UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2006
OR
[ ] 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 814-00717
UNITED ECOENERGY CORP.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 84-1517723
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
409 Brevard Avenue, Cocoa, FL 32922
(Address of Principal Executive Offices) (Zip Code)
(321)-433-1136
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Note: Checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligation under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K (?229.405 of this chapter) is not contained herein
and will not be contained, to the best of registrant?s knowledge, in definitive
proxy or other information incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ]
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
?accelerated filer and large accelerated filer? in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer { } Accelerated filer { } Non-accelerated filer [X ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X ]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant?s most recently completed second
fiscal quarter.
$ None
The number of shares of the Registrants Common Stock, $0.001 par
value, outstanding as of March 12, 2007, was 28,781,639 shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
TABLE OF CONTENTS
PART I
Item 1. Business............................................. 1
Item 1A Risk Factors ........................................ 12
Item 1B Unresolved Staff Comments ........................... 15
Item 2. Properties .......................................... 15
Item 3. Legal Proceedings.................................... 15
Item 4. Submission of Matters to a Vote of Security Holders.. 15
PART II
Item 5. Market for Registrant?s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities ......................................... 15
Item 6. Selected Financial Data............................. 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of 0perations.................. 17
Item 7A. Quantitative and Qualitative Disclosure about
Market Risk.......................................... 20
Item 8 Financial Statements and Supplementary Data.......... 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. 21
Item 9A. Controls and Procedures.............................. 21
Item 9B. Other Information.................................... 21
PART III
Item 10 Directors, Executive Officers and Corporate
Governance .......................................... 21
Item 11. Executive Compensation............................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters........... 27
Item 13. Certain Relationships and Related Transactions and
Director Independence ............................... 28
Item 14. Principal Accountant Fees and Services............... 31
Item 15. Exhibits, Financial Statement Schedules.............. 31
Index to Financial Statements....................................... 32
Financial Statements............................................... F-1
Signatures.......................................................... 33
FORWARD LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements that
involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause the results of the Company to
differ materially from those expressed or implied by such forward-looking
statements. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including any
projections of revenue, expenses, earnings or losses from operations or
investments, or other financial items; any statements of the plans, strategies
and objectives of management for future operations; any statements of
expectation or belief; and any statements of assumptions underlying any of
the foregoing. The risks, uncertainties and assumptions referred to above
include risks that are described from time to time in our Securities and
Exchange Commission, or the SEC, reports filed before this report.
The forward-looking statements included in this annual report represent our
estimates as of the date of this annual report. We specifically disclaim any
obligation to update these forward-looking statements in the future. Some of
the statements in this annual report constitute forward-looking statements,
which relate to future events or our future performance or financial condition.
Such forward-looking statements contained in this annual report involve risks
and uncertainties.
We use words such as anticipates, believes, expects, future, intends and
similar expressions to identify forward-looking statements. Our actual results
could differ materially from those projected in the forward-looking statements
for any reason. We caution you that forward-looking statements of this type
are subject to uncertainties and risks, many of which cannot be predicted or
quantified.
The following analysis of our financial condition and results of operations
should be read in conjunction with our financial statements and the related
notes thereto contained elsewhere in this Form 10-K, as well as the risk
factors included in this Form 10-K under Item 1A.
PART I
Item 1. Business.
General development of business
The Company was incorporated under the Nevada General Corporation Law in
February 1997 as MNS Eagle Equity Group III, Inc., and was a development stage
company through the end of 2005, and until the Company changed its business
model with the election to be treated as a business development company on
February 28, 2006. On February 21, 2006, the Company changed its corporate
name to United EcoEnergy Corp., to reflect its new business model and plan.
On February 21, 2006, our then sole shareholder sold 284,689 pre-split common
shares (28,468,900 post-split) representing 100 percent of the pre-split
outstanding stock of the Company at the time, resulting in a change of control
of the Company. Of these shares, 26,968,900 post-split common shares,
representing 94.7 percent of the outstanding shares, were purchased by
Enterprise Partners, LLC, 1,100,000 shares were purchased by Peachtree
Consultants, LLC, and 4,000,000 shares were purchased by Fairmont East Finance,
Ltd. These entities are not related, affiliates or controlled entities.
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As a result of this change of control, our then sole director and president,
Stephen Siedow, resigned effective February 22, 2006 after appointing William
K. Mackey, William L. Sklar, Adam Mayblum, Alec Hoke and John Paul DeVito as
the directors of the Company, to serve until the next annual meeting of
shareholders of the Company. The name of the Company was changed from MNS
Eagle Equity Group III, Inc. to United EcoEnergy Corp. by the filing of an
amendment to the Articles of Incorporation with the State of Nevada on February
21, 2006. Effective February 27, 2006, the Company implemented a 100 for 1
forward split of our outstanding common shares. As a result of the forward
split, there were 28,468,900 common shares then outstanding. This forward
split has been reflected retroactively on our financial statements.
