Essex)

10.22

Unsecured Promissory Note ($70,000 - Amato)

10.23

Unsecured Promissory Note ($16,000 - Amato)

10.24

Unsecured Promissory Note ($100,000 - Chin)

   

10.25

Unsecured Promissory Note ($25,000- I. Weeda Family Trust)

10.26

Unsecured Promissory Note ($25,000 - I. Weeda Family Trust)

10.27

Loan Agreement & Convertible Unsecured Promissory Note ($50,000 - Kawesch)

10.28

Unsecured Promissory Note ($100,000 - Lewis Chin)

10.29

Unsecured Promissory Note ($25,000 - Thomas Johnson)

10.30

Loan Agreement & Convertible Unsecured Promissory Note ($25,000-Tinney)

23.1

Consent of Pannell Kerr Forster

23.2

Resignation of Pannell Kerr Forster

23.3

Consent of Pannell Kerr Forster

23.4

Acknowledgment of Armando C. Ibarra

   

31.1

Certification

31.2

Certification

32.1

Certification

32.2

Certification

23

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   

(Registrant):
ENVIRONMENTAL CREDITS, LTD.

 

     

By:

/s/ Ralph M. Amato
Ralph M. Amato
President, Chief Executive Officer
Chairman of the Board and
Chief Financial Officer

Date:

March 28, 2011

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

By:

/s/ Ralph M. Amato
Ralph M. Amato
Chairman

Date:

March 28, 2011

 

24

 

 

Stan J.H. Lee, CPA
2160 North Central Rd. Suite 203
t Fort Lee t NJ 07024
P.O.Box 436402
t San Ysidro t CA 92143-9402
619-623-7799 Fax 619-564-3408 E-mail)
stan2u@gmail.com

Report of Independent Registered Public Accounting Firm

 

We have audited the accompanying consolidated balance sheets of Environmental Credits, Ltd. as of December 31, 2010 and 2009 and the related consolidated statements of operation, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. 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 the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Environmental Credits, Ltd. as of December 31, 2010 and 2009, and the results of its operation and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements, the Company's lack of operating business and revenue from operations raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 /s/ Stan J.H. Lee, CPA

_____________________
Stan J.H. Lee, CPA
Fort Lee, NJ 07024

March 27, 2011

 

F1

 

ENVIRONMENTAL CREDITS, LTD.
CONSOLIDATED BALANCE SHEETS

 

December 31,

December 31,

2010

2009

(Audited)

 

ASSETS

 

Current Assets:

Cash

$

0

$

0

Total Current Assets

0

0

 

Property and Equipment, Net

0

0

 

Other Assets:

Note Receivable - Officer

0

0

Investment in Fine Art

0

0

Total Other Assets

0

0

 

           

TOTAL ASSETS

$

0

$

0

 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 

Current Liabilities:

Accrued Interest

$

0

$

0

Convertible Debt

0

0

Total Current Liabilities

0

0

 

Note Receivable - Officer

0

0

 

TOTAL LIABILITIES

0

0

 

Shareholders' Equity (Deficit) :

Preferred Stock, $.01 par value

0

0

(10,000,000 authorized; zero and 3,650,000 issued and outstanding as of December 31, 2010 and 2009, respectively)

Common Stock, $.01 par value

730,342

   

730,342

(300,000,000 shares authorized; issued and outstanding: 73,034,283 and 73,034,283 as of December 31, 2010 and 2009, respectively)

Common stocks subscribed

(62,500)

(62,500)

Treasury Stocks

(1,500)

(1,500)

Additional Paid-in-Capital

8,888,038

8,888,038

Deficit Accumulated During Development Stage

(9,554,379)

(9,554,379)

Total Shareholders' Equity (Deficit)

0

0

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

$

0

$

0

See Notes to Consolidated Financial Statements.

