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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


þ ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013


o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ___________ to ___________.


Commission file number 000-52775


OCEAN ELECTRIC INC.

(Exact name of registrant as specified in its charter)


NEVADA

 

20-4076559

(State or Other Jurisdiction of Incorporation of Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

112 North Curry Street Carson City, Nevada

 

89703

(Address of principal executive offices)

 

(Zip Code)


(775) 434 0409

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None


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

Yes o   No þ


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

Yes o   No þ


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 þ   No o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ   No o


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants 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.

o








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 definition of large accelerated filer and accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  (Check one):


Large accelerated filer   ¨

 

Accelerated filer   ¨

Non-accelerated filer   ¨

 

Smaller reporting company   þ


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

Yes o   No þ


Aggregate market value of the voting and non-voting stock of the registrant held by non-affiliates of the registrant as of June 30, 2013: $20,088,000


As of April 15, 2014 the registrant’s outstanding stock consisted of 54,783,500 common shares.









TABLE OF CONTENTS


 

 

PART I

 

 

 

Item 1 Description of Business

2

Item 1A Risk Factors

9

Item 1B Unresolved Staff Comments

18

Item 2 Properties

18

Item 3 Legal Proceedings

18

Item 4 Mine Safety Disclosure

18

 

 

PART II

 

 

 

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

19

Item 6 Selected Financial Data

19

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation

20

Item 8 Financial Statements and Supplementary Data

24

Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

25

Item 9A Controls and Procedures

25

Item 9B Other Information

27

 

 

PART III

 

 

 

Item 10 Directors, Executive Officers and Corporate Governance

27

Item 11 Executive Compensation

28

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

30

Item 13 Certain Relationships and Related Transactions and Director Independence

30

Item 14 Principal Accountant Fees and Services

32

 

 

PART IV

 

 

 

Item 15 Exhibits, Financial Statement Schedules

33





1





PART I


Item 1.  Description of Business

 

Forward-looking Statements


This annual report contains forward-looking statements.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.


Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.


As used in this annual report, the terms "we", "us", "our", “the Company”, and "Ocean" mean Ocean Electric Inc., unless otherwise indicated.


All dollar amounts refer to US dollars unless otherwise indicated.


Overview


We are a development stage company.  We plan to design, develop, manufacture, license, and service non-polluting, renewable electric power generating plants using innovative, patent protected wave energy and wind energy extraction technologies, for use in the shallow and deep water ocean environment.


The energy in the oceans throughout the world has yet to be tapped in any meaningful way for electricity generation.  Currently, there are many technology companies and project developers seeking to tap this potentially important source of hydrokinetic power. To date, there is no one dominant method or particular standards that define the market. There are currently five principal types of marine and hydrokinetic technologies: ocean wave, tidal stream, river hydrokinetic, ocean current and ocean thermal resources.  Because of the consistency of winds in the ocean environment and the proximity to urban centers, the ocean also offers a logical placement for wind farms. It is the Company’s view that the ocean environment energy is on the cusp of development and widening commercial development.  Although there are a number of systems being used and a number of projects in place, currently estimated by the Company to be in excess of 300 various kinds of projects world-wide, it is still a proof of concept industry.  The results of the current pilot projects and early technologies will largely determine whether wave technology, tidal energy and ocean wind will result in any meaningful energy production.  And, not only will it be the proving of the technology, but society’s acceptance of using the ocean as a source of energy will also be a factor in determining the viability of hydrokinetic energy as a source of power.


The most economical wave and wind electric generation results from “farms” of devices, where the machinery can be grouped for easy maintenance and aggregate use of electricity collection and transmission lines. Wave and wind farms can co-exist together in the same location.  Wind turbines cannot be placed on a dense grid due to the rotor size and air turbulence caused by their operations. Wave plants, however, can be placed in a dense pattern below and between wind turbines.  Both the wind and wave farms can share the same geographic footprint, the interconnection cabling, the power switch and transformer platform, and the undersea cable to the land based substation and grid connection.  The Company intends to capitalize on this potential efficiency.




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We believe that Ocean Electric is developing an efficient, innovative technology for a new generation of electric production using renewable marine energy at low cost. We believe that this constitutes a new concept of an entirely ecological system that draws energy from waves with such a high degree of efficiency.  We plan to offer our clients the entire value chain of an energy project: advice and consultancy services, sale of devices, installation services, maintenance team training, sale of spare parts and remote monitoring.

 

We believe it is essential to highlight the fact that we are dealing with a sustainable source of electricity alternative that has limited environmental impact. As well as being advantageous for the environment in terms of green-house gas production, our designs for wave and wind farms will generate value for society in an environmentally friendly fashion and where these projects are set up it will generate social and economic wealth through new employment opportunities.


We were incorporated in the State of Nevada on January 10, 2006.  We do not have any subsidiaries.  Our principal office is located at 112 North Curry Street, Carson City, Nevada 89703 and we have offices in Martorelles, Barcelona, Spain and we plan in the future to have a representative office in Portland Oregon.  Our telephone number is (775) 434 0409. Our fiscal year end is December 31.  Our common stock trades on the OTC Bulletin Board under the symbol “OCEL.OB”.


We acquired our current principal assets in 2011.  Prior to that, we did not have any meaningful operations and were a shell company.  We have incurred losses since our inception.  We currently rely upon convertible loans and the sale of our securities to fund our operations, and expect to continue to need to raise equity and other forms of capital to continue our business development and sustain our operations.  We have generated limited revenues of $4,000 from January 10, 2006 (date of inception) to December 31, 2013.  The audit report in connection with the financial statements for the fiscal year ended December 31, 2013, included in this annual report contain a going concern statement.


Current Technologies


Wave Power


In October 2011, we acquired certain wave energy technologies developed by Hidroflot, S.A. existing under the acquired patents, trade secrets and assets, pursuant to a merger and acquisition arrangement.  Hidroflot, S.A. was previously managed by our sole director, and principal executive officer, Mr. Ricardo Prats.  A portion of the technology is patented under the description of being a “half submerged power station for swell energy extraction,” registered in Spain, under number PCT/IB2009/000230.  This technology is designed to generate energy by the movement of waves.


The wave plant is a simple, lower cost solution to convert energy inherent in ocean waves into electricity.  The simplicity of the design is possible due to the ability to convert the vertical motions of floaters into a continuous circular motion capable of driving a rotary generator.


Our wave platform design has “floaters” that will move up and down with passing waves. The floaters will be housed in a symmetrical cage or framework that can be configured for different numbers of floaters; our platform typically would use 16 floaters.  Vertical motion of the “floaters” will be converted to rotary motion to drive electric generators.  The floating platform will be anchored to the sea floor and can be totally submerged should waves exceed 6 meters, as a means to protect the platform in the event of storms and heavy seas.  Platforms can be grouped together to form 50 MW “farms”.  Typically such farms would be configured in a star pattern to allow each platform to face the oncoming waves without disruption from other platforms. A star configuration of 8 platforms would have the capacity of 6.4MW.  Undersea cabling will be used to connect “farms” to the onshore power grid.  Due to its compact design, submersible protection, and high MW rating, the wave platform’s acquisition and operating costs per MW will be significantly less than competitive designs.  The platform will be designed for both shallow and deep water applications.


A prototype of the above described platform is currently undergoing preliminary sea trials prior to commercialization.




3




In 2013, the Company signed an agreement to design and build a small wave plant with a limited number of floaters to produce approximately 200kW of electricity to power a fish farm, and replace or reduce the dependence on diesel energy sources, which would be the typical source of electric power in this work situation.  As an additional benefit, the proposed plant would be more “green,” eliminating the potential for oil and fuel spills in the farm environment and reducing green-house emissions. The agreement is with a Company located in South America.


Wind power


The origin of offshore wind power began as land based wind turbines.  For greatest efficiency, wind farms should be placed as close to consumers as possible, to reduce the need for above ground transmission lines to deliver the energy to the grid and produce the most energy for consumers. Often, however, the land locations available for wind production that are near urban centers do not offer the most consistent winds. And those places where the land and wind conditions are best are often not near urban centers.  Additionally, wind turbines are not appreciated as neighbors to urban residents, as they are considered intrusive and noisy.


One result has been the introduction of the concept of offshore wind farms.  Ocean locations offer proximity to urban centers, as the greatest population centers tend to be along the ocean’s coasts.  Additionally, undersea cable is considerably less expensive than over land transmission lines. Arguably, ocean locations will engender less controversy as they are not as intrusive on the urban landscape, especially if they are in deep water locations which tend to be many miles off shore.


One of the most fundamental issues of adapting off shore wind turbines is making them suitable for marine environments.  Additionally, the strongest winds exist at the outer reaches of the continental shelves, where the turbines must be anchored at depths of up to 200 meters.  Currently, the design for most ocean located wind turbines is for a monopole affixed to the ocean floor, but increasingly there are designs for floating turbine concepts.  The Company believes that the floating structure is the most logical solution for large off shore turbines, and can be economically competitive in the long run.  Therefore, one issue that presents itself is the design and stability of the turbine, especially for the floating turbine.


Conventional wind turbines can have more than 350 to 500 tons of equipment in the nacelle which sits on top of a supporting column (tower) that can exceed 200 meters in height.  As an example, the Brunsuttel Germany 5MW wind turbine has a rotor diameter of 126 meters and a tower height of 120 meters, resulting in a total height of approximately 200 meters.  Stabilizing 400 tons of equipment on top of a 200 meter offshore tower requires either a solid anchoring system or, if floating, a more balanced design.


In December 1, 2011, we acquired certain wind offshore wind energy technologies developed by Green & Blue Sustainable Technologies, a company owned by our sole director, and principal executive officer, Mr. Ricardo Prats.  Our wind platform design moves 115+ tons of machinery from the top of the rotor blade tower (located in a nacelle) to the base of a floating spur wind turbine.  A patented fiber sling transmission system connects the rotor shaft at the top to the generator at the base of the tower.  The Nacelle and tower yaw control uses our patented mechanism.  Our wind turbine is designed for deep water continental shelf installations (depths of 30 meters to more than 200 meters).  Multiple turbines can be interconnected to form offshore wind “farms” for larger MW capacity.  By moving the generating equipment to the base of the turbine tower, the turbine center of gravity is lowered which significantly increases stability particularly during inclement weather.  With sea level access, equipment installation, maintenance, and repair costs are reduced.  The transmission and yaw systems can be adapted to any wind turbine manufacturer’s nacelle and generating equipment, thereby increasing our market opportunity for licensing rights and project services.


Patents and Applications


Currently, we hold the following registered patents and patent applications and licenses:


a)

PCT/IB2009/000230, with respect to the half-submerged power station for swell energy extraction, which is registered in Spain; and




4




b)

PCT EP2012/054552, with respect to an off-shore floating wind turbine for electrical power generation, which is registered with the European Patent Office.


c)

PCT/ES2013/070911 “Power Plant for the Generation of Electrical Energy from Waves,” in respect to a power plant that converts wave actions into electricity.  International patent registered by the Spanish Patent and Trademark Office.


The Company will seek additional patents and related protections from time to time as its research and development warrants as it seeks to protect is current and expanded intellectual property.  These registrations will be in the European Community and in other jurisdictions such as the US, where the Company technologies will be deployed.  No assurance can be given that it will be able to obtain additional registrations and fully protect its intellectual property through patent registration.


Business Opportunities


Project management/turn-key solution


We plan to commercialize our technology primarily through project management and consulting services to provide a turn-key solution. Turnkey projects will be designed, developed, and installed under a project management contract coordinating all aspects of the project. A project contract will vary in scope depending on the requirements of the contracting party; however, we will offer oversight and coordination of the entire wave and wind farm technologies to specific areas within a project when contracted under the direction of, or directly by, a prime contractor.  For a turnkey solution, the project contract would cover pre project planning, development of a master plan, detailed engineering, pre-testing and training, procurement, installation and commissioning.  Additionally, we may offer services in the operational phase, including general operations and maintenance and repair services.