On February 27, 2006, the Company filed a Certificate of Designations for
Series A Convertible Preferred Stock with the Nevada Secretary of State and
the Board of Directors authorized the issuance of 1 million shares of Series A
Convertible Preferred Stock to Enterprise Partners, LLC, our then majority
shareholder, in exchange for the cancellation of $60,000 in loans for funds
advanced to the Company by Enterprise Partners LLC to pay off debts of the
Company and for initial working capital. The Series A Convertible Preferred
Stock is $0.001 par value stock, and may be converted into common stock based
on a formula under which conversion is equal to 1 divided by the 30 day
trailing average stock price of the common shares at the time of the
conversion election, but not more than 15 common shares for each preferred
share converted, or a maximum of 15 million common shares. No conversion may
occur until after one year from the date of issue. The Company may redeem the
Series A Convertible Preferred Stock in whole or in part beginning 181 days
after issue at $0.75 per share, and after 365 days from issue at $0.95 per
share. The Series A Convertible Preferred Stock automatically converts into
common stock following the second anniversary of issue, at the formula price
if not redeemed prior to that date. The conversion of the Series A
Convertible Preferred into Common stock of the Company is illustrated by the
following table:
Series A Convertible
Preferred Shares
Per Share Number of Maximum Shares
Common Stock Conversion ratio Common Shares Converted
Price (1/per share price) on conversion of Common Stock
------------------ ---------------- --------------- ---------------
0.0001 10,000.00 10,000,000,000 15,000,000
0.0003 3,333.33 3,333,333,333 15,000,000
0.0007 1,428.57 1,428,571,429 15,000,000
0.0014 714.29 714,285,714 15,000,000
0.0021 476.19 476,190,476 15,000,000
0.0042 238.10 238,095,238 15,000,000
0.0050 200.00 200,000,000 15,000,000
0.0075 133.33 133,333,333 15,000,000
0.0100 100.00 100,000,000 15,000,000
0.1000 10.00 10,000,000 10,000,000
0.5000 2.00 2,000,000 2,000,000
0.7500 1.33 1,333,333 1,333,333
1.0000 1.00 1,000,000 1,000,000
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The Company amended the Certificate of Designations for the Series A
Convertible Preferred Stock, as filed with the Secretary of State of Nevada,
with the consent of the original holder of the shares, Enterprise Partners,
LLC. and the approval of the common shareholders. The amendments were
designed to insure that the Series A Convertible Preferred Stock meets the
requirements of a senior security as defined in Section 18(g) of the 1940 Act.
The Amended Certificate of Designations of Series A Convertible Preferred Stock
was filed as an exhibit to the Proxy Statement filed with the SEC on Form 14A
on June 19, 2006, and both the amendment and the prior issuance of the Series
A Convertible Preferred Stock to Enterprise Partners, LLC was approved
unanimously by our public shareholders at our Annual Meeting held on June 30,
2006.
During 2006, the Company did not engage in any merger or acquisition activity,
or the acquisition or disposition of any material asset. The business of the
Company was limited to engaging in the due diligence necessary to locate
suitable portfolio investments for the Company, as a Business Development
Company.
Financial information about market segments.
The Company does not currently have any portfolio investments and therefore has
no market segment information. All material information regarding the
activities of the Company is reflected in the financial statements included in
this report.
Narrative description of business.
As a Business Development Company, or BDC, under the 1940 Act, the business
model of the Company is to locate, invest in and provide management assistance
to small public and private companies to enable those companies to undertake
their own business plans and models.
Although we are not limited, as a BDC, to seeking portfolio investments in
a particular market segment, we intend to seek investment in companies
operating in the alternative energy markets, including bio-diesel and bio-
fuels, wind-farming, solar power, waste site gas utilization, and similar
areas.
In connection with our BDC election, the Company has adopted Corporate
Governance resolutions and intends to operate as a closed-end management
investment company as a business development company (a BDC).
INVESTMENT STRATEGY
We have conducted limited operations to date. Under the BDC election,
we have been organized to provide investors with the opportunity to
participate, with a modest amount in venture capital, in investments that
are generally not available to the public and that typically require
substantially larger financial commitments. In addition, we will provide
professional management and administration that might otherwise be
unavailable to investors if they were to engage directly in venture capital
investing. We have decided to be regulated as a business development
company under the 1940 Act, and will operate as a non-diversified company
as that term is defined in Section 5(b)(2) of the 1940 Act. We will, at
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all times, conduct our business so as to retain our status as a BDC. We
may not change the nature of our business so as to cease to be, or withdraw
our election as, a BDC without the approval of the holders of a majority of
our outstanding voting stock as defined under the 1940 Act.