F2

 

ENVIRONMENTAL CREDITS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS





Fiscal Years Ended
December 31,

Cumulative Since
May 2, 2006
(beginning date of
year of bankruptcy
discharge) to
December 31,
2010

2010

2009

 

Revenues

$

0

$

0

$

0

Cost of Sales

0

0

0

Gross Profit

0

0

0

 

Depreciation & Amortization

0

0

0

General & Administrative Expenses

0

0

0

Total General & Administrative Expenses

0

0

0

 

Operating Income (Loss)

0

0

0

 

Other Income (Expenses)

Interest Income

0

0

0

Loss on Sale of Assets

0

0

0

Settlement of Outstanding Notes Payable

0

0

0

Write-off of Investment in Fine Art

0

0

0

Total Other Income (Expenses)

0

0

0

 

Deficit Before Income Taxes

0

0

0

 

Provision for Income Taxes

0

0

0

 

Net Income (Loss)

$

0

$

0

$

0

 

Net income (loss) per share

$

0.00

$

0.00

 

Weighted average shares used
for net income (loss) per share

73,034,283

73,034,283

 

Net income (loss) per diluted share

$

0.00

$

0.00

 

Weighted average shares used
for net income (loss) per diluted share

73,034,283

6,922,470

See Notes to Consolidated Financial Statements.

F3

 

ENVIRONMENTAL CREDITS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

   




Common Stock

 

Additional Paid-in Capital

 

Common stock Subscribed

 

Preferred Stocks

 

Treasury Stocks

 

Deficit Accumulated
During
Development
Stage

 

Retained Earnings (Deficit)

 

Total

Shares

 

Amount

Shares

 

Amount

Shares

 

Amount

 

Shares

 

Amount

                                                 

Balance, December 31, 2005

 

8,172,139

$

81,721

$

9,535,158

 

(62,500)

$

(62,500)

           

(7,856,576)

$

(2,989,065)

$

(1,291,262)

                                               
 

Issuance of Series A Preferred Stocks- 11/12/2006 in exchange for 1,249,669 shares held by the Company's President

(1,249,669)

 

(12,497)

             

3,500,000

 

12,497

                 
                                               
 

Issuance of Series A Preferred Stock to acquire Company's Common Stocks - Treasury Stocks, 11/12/2006

                   

150,000

 

1,500

 

(150,000)

 

(1,500)

           
                                               
 

Net income - net of gain (loss) on disposal of assets and forgiveness of debts on discharge of debts

                                 

1,291,262

     

1,291,262

                                               

Balance, December 31, 2006

 

6,922,470

$

69,224

$

9,535,158

 

(62,500)

$

(62,500)

$

3,650,000

$

13,997

 

(150,000)

$

(1,500)

 

(6,565,314)

$

(2,989,065)

$

-   

                                               

Balance, December 31, 2007

 

6,922,470

$

69,224

$

9,535,158

 

(62,500)

$

(62,500)

$

3,650,000

$

13,997

 

(150,000)

$

(1,500)

 

(6,565,314)

$

(2,989,065)

$

-   

                                               
 

Reverse stock split - one for 200

 

(6,888,187)

 

(68,882)

 

68,882

                               
                                               
 

Conversion of Preferred Stock to Common

 

73,000,000

 

730,000

 

(716,003)

         

(3,650,000)

(13,997)

                 
                                               

Balance, December 31, 2008

 

73,034,283

$

730,342

$

8,888,037

 

(62,500)

$

(62,500)

$

-   

$

-   

 

(150,000)

$

(1,500)

 

(6,565,314)

$

(2,989,065)

$

-   

                                               

Balance, December 31, 2009

 

73,034,283

$

730,342

$

8,888,037

 

(62,500)

$

(62,500)

$

-   

$

-   

 

(150,000)

$

(1,500)

 

(6,565,314)

$

(2,989,065)

$

-   

                                               

Balance, December 31, 2010

 

73,034,283

$

730,342

$

8,888,037

 

(62,500)

$

(62,500)

$

-   

$

   -   

 

(150,000)

$

(1,500)

 

(6,565,314)

$

(2,989,065)

$

-   

See Notes to Consolidated Financial Statements.

F4

 

ENVIRONMENTAL CREDITS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

 






Fiscal Years Ended
December 31,

Cumulative Since
May 2, 2006
(beginning date of
year of bankruptcy
discharge) to
December 31,
2010

Stage

2010

2009

 

Cash Flows from Operating Activities:

Net Income (Loss)

$

0.00

$

0.00

$

0.00

Non-cash operating activities included in deficit accumulated:

Net cash provided by (used in) operating activities

0.00

0.00

0.00

 

Cash Flows from Investing Activities:

Net cash provided by (used in) investing activities

0.00

0.00

0.00

 

Cash Flows from Financing Activities:

Net cash provided by (used in) financing activities

0.00

0.00

0.00

 

Net increase (decrease) in cash

0.00

0.00

0.00

 

Cash at beginning of period

0.00

0.00

0.00

 

Cash at end of period

$

0.00

$

0.00

$

0.00

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

 

Interest (net of amount capitalized)

$

0.00

 

$

0.00

 

$

0.00

 

Income taxes

$

0.00

 

$

0.00

 

$

0.00

See Notes to Consolidated Financial Statements.