Licensing


We will also consider licensing our technologies and intellectual property.  We believe technology licenses and engineering support contracts will be marketed to equipment suppliers.  Partnerships, joint marketing, and other types of alliances may be formed for additional licensing opportunities.


Manufacturing


We plan to manufacture under our strict guidance only the patented, critical components that require stringent engineering tolerances and/or a high degree of quality control.  Third party manufacturers will be contracted by us for all remaining equipment and paid for directly by our clients.  We believe other components are available from various sources.  We do not manufacture any components at this time.


Sales Channels


We plan to create an internal direct sales force as our primary means of marketing.  Internal marketing will be supported by a network of international sales representative organizations capable of providing technical sales support, account management, and contract administration.


Because our technology requires a substantial investment and its audience has a limited number of players, our principal marketing efforts will be towards identification of potential users of the technology and then directing sales data, effort and personnel to these targets.


We also will concentrate on building brand and technology recognition.




5




Market Demand


Global electricity demand is forecasted to increase by 87 percent from 18.8 trillion KWh in 2007 to 25.0 trillion KWh in 2020 and 35.2 trillion KWh by 2035.  Global renewable electricity generation is forecasted to grow by 3.0 percent per year increasing from an 18 percent share of electricity generation in 2007 to 23 percent in 2035.  In part, the increase will be driven by government incentives and higher fossil fuel prices, and in part, the increase will be driven by the overall need for additional sources of electricity production.


Wave Energy


Pike Research forecasts ocean energy could yield a global power generation capacity of 200 GW by 2025.  The National Renewable Energy Laboratory (NREL) forecasts wave power generation could meet 2% of current U.S. electricity demand, providing 80 TWh/yr of power production by 2025.  The U.S. market opportunity is forecasted at 46 GW by 2025.


Wind Power


Europe has installed more than 830 wind turbines serving nine countries.  Almost all of the 2,300 megawatts (MW) of installed capacity has been built in shallow waters (less than 30 meters deep).   Our current technologies can compete in the shallow water locations, but more importantly, our solutions can work in deep waters, opening a new market in renewable energy.


The United States leads the world in installed, land-based wind energy capacity but has no offshore wind projects currently in operation.  However, the Company believes that there are 20 projects representing more than 2,000 MW of capacity are in the planning and permitting process for offshore electricity production, indicating that the United States represents a substantial potential market for our technologies.


Competition


Wave Power Competition


To date, no single technology has emerged as the industry standard for either on-shore/near-shore or off-shore installations.  Most technologies remain in experimental development with a few in the prototype stage or initial implementation.


At-shore and near-shore technologies attempt to harness both the potential and kinetic energy of waves.  Although access is fairly easy, as waves approach the shore, a significant amount of energy has already been dissipated.  In addition, not all coast lines (e.g. shallow beachheads) are suitable for these types of technologies.  Another disadvantage is the environmental impact of an installation on or near the coastline.


Off-shore technologies are deployed in open sea deep water (>40m) where waves have not dissipated energy by approaching the coastline.  Off-shore technologies inherently also have a lower environmental impact.  There are two basic types of off-shore technologies; floating body and above sea level devices.  Floating body devices generate power based on movement of the device induced by waves.  Above sea level devices protrude 2m to 5m above the surface.  When waves move over the top of the device, water is then channeled back into the ocean through a low pressure turbine to generate electricity.




6




Off-shore technologies can be more cost effective, efficient, and impose less of an impact on the environment than at- and near-shore technologies, because of the land costs, transmission costs and power boosting, visual and noise impact, among other things.  As a result, we believe that future commercialization will strongly consider off-shore alternatives over at-and near-shore wind and wave generation.  Globally there are a number of off-shore projects, most of which are small, localized projects, with many operating on an experimental basis.  Some of the more noteworthy projects include the following:


1. Pelamis, by Ocean Power Delivery (Edinburgh, Scotland)

2. Power Buoy, by Ocean Power Technologies (New Jersey, USA)

3. GreenWave (near-shore) and BlueWave (off-shore) by OceanLinx (formerly Energetech, Australia)

4. Archimedes Wave Swing by AWS Ocean Energy Ltd (Scotland)

5. Waveplane by WavePlane Production A/S (Denmark)

6. Wave dragon by Wave Dragon ApS (Denmark)

7. The PIPO Buoy by Pipo Systems, S.L. (Vigo-Pontevedra, Spain)

8. The Manchester Bobber by The University of Manchester Intellectual Property Limited (England)

9. Anaconda Wave Energy Converter (Great Britain)


Each of the above listed projects deploy unique concepts and designs, somewhat different from one another.  The Company believes that to date, no one design has begun to dominate the market.  Because wave power is an emerging industry, there are no dominant standards yet in the market place.  Many early designs have proven to be inefficient, inoperable, uneconomical, or failed to obtain sufficient levels of funding.  Our technologies may suffer some or all of the same limitations.  Notwithstanding such risk, we believe that our technology is feasible and will prove efficacious. Research and development of our wave technology has been undertaken over the past decade, and it was supported by multiple governmental and institutional grants and partnerships.


We also believe our technology has the following advantages over the currently explored methods of harnessing the energy of the oceans:


·

Small footprint/ low profile: Sixteen floaters can be placed within a 36 square meter area, which is significantly less than competitive configurations.  The wave plant, being semi-submerged, has a low profile which makes installation, access and maintenance easier and faster.

·

Submersible: The power plant can be submerged during high seas to prevent wave damage and isolate the plant from severe weather.

·

Power Rating: We believe our power plant will have a higher power megawatt rating than our competitors.

·

Scalability: We believe that our wave farms can be scaled with increasing demand while remaining relatively compact.

·

Cost: We believe that the cost per installed MW will be competitive with similar alternative energy sources, however, since our technologies are only just being subjected to trials, the actual costs and longevity of productive use have not been commercially proven.


Wind Power Competition


All wind turbines currently available have the same design configuration, namely the placement of the gear box, generator, braking, yaw control, and electronic controls in a nacelle platform mounted on top of an elevated tower.  Competitive pricing is driven more by implementation and cost of ownership than major design advantages.  We are the first company to offer what we believe to be a significantly improved configuration for offshore installations, with a new wind turbine concept.


Design, development and construction of wind turbines are both complex and capital intensive.  The leading companies are large, well-capitalized organizations that have entered the wind power market by leveraging other mainline businesses.  Using past experience and expertise in related industries, turbines, transformers, electronic control, and many other common components were adapted for the wind power market.  The most prominent companies are large international firms such as Vestas, General Electric, Siemens, Gamesa, Alstom, and Areva, all of which have not only provided equipment for land based wind farms but also offshore farms.




7




General competitive conditions may be substantially affected by various forms of energy legislation and/or regulation introduced from time to time by the governments of the United States and other countries, as well as factors beyond our control, including international political conditions, overall levels of supply and demand for energy and alternative energy sources.


In the face of competition, we may not be successful in developing our technologies or interests.  Despite this, we hope to compete successfully in the wind and wave energy power industry by:


·

keeping our costs low;

·

relying on the strength of our management’s contacts; and

·

using our size and experience to our advantage by adapting quickly to changing market conditions or responding swiftly to potential opportunities.


Intellectual Property


We have not filed for any protection of our trademarks for our corporate name.  We own the copyright of our logo and all of the contents of our website, www.ocel.com.  In addition, we own the patents to the wave and wind energy technologies described above.


Research and Development Expenditures


We have not spent any amounts on research and development activities since our reverse merger transaction.


Government Regulations


Our current and future operations are or will be subject to various laws and regulations in US, Europe and other countries in which we do or will conduct our activities.  These laws and regulations govern the protection of the environment, conservation, development, energy production, taxes, labor standards, occupational health, work safety, toxic substances, chemical products and materials, waste management, and other matters relating to the energy industry.  As we further develop our business, we will likely experience an increase in government oversight and associated costs.


Permits, registrations or other authorizations will be required for the operation of our planned energy production facilities.  These permits, registrations or authorizations will be subject to revocation, modification and renewal.  Governmental authorities have the power to enforce compliance with these regulatory requirements, the provisions of required permits, registrations or other authorizations, and lease conditions, and violators are subject to civil and criminal penalties, including fines, injunctions or both.  Failure to obtain or maintain a required permit may also result in the imposition of civil and criminal penalties.  Third parties may have the right to sue to enforce compliance.


We expect to be able to comply with those laws and do not believe that compliance will have a material adverse effect on our competitive position.  We have obtained, and intend to obtain all licenses and permits required by all applicable regulatory agencies in connection with any of the operations we carry out and our future activities.  We intend to maintain standards of environmental compliance consistent with regulatory requirements.  We have obtained, and will obtain at the appropriate time, environmental permits, licenses or approvals required for our operations.  We are not aware of any material violations of environmental permits, licenses or approvals issued with respect to our operations.  At this time, we do not anticipate any material capital expenditures to comply with various environmental requirements.




8




US Regulations


If we commence operations for the installation of a wave and/or wind farm in the United States, we anticipate having to comply with a myriad of federal United States laws.  We would have to comply with the laws and regulations promulgated by the Minerals Management Service, which governs leasing rights and location of devices on the seabed and the production, transport and transmission of forms of energy other than oil and gas from an ocean location, under the Outer Continental Shelf Land Act, the Energy Policy Act of 2005, and the Submerged Lands Act.  Under the Federal Power Act, we would have to comply with the laws and regulations administered by FERC, which govern electric power generation and interconnections.  We would have to comply with Coast Guard regulation and US Army Corp of Engineers regulation, which govern locating plants, ocean traffic, marine safety and installation.   In respect of environmental regulation, plants would have to comply with a wide range of statutes and related regulation, administered by many different agencies, including the National Environmental Policy Act (quality of human environment), Migratory Bird Treaty Act (harming of birds), National Historic Preservation Act (protection of historic places, including places, properties and shipwrecks), Magnuson-Stevens Fishery Conservation & Management Act (fishery management), National Marine Sanctuary Act (marine life protection), Endangered Species Act (protection of species and habitat), Clean Water Act (discharge of pollutants in the waters of the United States), Clean Air Act (discharge of pollutants into the air), Marine Mammal Protection Act (mammal harassment and protection), and Estuary Protection Act (conservation of estuarine areas).


In some instances, state law may also be involved in connection with transmission lines and location of substations, and connection to the local electric grid, typically involving environmental regulation and law.  The Company will also have to comply with property rights and property law in connection with easements and access rights for its transmission line.


Employees and Consultants


As of December 31, 2013, we had three full time employees, including our Chief Executive Officer, our Corporate Secretary, who also acts as our general manager, and an individual who is engaged as our technical officer. We currently engage independent contractors in the areas of accounting, geologist services, legal, auditing services, investment banking and corporate development.  In the future, as our business and our financial resources warrant, we will engage other personnel and consultants as needed to implement our business plan.


Item 1A.  Risk Factors


You should carefully consider the following risk factors together with the other information contained in this Annual Report on Form 10-K, and in prior reports pursuant to the Securities Exchange Act of 1934, as amended and the Securities Act of 1933, as amended. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In this event, the market price of our common stock could decline and your investment could be lost.


Risks Relating to Our Business


We have a history of operating losses and may never achieve or maintain profitability and positive cash flow.


We have incurred net losses since we began operations in 2006, including net losses of $12,180 in fiscal 2013 and $6,361,284 in fiscal 2012. As of December 31, 2013, we had an accumulated deficit of $6,651,219. To continue the development of our business, we will have to raise significant amounts of capital.  We do not yet have any prediction on when we will commence the generation of any revenues. As we continue to develop our proprietary technologies, we expect to have a net decrease in cash from operating activities. We do not know whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully commercialize our wave and/or wind energy technologies in the emerging renewable energy market.




9




We will need to sell additional equity and/or debt securities or obtain credit facilities to continue our business. The sale of additional equity or convertible securities will result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities will have rights senior to those associated with our common stock and likely will contain covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us. If we are unable to obtain required financing, we may be required to reduce the scope of our planned product development and commercialization efforts, which could adversely affect our financial condition, operating results and the market value of our common stock.


Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.