As a business development company, we are required to invest at least 70%
of our total assets in qualifying assets, which, generally, are securities
of private companies or securities of public companies whose securities are
not eligible for purchase on margin (which includes many companies with
thinly traded securities that are quoted in the pink sheets or the NASD
Electronic Quotation Service.) We must also offer to provide significant
managerial assistance to these portfolio companies. Qualifying assets may
also include:
* cash,
* cash equivalents,
* U.S. Government securities, or
* high-quality debt investments maturing in one year or less from the
date of investment.
We may invest a portion of the remaining 30% of our total assets in debt
and/or equity securities of companies that may be larger or more stabilized
than target portfolio companies.
Nature of a BDC
The 1940 Act defines a BDC as a closed-end management investment company
that provides small businesses that qualify as an eligible portfolio
company with investment capital and also significant managerial assistance.
A BDC is required under the 1940 Act to invest at least 70% of its total
assets in qualifying assets consisting of eligible portfolio companies as
defined in the 1940 Act and certain other assets including cash and cash
equivalents.
An eligible portfolio company generally is a United States company that is
not an investment company and that:
* does not have a class of securities registered on an exchange or
included in the Federal Reserve Board's over-the-counter margin list;
* is actively controlled by a BDC and has an affiliate of a BDC on its
board of directors; or
* meets such other criteria as may be established by the SEC.
Control under the 1940 Act is presumed to exist where a BDC owns more than
25% of the outstanding voting securities of the eligible portfolio company.
We may or may not control our portfolio companies. An example of an
eligible portfolio company is a new start up company or a privately owned
company that has not yet gone public by selling its shares in the open
market and has not applied to have its shares listed on a nationally
recognized exchange such as the NYSE the American Stock Exchange, National
Association of Securities Dealers' Automated Quotation System, or the
National Market System. An eligible portfolio company can also be one
which is subject to filing, has filed, or has recently emerged from
reorganization protection under Chapter 11 of the Bankruptcy Act.
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A BDC may invest the remaining 30% of its total assets in non-qualifying
assets, including companies that are not eligible portfolio companies. The
foregoing percentages will be determined, in the case of financings in
which a BDC commits to provide financing prior to funding the commitment,
by the Amount of the BDC's total assets represented by the value of the
maximum amount of securities to be issued by the borrower or lessee to the
BDC pursuant to such commitment. As a BDC, we must invest at least 70% of
our total assets in qualifying assets but may invest more in such
qualifying assets.
Primary Strategy
We have significant relative flexibility in selecting and structuring
our investments. We are not subject to many of the regulatory
limitations that govern traditional lending institutions such as banks.
We will seek to structure our investments so as to take into account the
uncertain and potentially variable financial performance of our portfolio
companies. This should enable our portfolio companies to retain access to
committed capital at different stages in their development and eliminate
some of the uncertainty surrounding their capital allocation decisions.
We will calculate rates of return on invested capital based on a
combination of up-front commitment fees, current and deferred interest
rates and residual values, which may take the form of common stock,
warrants, equity appreciation rights or future contract payments. We
believe that this flexible approach to structuring investments will
facilitate positive, long-term relationships with our portfolio companies
and enable us to become a preferred source of capital to them. We also
believe our approach should enable debt financing to develop into a viable
alternative capital source for funding the growth of target companies that
wish to avoid the dilutive effects of equity financings for existing equity
holders.
Longer Investment Horizon
We are not subject to periodic capital return requirements. These
requirements, which are standard for most private equity and venture
capital funds, typically require that these funds return to investors the
initial capital investment after a pre-agreed time, together with any
capital gains on such capital investment. These provisions often force such
funds to seek the return of their investments in portfolio companies
through mergers, public equity offerings or other liquidity events more
quickly than they otherwise might, which can result in a lower overall
return to investors and adversely affect the ultimate viability of the
affected portfolio companies. Because we may invest in the same portfolio
companies as these funds, we are subject to these risks if these funds
demand a return on their investments in the portfolio companies. We
believe that our flexibility to take a longer-term view should help us to
maximize returns on our invested capital while still meeting the needs of
our portfolio companies.
Established Deal Sourcing Network
We believe that, through our management and directors, we have solid
contacts and sources from which to generate investment opportunities. These
contacts and sources include:
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* public and private companies,
* investment bankers,
* attorneys,
* accountants,
* consultants, and
* commercial bankers.
However, we cannot assure you that such relationships will lead to the
origination of equity, debt or other investments.
Investment Criteria
As a matter of policy, we will not purchase or sell real estate or
interests in real estate or real estate investment trusts except that we
may:
* purchase and sell real estate or interests in real estate in
connection with the orderly liquidation of investments, or in
connection with foreclosure on collateral;
* own the securities of companies that are in the business of buying,
selling or developing real estate; or
* finance the purchase of real estate by our portfolio companies.