F5

 

ENVIRONMENTAL CREDITS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2010

 

NOTE 1 - ORGANIZATION AND BUSINESS

Environmental Credits LTD (Formerly BoysToys.com, Inc. and previous to that Alternative Entertainment, Inc.) was incorporated in the state of Delaware on April 21, 1997, under the name Wagg Corp. ("Wagg"). Environmental Credits LTD was engaged in the business of developing, owning and operating nightclubs providing exotic dance entertainment combined with a full service restaurant, lounge, and business meeting facilities from 1993 until September of 2002.

On December 6, 1993 Alternative Entertainment, Inc. a Nevada corporation ("AEI Nevada") was formed. On September 11, 1999, a wholly owned subsidiary was formed, RMA of San Francisco, Inc., a California Corporation.

On January 15, 1998, Wagg acquired 80% of the outstanding common stock of AEI Nevada. On January 25, 1998, the shareholders of AEI Nevada voted to execute a one-for-three reverse split of its common stock. On January 26, 1998, the shareholders of Wagg voted to execute a one-for-two reverse split of its common stock. The number of shares and per share amounts has been restated as though the transaction occurred on December 6, 1993 (Inception).

Following these actions and on January 28, 1998, the AEI Nevada Board of Directors voted to approve a plan and agreement of reorganization between Wagg and AEI Nevada. Under the terms of the reorganization, each share of AEI Nevada common stock was exchanged for one share of Wagg common stock owed by AEI Nevada, and all of the assets of AEI Nevada were transferred to Wagg. This resulted in AEI Nevada becoming a wholly-owned subsidiary of Wagg. In conjunction with these actions, the shareholders of Wagg approved an amendment of Wagg's Certificate of Incorporation to change its name to Alternative Entertainment, Inc., a Delaware Corporation ("AEI"). The reorganization has been accounted for as a reverse acquisition with a public shell. Accordingly, the accompanying consolidated financial statements have been presented as if AEI Nevada had always been a part of Wagg.

During 1998 Wagg changed its name to AEI. On December 29, 1998, AEI changed its name to Environmental Credits LTD (the "Company").

Activity for all periods prior to 2000 consisted primarily of efforts devoted to identifying suitable properties for acquisition, performing administrative functions, and the initial construction of the Company's first establishment located in San Francisco, California. In January 2000 operations commenced at this location in San Francisco, with RMA of San Francisco as the operating entity.

On May 8, 2001 the Company filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. The filing was in response to an unexpected attempt by the landlord to terminate the Company's long-term lease for the club in San Francisco. In the third quarter the United States Bankruptcy Court transferred operations away from the Company (September 12, 2002). On October 6, 2002 the United States Bankruptcy court entered an order for Chapter 7 dissolution. On May 2, 2007 the Company emerged from Chapter 7 bankruptcy.

In November 2007, after the Company's emergence from bankruptcy in May 2007, the Company's Board of Directors voted to forego any further involvement in the adult entertainment industry. The Company has since decided to explore opportunities in the environmental emissions trading industry and the Company is now positioned itself as a developmental company in that industry.

On January 7, 2007 the Company filed an Information Statement on Schedule 14C with the Securities and Exchange Commission. The Company also notified all of its shareholders as to the 14C filing and upcoming shareholders meeting scheduled for March 7, 2008.

F6

 

On March 7, 2008, the Company held its first ever Annual Stockholders' Meeting. The Annual Meeting was held pursuant to the Company's Information Statement filed on Schedule 14C with the Securities and Exchange Commission.

The Meeting was called to order by the Company's Chairman, President and founder, at 11:00 A.M., P.S.T. and the Company's stockholders took the following actions:

(A)  The Company's stockholders approved the 200 for one reverse split of the Company's Common Stock authorizing the Company's Board of Directors to set an effective date for the reverse stock split. As adopted by the shareholders, one New Share (of the Company's Common Stock) will be issued for each two hundred (200) shares of the Company's Common Stock currently issued and outstanding with each fractional share rounded up to the next whole share (the "Reverse Split"). The Company's Board of Directors has not yet set a Record Date for the Reverse Split and the Company intends to file Form 8-K to announce the effective date upon determination of the Record Date.