The report of our independent auditor dated April 17, 2014 on our financial statements for the year ended December 31, 2013, included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.  Our auditor’s doubts are based on our deficit accumulated during development stage and our net loses and cash flow deficiencies. Our ability to continue as a going concern will be determined upon the continued financial support from our management and shareholders, our ability to identify future investment opportunities and our ability to obtain the necessary debt or equity financing and generate profitable operations from our future operations.


We may not be able to raise sufficient capital to grow our business.


We will need to raise additional funds to support development and commercialization of our products and services.  We will need substantial funds to continue our wave technology trials and proving our technologies, and to modify and develop additional aspects of our technologies to make them marketable.  If we are unable to raise additional funds when needed, our ability to operate and grow our business will be impaired. We do not know whether we will be able to secure additional funding or funding on terms favorable to us. Our ability to obtain additional funding will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. These factors may make the timing, amount, terms and conditions of additional funding unattractive. If we issue additional equity securities, our existing stockholders would experience dilution or may be subordinated to any rights, preferences or privileges granted to the new equity holders.


We currently have outstanding a debt obligation that is convertible into a large number of shares, which if converted could have an adverse impact on the price of our shares in the market.


We have entered into a convertible loan agreement that currently aggregates past and new debt in an amount of approximately $635,000 in principal and under which we have the right to obtain an additional $300,000.  The outstanding principal bears interest at 6% per annum. Although the right to convert shares is subject to a 9.99% blocker, which prevents conversion if the result is that the holder will hold more than that percentage of outstanding common stock, if all or a portion of the principal and interest is converted at the current conversion rate of $.10, there would be a significant number of shares issued that could be sold into the public market.  Since our stock is currently thinly traded, a larger number of shares available for sale could have an adverse impact on the price and volume of trading of our shares in the public market.


Wave and/or wind energy technologies may not gain broad commercial acceptance, and therefore we might not be able to generate sufficient revenues in order to achieve and subsequently sustain profitability.


Both wave and wind energy technology is at an early stage of development, and the extent to which these renewable energy resources will be commercially viable is uncertain. Many factors may affect the commercial acceptance of wave and/or wind energy technology, including the following:


·

performance, reliability and cost-effectiveness of these renewable energy resources compared to conventional and other renewable energy sources and products;

·

developments relating to other renewable energy generation technologies;

·

fluctuations in economic and market conditions that affect the cost or viability of conventional and renewable energy sources, such as increases or decreases in the prices of oil and other fossil fuels;

·

overall growth in the renewable energy equipment market;



10




·

availability and terms of government subsidies and incentives to support the development of renewable energy sources, including wave and wind energy; and

·

fluctuations in capital expenditures by utilities and independent power producers, which tend to decrease when the economy slows and interest rates increase.


If neither wave nor wind energy technology gains broad commercial acceptance, our business will be materially harmed and we may need to curtail or cease operations.


If demand for our renewable energy technologies does not develop or takes longer to develop than we anticipate, our revenues may decline, and we may be unable to achieve and then sustain profitability.


Even if wave and/or wind energy technologies achieve broad commercial acceptance, our particular technologies may not prove to be commercially viable for generating electricity from either ocean waves or offshore wind. If demand fails to develop our renewable energy technologies, we may be unable to grow our business or generate sufficient revenues to achieve and then sustain profitability. If we are not successful in commercializing our renewable energy technologies, our business, financial condition and results of operations would be adversely affected.


The reduction or elimination of government subsidies and economic incentives for renewable energy sources could prevent demand for our wave and wind energy technologies from developing, which in turn would adversely affect our business, financial condition and results of operations.


Federal, state and local governmental bodies in many countries, have provided subsidies in the form of tariff subsidies, rebates, tax credits and other incentives to utilities, power generators and distributors using renewable energy. However, these incentives and subsidies generally decline over time, and many incentive and subsidy programs have specific expiration dates. Moreover, because the markets for electricity generated from wave and wind energy are at an early stage of development, some of the programs may not include wave energy as a renewable energy source eligible for the incentives and subsidies.


Currently, the cost of electricity generated from wave and wave energy, without the benefit of subsidies or other economic incentives, substantially exceeds the price of electricity in most significant markets in the world. As renewable energy becomes more of a competitive threat to conventional energy providers, companies active in the conventional energy business may increase their lobbying efforts in order to encourage governments to stop providing subsidies for renewable energy. We cannot predict the level or time frame of any such efforts, or how governments may react to such efforts. The reduction, elimination or expiration of government incentives and subsidies, or the exclusion of wave and/or wind energy technology from those incentives and subsidies, may result in the diminished competitiveness of wave and wind energy relative to conventional and non-wave/wind energy renewable sources of energy. Such diminished competitiveness could materially and adversely affect the growth of the wave and wind energy industries, which could in turn adversely affect our business, financial condition and results of operations.


Our inability to effectively manage our growth could adversely affect our business and operations.


The scope of our operations to date has been limited, and we do not have experience operating on the scale that we believe will be necessary to achieve profitable operations. We have not yet carried out any project management contracts for any of our wave or wind products. Our current personnel, facilities, systems and internal procedures and controls are not adequate to support our projected future growth.


To manage the expansion of our operations, we will be required to improve our operational and financial systems, procedures and controls, increase our manufacturing capacity and throughput and expand, train and manage our employee base, which must increase significantly if we are to be able to fulfill our current business plans. Our management will also be required to establish and maintain relationships with customers, suppliers and other third parties. If we do not meet these challenges, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.




11




The renewable energy industry is highly competitive. We compete with other renewable energy companies and projects and may have to compete with larger companies that enter into the renewable energy business. If we are unable to compete effectively, we may be unable to increase our revenues and achieve or maintain profitability.

 

The renewable energy industry is highly competitive and continually evolving as participants strive to distinguish themselves and compete with the larger electric power industry. Competition in the renewable energy industry is likely to continue to increase with the advent of several renewable energy technologies. Competition may arise from other companies manufacturing similar products, developing different products that produce energy more efficiently than our products, or making improvements to traditional energy-producing methods or technologies, any of which could make our technology less attractive or obsolete. If we are not successful in manufacturing systems that generate competitively priced electricity, we will not be able to respond effectively to competitive pressures from other renewable energy technologies or improvements to existing technologies.


Moreover, the success of renewable energy generation technologies may cause larger electric utility and other energy companies with substantial financial resources to enter into the renewable energy industry. These companies, due to their greater capital resources and substantial technical expertise, may be better positioned than we are to develop new or improve existing technologies. Our inability to respond effectively to such competition could adversely affect our business, financial condition and results of operations.


We have no manufacturing experience. If we are unable to manufacturing our products in a cost-effective manner, our business will be materially harmed.


We plan to only manufacture the patented critical components of our wave and wind energy systems using contract manufacturers. To date, we only manufactured these components for use in development and testing and have no commercial manufacturing experience. Our future success depends will depend in part on our ability to develop our manufacturing capability in a cost-effective and efficient, quality manner. In order to meet our growth objectives, we also will need to increase our engineering capabilities. There is intense competition for hiring qualified technical and engineering personnel, and we may not be able to hire a sufficient number of qualified personnel to allow us to meet our growth objectives.


We may be unable to develop efficient, low-cost manufacturing capabilities and processes that will enable us to meet the quality, price, engineering, design and production standards or production volumes necessary to successfully commercialize our wave and wind energy systems. If we cannot do so, we may be unable to expand our business, satisfy our contractual obligations or become profitable. Even if we are successful in developing our manufacturing capabilities and processes, we may not be able to do so in time to meet our commercialization schedule or satisfy the requirements of our customers.


Failure by third parties to supply or manufacture components of our products or to deploy our systems timely or properly could adversely affect our business, financial condition and results of operations.


We will be highly dependent on third parties to supply or manufacture all other components of our wave and wind energy power systems. If, for any reason, our third-party manufacturers or vendors are not willing or able to provide us with components or supplies in a timely fashion, or at all, our ability to manufacture and sell many of our products could be impaired.


There can be no assurance that these third parties will meet their obligations. Third-party manufacturers and suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to procure their raw material on time, failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors, any of which could delay or impede their ability to meet our demand. Our reliance on these outside manufacturers and suppliers also subjects us to other risks that could harm our business, including:


·

suppliers may make errors in manufacturing components that could negatively impact the effectiveness or safety of our products, or cause delays in shipment of our products;

·

we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;



12




·

our suppliers may manufacture products for a range of customers, and fluctuations in demand for the products these suppliers manufacture for others may affect their ability to deliver components to us in a timely manner; and

·

our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements.


Any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders, which would adversely affect our business, financial condition and results of operations


We plan to market our products in numerous international markets. If we are unable to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected.


We plan to market our products in a number of foreign countries and we are therefore subject to risks associated with having international operations. Risks inherent in international operations include, but are not limited to, the following:


·

changes in general economic and political conditions in the countries in which we operate;

·

unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to renewable energy, environmental protection, permitting, export duties and quotas;

·

trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our wave and wind energy power systems and make us less competitive in some countries;

·

fluctuations in exchange rates may affect demand for our wave and wind energy power systems and may adversely affect our profitability in US dollars to the extent the price of our wave and wind energy power systems are denominated in a foreign currency;

·

complexity of, and costs relating to compliance with, the different commercial and legal requirements of the overseas markets in which we will offer and sell our wave and wind energy power systems;

·

inability to obtain, maintain or enforce intellectual property rights; and

·

difficulty in enforcing agreements in foreign legal systems.


Existing regulations and policies and changes to these or new regulations and policies may present technical, regulatory and economic barriers to the use of wave and/or wind energy technology, which may significantly reduce demand for our wave and wind energy power systems.


The market for electricity generation equipment is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and connection to the power grid. In the United States and in a number of other countries, these regulations and policies currently are being modified and may be modified again in the future. Utility company and independent power producer purchases of, or further investment in the research and development of, alternative energy sources, including wave and wind energy technology, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our wave and wind energy power systems.


If the renewable energy industry continues to develop and if the generation of power from wave and wind energy in particular achieves commercial acceptance, we anticipate that wave and wind energy technology and their deployment will be subject to increased oversight and regulation. We are unable to predict the nature or extent of regulations that may be imposed or adopted. Any new government regulations or utility policies pertaining to wave or wind energy may result in significant additional expenses to us and our customers and, as a result, could adversely affect our business, financial condition and results of operations.




13




If we are unable to obtain all necessary regulatory permits and approvals, we will not be able to implement our planned projects.


Development of electric power generating facilities is heavily regulated. We will be dependent on state, federal and regional government agencies for permits and approvals. If we are unable to obtain necessary permits and approvals in connection with any or all of our projects, those projects would not be implemented and our business, financial condition and results of operations would be adversely affected. Further, we cannot assure you that we will be at all times in complete compliance with all such permits and approvals. If we violate or fail to comply with these permits and approvals, we could be fined or otherwise sanctioned by regulators.


We may face hurricane- and storm-related risks and other risks typical of a marine environment which could adversely affect our business, financial condition and results of operations.


Our wave and wind energy power systems will be deployed in the ocean where they could be subject to many hazards including severe storms and hurricanes, which could damage them and result in service interruptions. We cannot predict whether we will be able to recover from our insurance providers the additional costs that we may incur due to damage caused to our wave energy power systems, or whether we will continue to be able to obtain insurance for hurricane- and storm-related damages or, if obtainable and carried, whether this insurance will be adequate to cover our liabilities. Any future hurricane-or storm-related costs could adversely affect our business, financial condition and results of operations.


Since our wave and wind energy power systems can only be deployed in certain geographic locations, our ability to grow our business could be adversely affected.

 

Not all areas worldwide have appropriate natural resources for our wave and wind energy power systems to harness energy. Seasonal and local variations, and the effect of particular geographical features may limit our ability to deploy our wave and wind energy power systems in certain areas. If we are unable to identify and deploy our wave and/or wind energy power systems at sufficient sites near major population centers, our ability to grow our business could be adversely affected.


We face numerous accident and safety risks and hazards that are inherent in energy operations.


Portions of our operations are subject to hazards and risks inherent in the building, testing, deploying and maintenance of our wave and wind energy systems. These hazards and risks could result in personal injuries, loss of life, and other damages, which may include damage to our properties and the properties of others and other consequential damages, and could lead to the suspension of certain of our operations, large damage claims, damage to our safety reputation and a loss of business. Some of these risks may be uninsurable and some claims may exceed our insurance coverage. Therefore, the occurrence of a significant accident or other risk event or hazard that is not fully covered by insurance could materially and adversely affect our business and financial results and, even if fully covered by insurance, could materially and adversely affect our business due to the impact on our reputation for safety. In addition, the risks inherent in our business are such that we cannot assure you that we will be able to maintain adequate insurance in the future at reasonable rates.


If we are unable to attract and retain qualified personnel, we may not be able to achieve our business objectives.


Currently, we have three direct employees. In order to achieve our anticipated growth, we will need to hire additional qualified technical, commercial and administrative personnel. There is competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we are not able to attract and retain, on acceptable terms, the qualified personnel necessary for the future development of our business, we may not be able to grow our operations at a competitive pace.




14




Any acquisitions that we make or joint venture agreements that we enter into could adversely affect our business, financial condition and results of operations.

 

From time to time, we may evaluate potential strategic acquisitions of complementary businesses, products or technologies, as well as consider joint ventures and other collaborative projects. We do not have any experience with acquiring companies or products. Any acquisition we pursue could diminish the capital resources otherwise available to us for other uses or be dilutive to our stockholders and could divert management's time and resources from our core operations.


Strategic acquisitions, investments and alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information and loss of control of operations that are material to our business. In addition, strategic acquisitions, investments and alliances may be expensive to implement. Moreover, strategic acquisitions, investments and alliances subject us to the risk of non-performance by a counterparty, which may in turn lead to monetary losses that materially and adversely affect our business, financial condition and results of operations.


In the event we are unable to satisfy regulatory requirements relating to internal control over financial reporting, or if our internal controls are not effective, our business and financial results may suffer.


Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our business and operating results could be harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on internal control over financial reporting, including management's assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could also be a material adverse effect on our stock price.


Risks Related to Intellectual Property


If we are unable to obtain or maintain intellectual property rights relating to our technology and products, the commercial value of our technology and products may be adversely affected, which could in turn adversely affect our business, financial condition and results of operations.


Our success and ability to compete depends in part upon our ability to obtain protection in the United States and other countries for our products by establishing and maintaining intellectual property rights relating to or incorporated into our technology and products. We do not know how successful we would be if we choose to assert our patents against suspected infringers. Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection, which could in turn adversely affect our business, financial condition and results of operations.




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If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected, which could in turn adversely affect our business, financial condition and results of operations.


In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We generally seek to protect this information in part by confidentiality agreements with our consultants and other third parties. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.


If we infringe or are alleged to infringe intellectual property rights of third parties, our business, financial condition and results of operations could be adversely affected.


Our products may infringe, or be claimed to infringe, patents or patent applications under which we do not hold licenses or other rights. Third parties may own or control these patents and patent applications in the United States and abroad. Third parties could bring claims against us that would cause us to incur substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages.


As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from the third party and be required to pay license fees, royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This could significantly and adversely affect our business, financial condition and results of operations.


In addition to infringement claims against us, we may become a party to other types of patent litigation and other proceedings, including interference proceedings declared by the United States Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. In addition, if we were to license our intellectual property to others, we may be required to indemnify our licensee if the licensed intellectual property is found to be infringing on a third party’s rights. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.




16




Our failure to comply with U.S. laws and regulations relating to the export and import of goods, technology, and software could subject us to penalties and other sanctions and restrict our ability to license and develop our circuit designs.


As a United States company, we are obligated by law to comply with all U.S. laws and regulations governing the export and import of goods, technology, and services, including the International Traffic in Arms Regulations, or ITAR, the Export Administration Regulations, or EAR, regulations administered by the Department of Treasury’s Office of Foreign Assets Control, and regulations administered by the Bureau of Alcohol Tobacco Firearms and Explosives governing the importation of items on the U.S. Munitions Import List. Pursuant to these regulations, we are responsible for determining the proper licensing jurisdiction and export classification of our technology designs, and obtaining all necessary licenses or other approvals, if required, for exports and imports of technical data, and software, or for the provision of technical assistance or other defense services to or on behalf of foreign persons. We are also required to obtain export licenses, if required, before employing or otherwise utilizing foreign persons in the performance of our contracts if the foreign person will have access to export-controlled technical data or software. The violation of any of the applicable laws and regulations could subject us to administrative, civil, and criminal penalties.


These regulations could restrict our ability to license existing designs and develop new designs. Changes in our designs or changes in export and import regulations may create delays in the introduction of our designs in international markets, prevent our customers with international operations from deploying products incorporating our designs throughout their global systems or, in some cases, prevent the export or import of product including our designs to certain countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons, or technologies targeted by such regulations, could result in decreased use of our designs by, or our ability to export or license our designs to, existing or potential customers with international operations and decreased revenue. Additionally, failure to comply with these laws could result in sanctions by the U.S. government, including substantial monetary penalties, denial of export privileges, and debarment from government contracts.


If we fail to comply with anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, we could be subject to civil and/or criminal penalties.


As a result of our potential international operations, we may be subject to anti-bribery laws, including the FCPA, which prohibits companies from making improper payments to foreign officials for the purpose of obtaining or keeping business. If we fail to comply with these laws, the U.S. Department of Justice, the Securities and Exchange Commission, or SEC, or other U.S. or foreign governmental authorities could seek civil and/or criminal sanctions, including monetary fines and penalties against us or our employees, as well as additional changes to our business practices and compliance programs, which could have a material adverse effect on our business, results of operations, or financial condition.


Risks Related to our Common Stock

 

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Currently, our common stock is trading below this threshold. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks; and the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which sets forth the basis on which the broker or dealer made the suitability determination and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.



17





Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.


We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.


We have not paid any cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.


Our stock price is likely to be volatile, and purchasers of our common stock could incur substantial losses.


The market price of our common stock may fluctuate significantly in response to factors that are beyond our control. The stock market in general has recently experienced extreme volatility that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations could result in fluctuations in the price of our common stock, which could cause purchasers of our common stock to incur substantial losses. The market price for our common stock may be influenced by many factors, including:


·

the success of competitive products or technologies;

·

regulatory developments in the United States and foreign countries;

·

developments or disputes concerning patents or other proprietary rights;

·

the recruitment or departure of key personnel;

·

quarterly or annual variations in our financial results or those of companies that are perceived to be similar to us;

·

market conditions in the conventional and renewable energy industries and issuance of new or changed securities analysts' reports or recommendations;

·

the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;

·

the inability to meet the financial estimates of analysts who follow our common stock;

·

investor perception of our Company and of the renewable energy industry; and

·

general economic, political and market conditions.


Item 1B.  Unresolved Staff Comments


None.


Item 2.  Properties


We have an executive office located at 112 North Curry Street, Carson City, Nevada 89703.  We also maintain an office in Martorelles, Barcelona, Spain.


Item 3.  Legal Proceedings


We know of no material pending or active legal proceedings to which we are a party or concerning any of our properties.  We are not aware of any legal proceedings contemplated by any governmental authority against us.


Item 4.  Mine Safety Disclosure


Not applicable.




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PART II


Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


Market Information


There is a limited public market for our common shares.  Our common shares are quoted on the OTC Bulletin Board under the symbol “OCEL.OB”.  Trading in stocks quoted on the OTC Bulletin Board is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects.  We cannot assure you that there will be a market in the future for our common stock.


OTC Bulletin Board securities are not listed or traded on the floor of an organized national or regional stock exchange.  Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks.  OTC Bulletin Board issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.


The following table shows the recorded high and low bid quotations of our common shares on the OTC Bulletin Board, however, the trading activity is minimal and therefore the prices may not be meaningful of market value or a represent price at which an investor will pay for or realize on the sale of a share.  The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions:


Period

High ($)

 

Low ($)

October 1, 2013 – December 31, 2013

 

0.25

 

 

0.20

July 1, 2013– September 30, 2013

 

0.36

 

 

0.32

April 1, 2013 – June 30, 2013

 

0.44

 

 

0.35

January 1, 2013– March 31, 2013

 

1.01

 

 

1.01

October 1, 2012 – December 31, 2012

 

1.01

 

 

1.01

July 1, 2012– September 30, 2012

 

1.01

 

 

1.01

April 1, 2012 – June 30, 2012

 

1.01

 

 

0.30

January 1, 2012 – March 31, 2012

 

1.57

 

 

0.25


On April 4, 2014, the price of the common shares was a high of $0.51 and a low of $0.51.


Holders


As of April 15, 2014, there were approximately five holders of record of our common stock. Approximately 1% of our common stock is held in street name, for which we do not have an indication of the number of beneficial owners.


Dividends


We did not issue any stock dividends during our fiscal year ended December 31, 2013.


Equity Compensation Plans


We have not implemented any equity compensation plans.


Recent Sales of Unregistered Securities


None.


Item 6.  Selected Financial Data


Not applicable.




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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation


Safe Harbor


This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology.  These statements are only predictions.  Actual events or results may differ materially.


While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.


Overview


We design, develop, manufacture, license, and service non-polluting, renewable electric power generating plants using innovative, patent protected wave energy and wind energy extraction technologies.


We have only recently begun our current operations, have earned nominal revenues and have accumulated a net loss of $6,651,219 from January 10, 2006 (date of inception) to December 31, 2013.


We are a start-up stage corporation with limited operations and limited revenues from our business operations.  Our auditors have issued us with a going concern opinion.  This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to fund our operations.  Our only source of cash at this time is investments by others in our Company.  We must raise cash to implement our plan of operation.


Plan of Operations


Our projected categories of expenses for the 2014 fiscal year are generally the same as for fiscal year 2013.  These expenses are expected to include those for marketing, general administration and overhead, professional services and working capital.  As we progress with the South American project, we expect to have to expend sums on research and development and advances for equipment and services.


We are exploring different avenues of financing.  We have entered into a further loan arrangement with one of our current lenders. We expect that the funds available under this loan arrangement will provide us with working capital for our day to day expenses, including the general administration, overhead and professional services for 2014.  However, as explained elsewhere, for expanded development and implementation of our business plans we will need additional capital, for which we do not have any specific arrangements.


2014 Consolidated Loan Agreement


On January 29, 2014 we entered into a Consolidated Loan Agreement (the “Loan Agreement”) with Zenith Equity Group Ltd. (“Zenith”), to consolidate certain outstanding loans made by Zenith in 2012 and 2013 and to extend new loans to the Company.  Zenith is also a shareholder of the Company and owns more than 5% of the issued and outstanding shares of common stock of the Company.




20




The Loan Agreement consolidates outstanding loans of $450,000 made on June 26, 2012 and $40,000 made on September 18, 2013,  and accrued interest of $25,623.83 (collectively, the “Consolidated Debt”).  The prior two loan agreements were terminated. In addition to the Consolidated Debt, upon signing, Zenith lent $100,000 (the “New Credit Loan”) and made available from time to time, an aggregate amount of $300,000 prior to December 31, 2014 (the “Drawdown”, together with the Consolidated Debt and the New Credit Loan, the “Loan”). The Loan matures on April 15, 2018 and bears 6% per year, simple interest, calculated on the basis of a 365-day year.  The company has the right to prepay the principal and the interest due thereon, in whole and in part, in its sole discretion, by providing Zenith a prepayment notice. The minimum prepayment notice period is 45 days, during which Zenith may convert the amount intended to be prepaid into shares of common stock under the conversion terms of the Loan Agreement.


Zenith has the right to convert at any time and from time to time the principal and accrued interest due into shares of common stock of the Company, at the initial rate of $0.10 per share, subject to the limitation specified in connection with a prepayment of principal and interest. The conversion rate is subject to adjustment for stock dividends, stock splits and similar corporate events. Zenith can exercise its conversion rights only when the Company has the authorized and un-issued shares available to be issued at the time of conversion.  Zenith must present the Company a specific acknowledgment to convert if after the conversion, the resulting shares represent more than 9.99% of the issued and outstanding shares of common stock of the Company, including any shares that may be issuable under any convertible or exercisable instruments of the Company held by Zenith.