(B)  The Company's stockholders approved the amendment to the Company's Certificate of Incorporation to change the Company's name from Environmental Credits LTD to Environmental Credits, Ltd.

(C)  The Company's stockholders approved the appointment of Stan Lee, CPA as the Company's independent auditor.

(D)  The Company's stockholders approved the amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of the Company's Common Stock (par value $0.01) from 20,000,000 to 300,000,000 (par value $0.01).

The Annual Meeting follows the determinations made by the Company's Board of Directors in November 2007 after the Company's emergence from bankruptcy in May 2007 to forego any further involvement in the adult entertainment industry. The Company has since decided to explore opportunities in the environmental emissions trading industry and the Company is now positioned itself as a developmental company in that industry.

The Company's Board of Directors has directed the Company's officers to complete the necessary steps for the Reverse Split and the filing of the documents for the amendments to the Company's Articles of Incorporation. As of the date of this Form 10-Q, The Record Date has been determined as October 23, 2008 as the official Record Date and the Company filed the required Form 8-K on October 27, 2008 to report these changes.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - DEVELOPMENT STAGE COMPANY

The Company is a development stage company as defined by ASC 915-10-05, "Development Stage Entity".  The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced.  All losses accumulated, since inception, have been considered as part of the Company's development stage activities.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, RMA of San Francisco, Inc. and AEI Nevada. All significant inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the net reliability of assets and estimated costs to be incurred during liquidation and disclosure of contingent assets and liabilities at December 31, 2008 Actual results could differ from those estimates.

F7

 

GOING CONCERN BASIS OF ACCOUNTING

Financial Instruments

The carrying amounts reported in the balance sheets for cash and convertible notes and related interest approximate fair value due to the immediate short-term maturity of these financial instruments. Up until May 2, 2007 cash was restricted because the trustee of the bankruptcy court controlled it. Those funds were earmarked for payment of the remaining outstanding notes payable which as of May 2, 2007 have been settled.

The Company's liabilities and convertible debt has been settled by the court through the Chapter 7 bankruptcy.

Basic Loss Per Share

Income Taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, "Accounting for Income Taxes." Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is "more likely than not" that the position is sustainable upon examination, based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.

IMPACT OF NEW ACCOUNTING STANDARDS

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.

F8

 

NOTE 3 - INCOME TAXES

Deferred income taxes reflect the next tax effects of temporary differences between the carrying amount of assets and liabilities for reporting and the amounts used for income tax purposes. The tax effects of items comprising the Company's net deferred tax assets are as follows:

   

For the Year Ended
December 31, 2010

Deferred tax assets:

 

 

 

 

 

Net operating loss carry-forwards

$

3,100,000

Other

 

- 0 -

Gross deferred tax assets

 

3,100,000

Valuation allowance

 

(3,100,000)

Net deferred tax assets

$

- 0 -

As of December 31, 2010, the Company has net operating loss carry-forwards for both federal and state income tax purposes of approximately $ 3,100,000, which expire through 2026. Under federal and state laws, the availability of the Company's net operating loss carry-forward may be limited if a cumulative change in ownership of more than 50% occurs within any three year period.

The Company filed for bankruptcy protection. The Company emerged from Chapter 7 bankruptcy on May 2, 2007. All liabilities and outstanding notes were settled for $1,502,294 cash payment. Of this amount $471,072 was paid to settle all of the outstanding notes of the Company. As a result, the Company recognized $1,346,420 as income, which is difference between the outstanding value of the notes, and the settled amount for the notes.

 

NOTE 4 - SHAREHOLDERS' EQUITY

Stock option plans

The Company has approved two stock option plans that become effective January 1, 1994, an Incentive Stock Option Plan and a Non-qualified Stock Option Plan. Both plans are available to officers, directors and key employees of the Company. Each plan allows for the purchase of up to 500,000 shares of common stock of the Company.

During the year ended December 31, 1998, the Company issued 60,000 options to a director under the non-qualified stock option plan. During the year ended December 31, 1999, 1,950,000 options were granted to officers of the Company as a compensation award. The options were immediately exercisable for $0.25 per share and were granted at less than the quoted market price of the stock on the date of grant. The Company has elected to account for incentive grants and grants under its Plan following APB No. 25 and related interpretations. Accordingly, the Company recorded $30,000 and $3,042,000 as compensation expense for the year ended December 31, 1998 and the year ended December 31, 1999, respectively, with a corresponding credit to additional paid in capital. Since 1999 the Company has not issued any additional stock compensation.