In addition to the right of conversion, Zenith has the right to offer all or a portion of the principal and interest due under the Loan Agreement in payment of shares of common stock of the Company in any offering of shares of common stock being offered for sale directly by the Company.


The Loan Agreement is governed by the laws of the state of Nevada.


RESULTS OF OPERATIONS


Working Capital


 

December 31, 2013

 

December 31, 2012

 

$

 

$

Current Assets

2,423 

 

305,601 

Current Liabilities

154,666 

 

487,212 

Working Capital (Deficit)

(152,243)

 

(181,611)


Cash Flows


 

Year ended

December 31, 2013

 

Year ended

December 31, 2012

 

$

 

$

Cash Flows from (used in) Operating Activities

(287,359)

 

(146,931)

Cash Flows from (used in) Investing Activities

(2,350)

 

(296,364)

Cash Flows from (used in ) Financing Activities

(11,504)

 

451,663 

Net Increase (decrease) in Cash During Period

(301,213)

 

8,368 


Fiscal Year Ended December 31, 2013 Compared To Fiscal Year Ended December 31, 2012


Operating Revenues


During the years ended December 31, 2013 and 2012, we did not earn any revenues from operations.


Operating Expenses and Net Loss


During the year ended December 31, 2013, we incurred operating expenses of $495,231 compared with operating expenses of $6,259,187 during the year ended December 31, 2012.  The decrease in operating expenses was attributed to decrease in management fees when had been paid with shares of Common Stock in 2012.




21




For the year ended December 31, 2013, we incurred a net loss of $12,180 compared with a net loss of $6,361,284 for the year ended December 31, 2012.

Cash-flow from Operating Activities


During the year ended December 31, 2013, we used cash of $287,359 for operating activities as compared to use of $146,931 during the year ended December 31, 2012.  The increase in cash used for operating activities during the year was due to the increase of general and administrative expenses.


Cash-flow from Investing Activities


During the years ended December 31, 2013 we invested $2,350 as compared to $296,364 during the year ended December 31, 2012. This investment was related to the acquisition of a fixed asset.


Cash-flow from Financing Activities


During the year ended December 31, 2013, we used proceeds of $11,504 in financing activities compared with $451,663 received during the year ended December 31, 2012.  The decrease is attributed to repayments of note payable exceeding proceeds received from stock offers and loans.


Fiscal Year Ended December 31, 2012 Compared To Fiscal Year Ended December 31, 2011


Operating Revenues


During the years ended December 31, 2012 and 2011, we did not earn any revenues from operations.


Operating Expenses and Net Loss


During the year ended December 31, 2012, we incurred operating expenses of $6,259,187 compared with operating expenses of $58,925 during the year ended December 31, 2011.  The increase in operating expenses was attributed to increases in professional fees, management fees, general and administrative costs with respect to the acquisition of the intangible assets and amortization of acquired intangible assets of $111,724.


For the year ended December 31, 2012, we incurred a net loss of $6,361,284 compared with a net loss of $88,589 for the year ended December 31, 2011.  In addition to operating expenses, we also incurred $102,097 of interest expense relating to the debt from the acquisition of the intangible assets, which is unsecured, due interest at 10% per annum, and is payable in equal monthly installment.


Cash-flow from Operating Activities


During the year ended December 31, 2012, we used cash of $146,931 for operating activities as compared to use of $73,187 during the year ended December 31, 2011.  The increase in cash used for operating activities during the year was due to payment of outstanding day-to-day obligations incurred during the year and debt service of a loan from Hidroflot, S.A.


Cash-flow from Investing Activities


During the years ended December 31, 2012 we invested $ 296,364 as compared to $nil during the year ended December 31, 2011. This investment was related to the acquisition of an intangible asset.


Cash-flow from Financing Activities


During the year ended December 31, 2012, we received proceeds of $451,663 from financing activities compared with $370,420 during the year ended December 31, 2011.  The increase is attributed to proceeds of $504,000 from the issuance of common shares, $ 450,000 related to a loan from Zenith Equity Group and $325 increase in amounts from related parties offset by repayment of outstanding long-term debt of $502,662.



22





Liquidity and Capital Resources


As at December 31, 2013, we had a cash balance of $2,423 and total assets of $1,731,249 compared with $305,601 of cash and $2,143,852 total assets as at December 31, 2012.  The decrease in cash was due to operating cost expenditures and debt service. The decrease in total assets was due to amortization of such assets.


Subsequent to year end, we entered into the consolidated loan agreement with Zenith which provides us with the ability to draw up to $300,000 during the balance of the calendar year of 2014, in addition to the $100,000 loan to the Company on January 29. The use of these funds is not limited and if drawn will be used for working capital.  Any funds borrowed are on the same terms as the consolidated loan amount described above in regards of the January 29, 2014 loan agreement.


As at December 31, 2013, we had total liabilities of $788,972 compared with total liabilities of $1,189,395 at December 31, 2012.  The decrease in total liabilities was attributed to forgiveness of the Hidroflot loan.


As at December 31, 2013, we had a working capital deficit of $152,243 compared with a working capital deficit of $181,611 as at December 31, 2012.  The decrease in working capital deficit was due to decrease of cash on hand and due to increase in accounts payable and debt related to notes payables issued during year 2013.


There were no changes in the authorized capital of common shares during the year ended December 31, 2013.


Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.



23





Item 8.  Financial Statements and Supplementary Data



Ocean Electric Inc.

(A Development Stage Company)

December 31, 2013

(Expressed in US dollars)


 

Index

 

 

Report of Independent Registered Public Accounting Firm

F-1

Balance Sheets

F-2

Statements of Operations

F-3

Statement of Stockholders’ Equity (Deficit)

F-4

Statements of Cash Flows

F-5

Notes to the Financial Statements

F-6










24





[ocel10k123113001.jpg]

2451 N. McMullen Booth Road


Suite 308


Clearwater, FL 33759


855.334.0934 Toll free




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders


We have audited the accompanying balance sheet of  as of  and 2012, and the related statement of operations, stockholders’ equity and cash flows from Inception (January 10, 2006) through  and 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of  as from Inception (January 10, 2006) through , and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As shown in the accompanying financial statements, the Company has significant net losses and cash flow deficiencies.  Those conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans regarding those matters are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ DKM Certified Public Accountants


DKM Certified Public Accountants


Clearwater, Florida


April 17, 2014




F-1




OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Balance Sheets

(Expressed in US dollars)


 

December 31,

 

2013

 

2012

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

$

2,423 

 

$

305,601 

Prepaid expenses

 

 

 

Total current assets

 

2,423 

 

 

305,601 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Prepaid marketing expenses (see Note 8)

 

296,364 

 

 

296,364 

Fixed assets, net

 

2,299 

 

 

Intangible assets, net

 

1,430,163 

 

 

1,541,887 

TOTAL ASSETS

$

1,731,249 

 

$

2,143,852 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and Accrued Liabilities

 

146,413 

 

 

9,089 

Loan Payable to Related Party

 

8,253 

 

 

16,121 

Current Portion of Long-Term Debt

 

 

 

462,002 

Total current liabilities

 

154,666 

 

 

487,212 

 

 

 

 

 

 

Long-Term Liabilities

 

 

 

 

 

Long-term debt, Net of Current Portion

 

634,306 

 

 

702,183 

Total long-term Liabilities

 

634,306 

 

 

702,183 

TOTAL LIABILITIES

 

788,972 

 

 

1,189,395 

 

 

 

 

 

 

COMMITMENTS (See Note 9)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

Preferred Stock

 

 

 

 

 

Authorized: 5,000,000 preferred shares with a par value of $ 0.001 per share Issued and outstanding: nil preferred shares

 

 

 

Common Stock

 

 

 

 

 

Authorized: 250,000,000 common shares with a par value of $ 0.001 per share; 54,783,500 and 55,800,000 Issued and Outstanding as of Dec 31, 2013 and Dec 31, 2012

 

54,783 

 

 

55,800 

Additional paid in capital

 

7,540,678 

 

 

7,539,661 

Accumulated Deficit During the Development State

 

(6,651,219)

 

 

(6,641,004)

Other Comprehensive Income (Loss)

 

(1,965)

 

 

TOTAL STOCKHOLDERS’ DEFICIT

 

942,277 

 

 

954,457 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

1,731,249 

 

$

2,143,852 


The accompanying notes are an integral part of these consolidated financial statements.




F-2




OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(Expressed in US Dollars)


 

 

 

 

 

 

 

From

 

 

 

 

 

 

 

Inception

 

 

 

 

 

 

 

(January 10,

 

For the Years Ended

 

2006) through

 

December 31,

 

December 31,

 

2013

 

2012

 

2013

REVENUES

 

 

 

 

 

 

 

 

Revenues

$

 

$

 

$

4,000 

Cost of sales

 

 

 

 

 

Gross profit

 

 

 

 

 

4,000 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Advertising and promotion

 

 

 

8,410 

 

 

8,410 

Amortization

 

111,775 

 

 

111,724 

 

 

245,726 

General and administrative

 

210,644 

 

 

139,053 

 

 

563,546 

Management fees

 

172,812 

 

 

6,000,000 

 

 

6,172,812 

Total operating expenses

 

495,231 

 

 

6,259,187 

 

 

6,990,494 

 

 

 

 

 

 

 

 

 

(Loss) from operations

 

(495,231)

 

 

(6,259,187)

 

 

(6,986,494)

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Debt Forgiveness Income

 

532,703 

 

 

 

 

532,703 

Interest expense

 

(47,687)

 

 

(102,097)

 

 

(179,448)

Other Income (Expense)

 

 

 

 

 

(17,980)

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

485,016 

 

 

(102,097)

 

 

335,275 

 

 

 

 

 

 

 

 

 

NET  (LOSS)

$

(10,215)

 

$

(6,361,284)

 

$

(6,651,219)

 

 

 

 

 

 

 

 

 

Net Income/(Loss) per Share – Basic and Diluted

$

 

$

(0.11)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common and common equivalent shares outstanding

 

 

 

 

 

 

 

 

Basic and diluted

 

54,783,500 

 

 

53,197,283 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income:

 

 

 

 

 

 

 

 

Foreign Currency Translation Adjustment

 

(1,965)

 

 

 

 

 

Comprehensive Income (Loss)

$

(12,180)

 

$

(6,361,284)

 

 

 


The accompanying notes are an integral part of these consolidated financial statements.





F-3




OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(Development Stage Company)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

From January 10, 2006 (date of inception) through December 31, 2013

(Expressed in US dollars)


 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

during the

 

Other

 

 

 

 

 

 

 

Par

 

Paid-in

 

development

 

Comprehensive

 

 

 

 

 

Shares

 

Value

 

Capital

 

stage

 

Income

 

Total

 

 

#

 

$

 

$

 

$

 

$

 

$

Balance – January 10, 2006 (Date of Inception)

 

 

$

 

$

-

 

$

 

$

 

$

Common stock issued for cash at $0.03 per share

 

3,800,000 

 

$

3,800 

 

$

95,155

 

 

 

 

 

$

98,955 

Common stock issued for cash at $0.05 per share

 

1,100,000 

 

$

1,100 

 

$

53,900

 

 

 

 

 

$

55,000 

Net Loss for the period

 

 

$

 

 

-

 

 

(96,645)

 

 

 

$

(96,645)

Balance at December 31, 2006

 

4,900,000 

 

$

4,900 

 

$

149,055

 

$

(96,645)

 

$

 

$

57,310 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss for the year

 

 

 

 

 

-

 

 

(34,639)

 

 

 

 

(34,639)

Balance at December 31, 2007

 

4,900,000 

 

$

4,900 

 

$

149,055

 

$

(131,284)

 

$

 

$

22,671 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss for the year

 

 

 

 

 

-

 

 

(34,127)

 

 

 

 

(34,127)

Balance at December 31, 2008

 

4,900,000 

 

$

4,900 

 

$

149,055

 

$

(165,411)

 

$

 

$

(11,456)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss for the year

 

 

 

 

 

-

 

 

(12,110)

 

 

 

 

(12,110)

Balance at December 31, 2009

 

4,900,000 

 

$

4,900 

 

$

149,055

 

$

(177,521)

 

$

 

$

(23,566)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss for the year

 

 

 

 

 

-

 

 

(13,610)

 

 

 

 

(13,610)

Balance at December 31, 2010

 

4,900,000 

 

$

4,900 

 

$

149,056

 

$

(191,131)

 

$

 

$

(37,176)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $0.10 per share

 

4,500,000 

 

 

4,500 

 

 

445,500

 

 

 

 

 

 

450,000 

Common stock issued for intangible asset

 

25,000,000 

 

 

25,000 

 

 

432,600

 

 

 

 

 

 

457,600 

Forgiveness of related party debt

 

 

 

 

 

29,906

 

 

 

 

 

 

29,906 

Net Loss for the year

 

 

 

 

 

-

 

 

(88,589)

 

 

 

 

(88,589)

Balance at December 31, 2011

 

34,400,000 

 

$

34,400 

 

$

1,057,061

 

$

(279,720)

 

$

 

$

811,741 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at $0.359 per share

 

1,400,000 

 

 

1,400 

 

 

502,600

 

 

 

 

 

 

504,000 

 Issuance shares for services at $0.30

 

20,000,000 

 

 

20,000 

 

 

5,980,000

 

 

 

 

 

 

6,000,000 

 Net Loss for the year

 

 

 

 

 

 

 

(6,361,284)

 

 

 

 

(6,361,284)

 Balance at December 31, 2012

 

55,800,000 

 

$

55,800 

 

$

7,539,661

 

$

(6,641,004)

 

$

 

$

954,457 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of Common Stock  

 

(1,016,500)

 

$

(1,017)

 

$

1,017

 

 

 

 

 

 

Gain/(Loss) on currency conversion – Q2

 

 

 

 

 

 

 

 

$

(1,055)

 

 

(1,055)

Gain/(Loss) on currency conversion – Q3

 

 

 

 

 

 

 

 

$

(2,809)

 

 

(2,809)

Gain/(Loss) on currency conversion – Q4

 

 

 

 

 

 

 

 

$

1,899 

 

 

1,899 

Net Loss For the year

 

 

 

 

 

 

 

(10,215)

 

 

 

 

(10,215)

Balance at December 31, 2013

 

54,783,500 

 

$

54,783 

 

$

7,540,678

 

$

(6,651,219)

 

$

(1,965)

 

$

942,277 


The accompanying notes are an integral part of these financial statements




F-4





OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Expressed in US Dollars)


 

 

 

 

 

 

 

From Inception

 

 

 

 

 

 

 

(January 10

 

For the years ended

 

2006) through

 

December 31,

 

December 31,

 

2013

 

2012

 

2013

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

$

(10,215)

 

$

(6,361,284)

 

$

(6,651,219)

Adjustments to reconcile net earnings to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

111,775 

 

 

111,724 

 

 

245,726 

Imputed Interest

 

 

 

93,985 

 

 

93,985 

Shares issued for services

 

 

 

6,000,000 

 

 

6,000,000 

Debt Forgiveness Income

 

(532,703)

 

 

 

 

(532,703)

Changes in assets and liabilities, net of effects from acquisitions

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

143,784 

 

 

6,146 

 

 

152,873 

Prepaid expenses

 

 

 

2,498 

 

 

NET CASH USED IN OPERATING ACTIVITIES

 

(287,359)

 

 

(146,931)

 

 

(691,338)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Acquisitions of assets

 

(2,350)

 

 

(296,364)

 

 

(298,714)

NET CASH USED IN INVESTING ACTIVITIES

 

(2,350)

 

 

(296,364)

 

 

(298,714)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds (to) from related parties

 

(9,411)

 

 

325 

 

 

36,616 

Repayments of note payable

 

(223,996)

 

 

(502,662)

 

 

(822,035)

Proceeds from long term debt

 

144,306 

 

 

 

 

Common stock issued for cash

 

 

 

504,000 

 

 

1,107,955 

Proceeds from loan payable

 

77,597 

 

 

450,000 

 

 

527,597 

NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES

 

(11,504)

 

 

451,663 

 

 

850,133 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

(301,213)

 

 

8,368 

 

 

(139,919)

FOREIGN CURRENCY TRANSLATION LOSS-OCI

 

(1,965)

 

 

 

 

CASH BALANCES

 

 

 

 

 

 

 

 

Beginning of period

 

305,601 

 

 

297,233 

 

 

End of period

$

2,423 

 

$

305,601 

 

$

(139,919)

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING TRANSACTIONS :

 

 

 

 

 

 

 

 

Debt forgiveness from related party

 

(490,189)

 

$

 

$

(460,583)

Common stock issued for intangible assets

 

 

$

 

$

457,600 

Note payable issued for intangible assets

 

 

$

 

$

1,218,238 

Common stock issued for services

$

 

$

6,000,000 

 

$

6,000,000 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES

 

 

 

 

 

 

 

 

Interest paid

$

31,088 

 

$

93,985 

 

$

154,737 

Income tax paid

$

 

$

 

$


The accompanying notes are an integral part of these consolidated financial statements.





F-5



OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


The accompanying notes are an integral part of these consolidated financial statements.


1. Nature of Operations and Continuance of Business


Ocean Electric Inc. (the “Company”) was incorporated in the State of Nevada on January 10, 2006. On October 27, 2009, the Company changed its name from Royal Equine Alliance Corp. to Gold Holding Corp., and on January 23, 2012, changed its name from Gold Holding Corp. to Ocean Electric Inc. The Company is a development stage company that plans to focus on alternative energy sources. The Company is a development stage company as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities”.


Going Concern

These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business.  As of December 31, 2013, the Company has negative working capital of $152,243 and an accumulated deficit of $6,651,219.  The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.  These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.


2. Summary of Significant Accounting Policies


a)     Basis of Presentation


The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars.  The Company’s fiscal year end is December 31.


b)     Use of Estimates


The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances.  The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.  The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.


c)    Cash and cash equivalents


The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.




F-6



OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


d)    Basic and Diluted Net Loss per Share


The Company computes net loss per share in accordance with ASC 260, Earnings per Share.  ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement.  Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.  Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.  In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.  Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.


e)     Financial Instruments


Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value.  A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:


Level 1


Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.


Level 2


Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.


Level 3


Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.


The Company’s financial instruments consist principally of cash, accounts payable, loan payable to related party and long-term debt.  Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.  We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.




F-7



OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


f)   Comprehensive Loss


ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.   For the twelve months ended December 31, 2013, the Company recorded $1,965 in other comprehensive loss due to the mark to market adjustment of cash and liabilities. There was no other comprehensive income for year 2012.


Net Income (Loss) and Comprehensive Income for the Twelve Months Ended December 31, 2013:


Revenues

$

Expenses

$

495,231 

Other Income

$

485,016 

Net Income (Loss)

$

(10,215)

 

 

 

Other Comprehensive Income, net of tax:

 

 

    Foreign currency adjustments

$

(1,965)

 

 

 

Other Comprehensive Income (Loss)

$

(1,965)

Comprehensive Income (Loss)

$

(12,180)


g)   Stock-Based Compensation


The Company accounts for stock options issued to employees in accordance with the provisions of FASB ASC 718, “Stock Compensation”.  As such, compensation cost is measured on the date of grant as the excess of current market price of the underlying stock over the exercise price.  Such compensation amounts are amortized over the respective vesting periods of the option grant.  The Company adopted the disclosure provisions of FASB ASC 718, “Accounting for Stock-Based Compensation,” and FASB ASC 718, which allows entities to provide pro forma net Income (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants as if the fair-valued based method has been applied.


The Company accounts for stock options or warrants issued to non-employees for goods or services in accordance with the fair value method of FASB ASC 718.  Under this method, the Company records an expense equal to the fair value of the options or warrants issued.  The fair value is computed using an options pricing model.


h)     Prepaid Marketing Expenses


On April 16, 2012, the Company entered into an agreement with a production company, whereby the production company will produce an advertorial video project at a cost of $395,152.  As at December 31, 2013, the Company incurred $296,364 on the project. The Company intends to capitalize this project when it is completed.


i)      Intangible Assets


Intangible assets are comprised of patents and licenses relating to wave energy and wind energy technology.  The intangible assets are externally acquired and are amortized straight-line over a useful life of fifteen years with zero residual value.




F-8



OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


j)     Impairment of Long-Lived Assets


In accordance with ASC 360, Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable.  Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances.  An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.


k)      Income Taxes


Income taxes are recognized in accordance with ASC 740, “Income Taxes”, whereby deferred Income tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized.


l)    Recent Accounting Pronouncements


The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


3.  Intangible Assets


 

 

December 31, 2013

 

December 31, 2012

Wave energy technology

 

$

1,218,238 

 

$

1,218,238 

Wind energy technology

 

 

457,600 

 

 

457,600 

 

 

 

 

 

 

 

Gross intangibles

 

 

1,675,838 

 

 

1,675,838 

 

 

 

 

 

 

 

Accumulated amortization

 

 

(245,675)

 

 

(133,951)

 

 

 

 

 

 

 

Net intangible assets

 

$

1,430,163 

 

$

1,541,887 


The amortization expense for the twelve months ending December 31, 2013 was $111,724, compared to $111,724 for the same period in 2012.  An additional $51 was expensed to amortization expense for other purposes.


On October 3, 2011, the Company acquired all of the rights and patents to a wave energy technology developed by Hidroflot, S.A.  The purchase price is $1,400,000 for the technology, which was payable in thirty-three monthly installments, and has been recorded at the present value of $1,218,238, based on the present value of payments. On July 1, 2013, the remaining balance of $490,189 was forgiven after the Company received notice from Hidroflot S.A. informing it that Hidroflot, S.A. ceased its operations effective June 30, 2013.




F-9



OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


On December 13, 2011, the Company acquired all of the rights and patents to an off-shore wind energy technology developed by Green & Blue Sustainable Technologies.  The Company issued 25,000,000 common shares as full payment for the acquisition, with a market value of $457,600.


Estimated Amortization Expense

 

$

 

 

 

For the year ended December 31, 2014

 

111,724

For the year ended December 31, 2015

 

111,724

For the year ended December 31, 2016

 

111,724

After December 31, 2016

 

1,094,991

Total

 

1,430,163


4. Long-Term Debt


 

December 31, 2013

 

December 31, 2012

Loan Payable (Zenith Equity Group)

$

490,000 

 

$

450,000 

Loan Payable (Hidroflot S.A.)

 

 

 

714,185 

Loans from Investors

 

144,306 

 

 

 

 

634,306 

 

 

1,164,185 

Less: Current portion

 

 

 

(462,002)

  Long-Term Liabilities

$

634,306 

 

$

702,183 


On June 26, 2012, the Company entered into a loan agreement with Zenith Equity Group providing for a loan of $450,000.  The loan accrued simple interest of 3.5% on the outstanding principal amount and was to be repaid in full due on or before June 27, 2015.  As at December 31, 2013 and December 31, 2012, the loan amount was $490,000. As at December 31, 2013 and December 31, 2012, the related accrued interest was $24,020 and $8,112 respectively.


On July 1, 2013, the Company received a notice from Hidroflot S.A. (related party) informing it that Hidroflot, S.A. ceased its operations effective June 30, 2013. As a result, the Company was released from its obligation related to the acquisition of the wave energy technology as noted in Note 3. As of the date of the notice, the Company had an outstanding balance of $490,189 on a note payable and $42,514 in Accounts Payable, consisting of $38,111 unpaid principal and $4,403 in unpaid interest. As a result of, the Company recorded a Debt Forgiveness Income of $532,703. As at December 31, 2013 and December 31, 2012, the Company owed $nil and $714,185, respectively of debt relating to the acquisition of the wave energy technology, as noted in Note 3.