F9

 

Conversion of common to preferred Shares

On November 12, 2006, the Company's Board of Directors approved the designation of 4,000,000 shares of the Company's Preferred Stock to be designated as Series A Preferred Stock. The action was taken by the Board under the authority granted it in the Company's Certificate of Incorporation which gives the Board the right to designate one or more series of Preferred Stock with such rights and privileges as the Board determines. On the same date and as a part of the same resolutions, the Board issued 3,500,000 shares of the Series A Preferred Stock to the Company's President, Ralph M. Amato in exchange for 1,249,669 shares of the Company's Common Stock held by him. In addition, 150,000 shares of the Series A Preferred Stock were also issued to acquire 150,000 shares of the Company's Common Stock held by another stockholder.

In general, the Series A Preferred Stock has the following rights and privileges: (i) each share of the Series A Preferred Stock has the right to two votes per share and to vote with the Company's common stockholders on any matter presented before them; (ii) each share of the Series A Preferred Stock has the right to convert into 20 shares of the Company's Common Stock at any time (subject to the Company having a sufficient number of authorized but unissued shares of Common Stock available for conversion); and (iii) the number of shares of the Company's Common Stock that are to be issued upon conversion of the Series A Preferred Stock are not to be reduced or increased by reason of any forward or reverse stock split or other recapitalization. The Series A Preferred Stock is not redeemable by the Company and no sinking fund or special dividend rights were accorded the Series A Preferred Stock. In the event that the Company's Board of Directors declares any dividends, the holders of the Series A Preferred Stock have the same rights and privileges and are entitled to share ratably with the holders of the Company's Common Stock in any such dividend.

Conversion of Preferred to Common Shares

In December of 2008 all of the Series A Preferred Stock was converted into 73,000,000 common shares of stock.

 

NOTE 5 - BANKRUPTCY

On May 8, 2001 the Company filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. The filing was in response to an unexpected attempt by the landlord to terminate the Company's long-term lease for the club in San Francisco. The Company had planned to emerge from these proceedings with a workable reorganization plan to repay its major creditors, including the landlord. The Company was current in its monthly rent obligations, but the landlord is also a short-term creditor with whom the Company was trying to negotiate new payment terms. On September 21, 2001 the Company's subsidiary (RMA of San Francisco, Inc.) also filed a petition for relief under Chapter 11 of the United States Bankruptcy Code, and subsequently the cases were consolidated. The Company submitted reorganization plans to the Court for approval, but the plans were rejected. The Bankruptcy Court ordered the transfer of operations as of September 13, 2002, and then subsequently entered an order for liquidation on October 6, 2002.

The assets were transferred to a third party for approximately $1,502,294. As part of this transaction three of the Company's creditors, with claims totaling approximately $1,350,000, agreed to waive immediate payment of their claim and made payment arrangements with the buyer. A portion of the remaining funds was used to satisfy Trustee fees, Court fees, payroll taxes, and administrative fees incurred during bankruptcy. The remaining funds will be used to satisfy all other claims on an equal basis including notes payable and trade accounts payable. The extent to which these claims will or will not be satisfied is not being determinable at this time. It is possible that these claims will not completely satisfy through this process and that the Company will have some remaining liabilities. This has, in all practical terms, dissolved the assets of RMA of San Francisco and left the Company without an operating business.

On May 2, 2007 the Company emerged from Chapter 7 bankruptcy. In November of 2007 the Company's Board of Directors voted to forego any further involvement in the adult entertainment industry. The Company has since decided to explore opportunities in the environmental emissions trading industry and the Company is now positioned itself as a developmental company in that industry.

F10

 

NOTE 6 - GOING CONCERN

The Company was discharged from bankruptcy in May 2007 and all assets were liquidated to satisfy the obligations as set forth by the bankruptcy court. The Company has engaged in no business activities since and the auditors' included this disclosure. Management believes that now that the bankruptcy proceedings are complete the Company will have a public company "shell" that they can use to pursue other business ventures.

Now that the Company has been discharged from bankruptcy Management plans to pursue other business ventures that may include raising additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in its attempt to raise additional capital through any type of offering.

 

NOTE 7 - SUBSEQUENT EVENTS

There were no subsequent events.

F11