During the year 2013, the Company received $144,306 from loans from investors. The term of these loans was only oficialized on January 31, 2014. These long terms will mature in 18 months, and bears a 6% interest rate per year. Interest accrued starting in January of 2014.


5.   Related Party Transactions and Accounts Payable


Related Party Transactions consist of:


a)     As at December 31, 2013 and December 31, 2012, the Company owed $1,985 and $15,796 to the former President of the Company.  The amounts were used to fund operations.  The amounts owing are unsecured, non-interest bearing, and due on demand.


b)    As at December 31, 2013 and December 31, 2012, the Company owed $6,268 and $325 to the President and CEO of the Company. The amounts were used to fund operations. The amounts owing are unsecured, non-interest bearing, and due on demand.



F-10



OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


c)     On October 3, 2011, the Company purchased the rights to a wave energy technology from Hidroflot, S.A., a Company managed by the President of the Company, for $1,400,000 (see note 3).


d)    On December 13, 2011, the Company purchased the rights to an off-shore wind energy technology from Green & Blue Sustainable Technologies, a company solely owned by the President of the Company, for 25,000,000 common shares with a fair value of $457,600 (see note 3).


e)     On April 27, 2012, the Company issued 20,000,000 shares with a fair value of $6,000,000 to the director for services provided and to be provided from January 1, 2012 to December 31, 2012


Accounts Payable:


a)  On April 3, 2013, the Company received an unsecured loan from Hidroflot, S.A. of $19,752. There is no interest rate associated with the outstanding principal and a repayment schedule was not established. This loan was cancelled on July 1, 2013, after the Company received a notice from Hidroflot S.A. informing it that Hidroflot, S.A. ceased its operations effective June 30, 2013. As of December 31, 2013 the Company owed $nil. Refer to Note 8 concerning Hidroloft note payable which is also a related party transaction.


6. Share Capital


a) On February 24, 2012, the Company increased the number of common shares authorized from 75,000,000 common shares to 250,000,000 common shares.


b) On March 26, 2012, the Company issued 1,400,000 common shares for proceeds of $504,000.


c) On April 27, 2012, the Company issued 20,000,000 common shares with a fair value of $6,000,000 to the President of the Company for management fees.


d) On April 19, 2013, 285,500 common shares were cancelled and returned to treasury stock and the Company recorded an increase of paid-in-capital for $286.


e) On November 15, 2013, 731,000 common shares were cancelled and returned to treasury stock and the Company recorded an increase of paid-in-capital for $731.


7. Income Taxes


The Company has $6,641,004 of net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2027.  The income tax benefit differs from the amount computed by applying the US federal income tax rate of 34% to net loss before income taxes. As at December 31, 2013 and 2012, the Company had no uncertain tax positions.


 

 

December 31,

2013

 

December 31,

2012

 

 

$

 

$

Net loss before taxes

 

12,180   

 

6,361,284   

Statutory rate

 

34%

 

34%

 

 

 

 

 

Computed expected tax recovery

 

(4,141)

 

(2,162,837)

Change in valuation allowance

 

(4,141)

 

(2,162,837)

 

 

 

 

 

Income tax provision

 

– 

 

– 




F-11




OCEAN ELECTRIC INC.

(formerly known as Gold Holding Corp.)

(A Development Stage Company)

Notes to Financial Statements

December 31, 2013 and 2012


8. Commitments


On April 16, 2012, the Company entered into an agreement with a production company, whereby the production company will produce an advertorial video project at a cost of $395,152, to be paid according to the following schedule:


50% ($197,576) upon signing of the agreement (paid);


25% ($98,788) prior to commencement of animation (paid); and


25% ($98,788) on delivery of the final video project.


As of April 15, 2014, the Company has paid $296,364 for the video project. The video production was scheduled to be completed in December 2013 but is still unfinished as of April 15, 2014. The Company intends to capitalize this project, and when it is completed, it will depreciate it over two years.


9. Subsequent Events


During year 2013, the Company received $144,306 as loans from investors. The term of these loans was only oficialized on January 31, 2014. These long terms will mature in 18 months, and bear a 6% interest rate per year. Interest accrues starting January of 2014.


On January 29, 2014, the Company, entered into a Consolidated Loan Agreement (the “Loan Agreement”) with Zenith Equity Group Ltd., a company incorporated under the laws of Belize (“Zenith”), to consolidate certain outstanding loans made by Zenith to the Company in 2012 and 2013 and to extend new loans to the Company.  Zenith is also a shareholder of the Company and owns more than 5% of the issued and outstanding shares of common stock of the Company.


The Loan Agreement consolidates outstanding loans of approximately $450,000 made on June 26, 2012 and $40,000 made on September 18, 2013,  and accrued interest of $25,623.83 (collectively, the “Consolidated Debt”).  The prior two loan agreements were terminated. In addition to the Consolidated Debt, upon signing, Zenith lent $100,000 (the “New Credit Loan”) and made available from time to time, to the Company, an aggregate amount of $300,000 prior to December 31, 2014 (the “Drawdown”, together with the Consolidated Debt and the New Credit Loan, the “Loan”). The Loan has a maturity date of April 15, 2018. The interest rate on the Loan is 6% per year, simple interest, calculated on the basis of a 365-day year.  Prior to the Maturity Date, the Company has the right to prepay the principal and the interest due thereon, in whole and in part, in its sole discretion, by providing Zenith a prepayment notice. The minimum prepayment notice period is 45 days, during which Zenith may convert the amount intended to be prepaid into shares of common stock under the conversion terms of the Loan Agreement.


Zenith has the right to convert at any time and from time to time the principal and accrued interest due into shares of common stock of the Company, at the initial rate of $0.10 per share, subject to the limitation specified in connection with a prepayment of principal and interest. The conversion rate is subject to adjustment for stock dividends, stock splits and similar corporate events. Zenith can exercise its conversion rights only when the Company has the authorized and un-issued shares available to be issued at the time of conversion.  Zenith must present the Company a specific acknowledgment if after the conversion, the resulting shares represent more than 9.99% of the issued and outstanding shares of common stock of the Company, including any shares that may be issuable under any convertible or exercisable instruments of the Company held by Zenith.


In addition to the right of conversion, Zenith has the right to offer all or a portion of the principal and interest due under the Loan Agreement in payment of shares of common stock of the Company in any offering of shares of common stock being offered for sale directly by the Company.



F-12




Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure


On November 28, 2012, the Company dismissed its independent registered public accounting firm, PLS CPAs (the “Former Accountant”).  The Company's decision to dismiss the Former Accountant was approved by its board of directors on November 28, 2012.


The report of the Former Accountant on the financial statements of the Company for each of the two most recent fiscal years, and its reviews of interim financial statements contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.  There have been no disagreements with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the Former Accountant, would have caused the Former Accountant to make reference thereto in its report on the Company’s financial statements.


The Company requested that the Former Accountant furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements.  The requested letter was attached as Exhibit 16.1 to the Form 8-K filed on November 28, 2012.


Effective November 28, 2012, the Company engaged Drake & Klein CPAs (“Drake & Klein”) to serve as the Company’s new independent registered public accounting firm.  The engagement of Drake & Klein as the Company’s new independent registered public accounting firm was approved by the Company’s board of directors.  Neither the Company, nor anyone on its behalf, consulted Drake & Klein during the Company’s two most recent fiscal years and any subsequent interim period prior to the Company’s engagement of Drake & Klein regarding any of the matters set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.  On December 17, 2012, the audit firm of Drake & Klein CPAs changed its name to DKM Certified Public Accountants.  The change was reported to the PCAOB as a change of name.  This is not a change of auditors for the Company.


Item 9A.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer. We carried out 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 as of December 31, 2013 (the “Evaluation Date”). Based upon the evaluation of our disclosure controls and procedures as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.


Management’s Report on Internal Control over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f).  Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.




25





Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and (iii) 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 controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. 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.


Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting and management has concluded that the Company’s internal controls over financial reporting are ineffective as of December 31, 2013.  A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.


The material weakness relates to the lack of segregation of duties in our financial reporting process and our utilization of outside third party consultants.  We do not have a separately designated audit committee.  This weakness is due to our lack of sufficient working capital to hire additional staff.  To remedy this material weakness, we intend to engage an internal accountant to assist with financial reporting as soon as our finances will allow.


Changes in Internal Control over Financial Reporting


There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Limitations on the Effectiveness of Controls


Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.


The design of any system of controls also 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; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.




26






Item 9B.  Other Information.


None.



PART III


Item 10.  Directors, Executive Officers and Corporate Governance.


Our current director and officers are as follows:


Name

 

Age

 

Position

Ricardo Prats

 

50

 

Director, President, Chief Executive Officer, Chief Financial Officer, Treasurer

Gemma Badillo

 

25

 

Corporate Secretary


The director will serve as director until our next shareholder meeting or until a successor is elected who accepts the position.  Officers hold their positions at the will of the Board of Directors.  There are no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of our affairs.


Ricardo Prats, President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director


Ricardo Prats has been our President, Chief Executive Officer, Chief Financial Officer, Treasurer and sole Director since December 31, 2011, and was our Secretary until December 28, 2012. From May 2005 to present, Mr. Prats has been the owner and Chief Executive Officer of Hidroflot, S.A., a private company involved in wave renewables energies.  Mr. Prats also created and funded Asturflot, S.A. in 2008 and Ocean Electric de Cantabria, S.L. in 2009.  Both of these companies are subsidiaries of Hidroflot devoted to marine renewables energy production in the north coast of Spain.  In 2010, Mr. Prats, founded and is the sole shareholder of Green & Blue Sustainable Technologies, a private company whose aim was to develop a new wind energy turbine concept.  In 2011, Mr. Prats founded and is the sole shareholder of Green & Drive Electric, a private company that is devoted to the commercialization of electric vehicles for sustainable mobility.


Mr. Prats has received numerous awards throughout his illustrious career.  Recently in May 2013 he was awarded with "Creating industry" for wave power isolated project organized by Catalonia Engineering College.  In 2008 Mr. Prats received the Excellence in Entrepreneurship Award in Energy in the Keiretsu Forum organized jointly with the Chamber of Commerce in Barcelona and American Chamber of Commerce in Spain.  In addition, Mr. Prats has received honorable mention in the VI International Congress of Engineering projects in Barcelona, Spain and a silver medal in Salon des Inventions de Genève in 2003.


There are no family relationships among our officers or directors, however, the Company has engaged Mr. Xavier Prats as its technical officer, which is a non-executive position, who is the brother of Mr. Ricardo Prats.


Gemma Badillo, Secretary


Ms. Gemma Badillo has been our Corporate Secretary since November 28, 2013.  Prior to joining the Company, Ms. Badillo worked in recent years as an assistant manager, with specific responsibilities in the customer service departments, of several companies.  From 2006 to 2009, Ms. Badillo was employed by several different companies in their customer service departments. From 2010 to 2012, Ms. Badillo was employed by Inditex Group, a leading international fashion retailer, as a manager in the customer service department. From 2012 to 2013, Ms. Badillo was employed by Green & Drive Electric, a motorcycle dealer, as an assistant manager and was responsible for customer care.  Starting in April 2013, Ms. Badillo commenced employment with the Company as the assistant manager of the Company.




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Ms. Badillo holds a Bachelor Degree in Marketing and Public Relations from the University of Wales. She is specialist in corporate strategies for Public Relations, marketing plans and creative strategies, and has particular knowledge in business law, finance and senior management activities as they relate to international companies.


Section 16(a) Beneficial Ownership Compliance Reporting


Section 16(a) of the Securities Exchange Act of 1934 requires a company’s directors and officers, and persons who own more than ten-percent (10%) of the company’s common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5.  Such officers, directors and ten-percent stockholders are also required to furnish the company with copies of all Section 16(a) reports they file.  Based solely on our review of the copies of such forms received by us and on written representations from certain reporting persons, we believe that none of the Section 16(a) reports applicable to our officers, directors and ten-percent stockholders with respect to the fiscal year ended December 31, 2013, was filed.


Code of Ethics

 

We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  Companies whose equity securities are listed for trading on the OTC Bulletin Board are not currently required to implement a code of ethics.


Director Nominees


As of December 31, 2013 there have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.


Audit Committee


We do not have a standing audit committee or an audit committee financial expert. The functions of an audit committee are currently carried out by our Board of Directors.  We currently have no operating revenues and have no independent directors. If we are able to grow our business and generate revenues from our operations in the future, then we will likely seek out and retain independent directors and form an audit committee.


We have no audit committee financial expert. Mr. Prats has financial statement preparation and interpretation ability obtained over the years from past business experience and education. We believe the cost related to retaining a financial expert at this time is not justified. Further, because of the nature of our current limited operations, we believe the services of a financial expert are not warranted, given the background of Mr. Prats.


Compensation Committee


We currently do not have a compensation committee of the Board of Directors or a committee performing a similar function.  It is the view of the Board that it is appropriate for us not to have such a committee because of our size and because the Board as a whole determines executive compensation.  Our sole director is also an executive officer of the Company.


Item 11.  Executive Compensation.


The following Summary Compensation Table sets forth the total annual compensation paid or accrued by us to or for the account of the Principal Executive Officer (“PEO”) and our Principal Financial Officer (“PFO”).




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Summary Compensation


Name and Principal

Position

 

Year

 

Salary

($)

 

Bonus

($)

 

Stock

Awards

($)

 

Option

Awards

($)

 

Non-Equity

Incentive

Plan

Compensation

($)

 

Non-qualified

Deferred

Compensation

Earnings

($)

 

All Other

Compensation

($)

 

Total

($)

Ricardo Prats(1)

 

2013

 

144,000

 

--

 

-

 

-

 

-

 

-

 

-

 

144,000

 

 

2012

 

0

 

0

 

6,000,000

 

0

 

0

 

0

 

0

 

0

James B. Panther (2)

 

2013

 

28,812

 

0

 

0

 

0

 

0

 

0

 

0

 

28,812

 

 

2012

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Gemma Badillo (3)

 

2013

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Mr. Prats is our President, Chief Executive Officer, Chief Financial Officer, Treasurer and sole Director.

(2) Mr. Panther was our Secretary from December 28, 2012 to November 28, 2013.

(3) Ms. Badillo was appointed as our Secretary on November 28, 2013.


Mr. Prats spends all of his business time on our affairs.  In year 2012, the compensation amount recorded in the above table was paid by the issuance of 20,000,000 shares of common stock, valued at $.30 per share.


Our executive officers and directors did not receive any other compensation as directors or officers or any benefits.


Outstanding Equity Awards at Fiscal Year End


We do not have any regular equity award program or plan.  As of April 15, 2014, we did not have any unexercised stock options held by any of our executive officers.


Pension, Retirement or Similar Benefit Plans


There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers, other than payments in accordance with the laws of the employee’s residence.  We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.


Change of Control


As of April 15, 2014, we did not have any non-statutorily required pension plans, compensatory plans or other arrangements which provide compensation in the event of a termination of employment or a change in our control.


Compensation of Directors

 

We do not pay our directors any fees for attendance at Board meetings or similar remuneration or reimburse them for any out-of-pocket expenses incurred by them in connection with our business.




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


The following table sets forth the ownership, as of April 15, 2014, of our common stock by each of our directors, and by all executive officers and directors as a group, and by each person known to us who is the beneficial owner of more than 5% of any class of our securities.  As of April, 2014, there were 54,783,500 common shares issued and outstanding.  All persons named have sole voting and investment power with respect to the shares, except as otherwise noted.  The number of shares described below includes shares which the beneficial owner described has the right to acquire within 60 days of the date of April 15, 2014.


Name and Address of Beneficial Owner

 

Amount and  Nature of

Beneficial  Ownership

 

 

Percent of

Class (2)

Ricardo Prats

112 North Curry Street

Carson City, Nevada 89703

 

45,000,000 

(1)

 

82.14%

Gemma Badillo

112 North Curry Street

Carson City, Nevada 89703

 

0

 

 

--

All Executive Officers and Directors as a Group (2 people)

 

45,000,000

(1)

 

82.14%

Francisco Quiros Krum

Paraguay 3870 9º C

1428 Buenos Aires

Argentina

 

3,500,000

 

 

6.38%

Zenith Equity Group Ltd. (3)

3 Peterhouse Road

Sutton, Macclesfield

Cheshire, United Kingdom

 

5,900,000

 

 

10.76%


(1)

Represents 20,000,000 shares held directly by Mr. Ricardo Prats and 25,000,000 shares which are held by Green & Blue Sustainable Technologies, a company controlled by Mr. Ricardo Prats.


(2)

Calculated based on 54,783,500 issued and outstanding shares as April 15, 2014.


(3)

Does not include any shares of common stock which may be acquired upon conversion of outstanding debt of the Company to the shareholder.  The outstanding balance due as of April 15, 2014, is approximately $515,624, convertible at $0.10 per share, provided the conversion of the debt is not permitted if the shareholder owns in excess of 9.99% without specific acknowledgement.  Therefore, based on the beneficial ownership rules of the SEC, the shares of common stock potentially issuable on conversion of debt are not deemed beneficially owned.


Item 13.  Certain Relationships and Related Transactions, and Director Independence


As at April 15, 2014 and December 31, 2013, the Company owed $1,985 to the former President of the Company.  The amounts were used to fund operations.  The amounts owing are unsecured, non-interest bearing, and due on demand.


As at April 15, 2014 and December 31, 2013, the Company owed $6,268 to the President and CEO of the Company. The amounts were used to fund operations. The amounts owing are unsecured, non-interest bearing, and due on demand.


On October 3, 2011, the Company purchased the rights to a wave energy technology from Hidroflot, S.A., a company which our sole director and our principal executive officer had founded for $1,400,000.  As at December 31, 2012, the Company owed $ 714,186 of the purchase price, and is reflected as debt relating to the acquisition of the wave energy technology on the financial statements of the Company.  The purchase price amount was payable in equal monthly installments of $42,424, and carried interest at the rate of 0.833333%.  The payments were to be accelerated to three equal monthly payments of the outstanding balance once the Company generates revenues of $10,000,000 from the technologies.  On July 1, 2013, the Company received a notice from Hidroflot S.A. informing it that Hidroflot, S.A. ceased its operations effective June 30, 2013. As a result, the Company was released from its payment obligation related to the acquisition of the wave energy technology. As of the date of the notice, the Company had an outstanding balance of $ 490,189 on a note payable and $42,514 in Accounts Payable, consisting of $38,111 unpaid principal and $4,403 in unpaid interest. As a result of, the Company recorded a Debt Forgiveness Income of $ 532,703. As at December 31, 2013, no amount was due.



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On January 29, 2014 we entered into a Consolidated Loan Agreement (the “Loan Agreement”) with Zenith Equity Group Ltd. (“Zenith”), to consolidate outstanding loans of $450,000 made on June 26, 2012 and $40,000 made on September 18, 2013, and accrued interest of $25,623.83 through January 29, 2014 (“Consolidated Debt”). In addition to Consolidated Debt, Zenith lent $100,000 on January 29, 2014 (the “New Credit Loan”) and made available from time to time, an aggregate amount of $300,000 prior to December 31, 2014 (the “Drawdown”, together with the Consolidated Debt and the New Credit Loan, the “Loan”). The Loan matures on April 15, 2018 and bears 6% per year, simple interest.  The Company may prepay the principal and interest, in whole and in part, in its sole discretion.


Zenith has the right to convert at any time and from time to time the principal and accrued interest due into shares of common stock of the Company, at the initial rate of $0.10 per share. The conversion rate is subject to adjustment for stock dividends, stock splits and similar corporate events. In addition to the right of conversion, Zenith has the right to offer all or a portion of the principal and interest due under the Loan Agreement in payment of shares of common stock of the Company in any offering of shares of common stock being offered for sale directly by the Company.


On April 27, 2012, the Company issued to a company owned by Mr. Prats, our sole director and our principal executive officer, 20,000,000 shares of common stock in payment for services to be performed by Mr. Prats to the Company during the 2012 calendar year.  The stock had a per share value of $0.30, for an aggregate consideration of $6,000,000 which was recorded as pre-paid expense during the reporting year.


On March 28, 2012, the Company issued 1,400,000 common shares to Zenith Equity Group Ltd. pursuant to a share subscription agreement.  The shares were issued at a price of $0.36 for cash consideration of $504,000.00.


On June 26, 2012, the Company entered into a loan agreement with Zenith Equity Group, a shareholder of the Company, providing for a loan of $450,000.  The loan accrued simple interest at 3.5% on the outstanding principal amount and to be repaid in full due on or before June 27, 2015.  As at December 31, 2013, the loan amount was $450,000 and accrued interest was $23,862, and consolidated into the loan agreement dated January 29, 2014.


On September 18, 2013, the Company entered into a loan agreement with Zenith Equity Group, a shareholder of the Company, providing for a loan of $40,000.  The loan accrued simple interest at 3.5% on the outstanding principal amount and to be repaid in full due on or before June 27, 2015.  As at December 31, 2013, the loan amount was $40,000 and accrued interest was $157, and consolidated into the loan agreement dated January 29, 2014.


On December 13, 2011, the Company purchased the rights to an off-shore wind energy technology from Green & Blue Sustainable Technologies, a company solely owned by our sole director and our principal executive officer, for 25,000,000 common shares with a fair value of $5,750,000.


Other than as described above, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of our total assets for the last fiscal year.


Director Independence


Our sole director, Ricardo Prats, is also an executive officer of the Company and is therefore not independent. The OTC Bulletin Board on which our common shares are listed on does not have any director independence requirements.  




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Item 14.  Principal Accounting Fees and Services


Audit, Audit-Related and Non-Audit Fees


The following table represents fees billed during the fiscal years ended December 31, 2013 and 2012 for professional services rendered by our current principal accountant, Drake & Klein CPAs, and our previous principal accountant, PLS CPAs.


Description of Service

 

Year ended

December 31,

2013($)

 

Year ended

December 31,

2012($)

Audit fees

 

 

10,250

 

 

5,000

Audit-related fees

 

 

 

 

 

-

Tax fees

 

 

 

 

 

-

All other fees

 

 

 

 

 

-

Total

 

 

10,250

 

 

5,000


Audit Committee Approval


Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit and non-audit related fees at least annually.  The Board, acting as the audit committee, pre-approved all audit related services for the year ended December 31, 2013.



32







PART IV



Item 15.  Exhibits, Financial Statement Schedules


The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.


Exhibits


Exhibit

Number

 

Exhibit

Description

3.1

 

Articles of Incorporation (filed as an exhibit to the Form S-2, as filed with the Securities and Exchange Commission on December 21, 2006, and incorporated herein by reference).

3.2

 

Certificate of Amendment to Articles of Incorporation (filed as an exhibit to the Form 8-K, as filed with the Securities and Exchange Commission on February 29, 2012, and incorporated herein by reference).

3.3

 

Bylaws of the registrant (filed as an exhibit to the Form S-2, as filed with the Securities and Exchange Commission on December 21, 2006, and incorporated herein by reference).

10.1

 

Purchase and Sale Agreement, dated October 3, 2011, by and between Hidroflot, S.A. and the Company (filed as an exhibit to the Form 10-K, as filed with the Securities and Exchange Commission on April 16, 2013, and incorporated herein by reference)

10.2*

 

Consolidated Loan Agreement, dated January 29, 2014, by and between Zenith Equity Group Ltd. and Ocean Electric Inc. (filed as exhibit to the Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 29, 2014, and incorporated herein by reference)

31.1*

 

Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-101.INS

 

XBRL Instance Document

EX-101.SCH

 

XBRL Taxonomy Extension Schema

EX-101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

EX-101.LAB

 

XBRL Taxonomy Extension Label Linkbase

EX-101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

EX-101.DEF

 

XBRL Taxonomy Extension Definition Linkbase


*  FILED HEREWITH




33






SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.


 

OCEAN ELECTRIC, INC.

 

 

 

 

Date:  April 17, 2014

By:

/s/ Ricardo Prats

 

 

Ricardo Prats,

 

 

Chief Executive Officer, President and Chief Financial Officer

 






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