We will limit our investments in more traditional securities (stock and
debt instruments) and will not, as a matter of policy:
* sell securities short except with regard to managing the risks
associated with publicly-traded securities issued by our portfolio
companies; or
* purchase securities on margin (except to the extent that we may
purchase securities with borrowed money); or
* engage in the purchase or sale of commodities or commodity
contracts, including futures contracts except where necessary in
working out distressed loans or similar investment situations or in
hedging the risks associated with interest rate fluctuations, and, in
such cases, only after all necessary registrations or exemptions from
registration with the Commodity Futures Trading Commission have been
obtained.
Prospective Portfolio Company Characteristics. We have identified several
criteria that we believe will prove important in seeking our investment
objective with respect to target companies. These criteria will provide
general guidelines for our investment decisions; however, we caution
readers that not all of these criteria will be met by each prospective
portfolio company in which we choose to invest.
Experienced Management. We will generally require that our portfolio
companies have an experienced president or management team. We will also
require the portfolio companies to have in place proper incentives to
induce management to succeed and to act in concert with our interests as
investors, including having significant equity interests. We intend to
provide assistance in this area either supervising management or providing
management for our portfolio companies.
Products or Services. We will seek companies that are involved in products
or services that do not require significant additional capital or research
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expenditures. In general, we will seek target companies that make
innovative use of proven technologies or methods.
Proprietary Advantage. We expect to favor companies that can demonstrate
some kind of proprietary sustainable advantage with respect to their
competition. Proprietary advantages include, but are not limited to:
* patents or trade secrets with respect to owning or manufacturing its
products, and
* a demonstrable and sustainable marketing advantage over its
competition.
Marketing strategies impose unusual burdens on management to be
continuously ahead of its competition, either through some kind of
technological advantage or by being continuously more creative than its
competition.
Profitable or Nearly Profitable Operations Based on Cash Flow from
Operations.
We will focus on target companies that are profitable or nearly profitable
on an operating cash flow basis. Typically, we would not expect to invest
in start-up companies unless there is a clear exit strategy in place.
Potential for Future Growth
We will generally require that a prospective target company, in addition to
generating sufficient cash flow to cover its operating costs and service
its debt, demonstrate an ability to increase its revenues and operating
cash flow over time. The anticipated growth rate of a prospective target
company will be a key factor in determining the value that we ascribe to
any warrants or other equity securities that we may acquire in connection
with an investment in debt securities.
Exit Strategy
Prior to making an investment in a portfolio company, we will analyze the
potential for that company to increase the liquidity of its common equity
through a future event that would enable us to realize appreciation, if
any, in the value of our equity interest. Liquidity events may include:
* an initial public offering,
* a private sale of our equity interest to a third party,
* a merger or an acquisition of the portfolio company, or
* a purchase of our equity position by the portfolio company or one of
its stockholders.
We may acquire warrants to purchase equity securities and/or convertible
preferred stock of the eligible portfolio companies in connection with
providing financing. The terms of the warrants, including the expiration
date, exercise price and terms of the equity security for which the warrant
may be exercised, will be negotiated individually with each eligible
portfolio company, and will likely be affected by the price and terms of
securities issued by the eligible portfolio company to other venture
capitalists and other holders. We anticipate that most warrants will be
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for a term of five to ten years, and will have an exercise price based upon
the price at which the eligible portfolio company most recently issued
equity securities or, if a new equity offering is imminent, the proposed
offering price of the equity securities. The equity securities for which
the warrant will be exercised generally will be common stock, of which
there may be one or more classes, or convertible preferred stock.
Substantially all the warrants and underlying equity securities will be
restricted securities under the 1933 Act at the time of the issuance. We
will generally negotiate for registration rights with the issuer that may
provide:
* piggyback registration rights, which will permit us under certain
circumstances, to include some or all of the securities owned by us in
a registration statement filed by the eligible portfolio company, or
* in some circumstances, "demand" registration rights permitting us,
under certain circumstances, to require the eligible portfolio company
to register securities under the 1933 Act, in some cases at our expense.
We will generally negotiate net issuance provisions in the warrants, which
will allow us to receive upon exercise of the warrant without payment of
any cash a net amount of shares determined by the increase in the value of
the issuer's stock above the exercise price stated in the warrant.
Liquidation Value of Assets
Although we do not intend to operate as an asset based lender, the
prospective liquidation value of the assets, if any, collateralizing any
debt securities that we hold will be an important factor in our credit
analysis. We will emphasize both tangible assets, such as:
* accounts receivable,
* inventory, and
* equipment,
and intangible assets, such as:
* intellectual property,
* customer lists,
* networks, and
* databases.
Investment Process
Due Diligence. If a target company generally meets the characteristics
described above, we will perform initial due diligence, including:
* company and technology assessments,
* existing management team,
* market analysis,
* competitive analysis,
* evaluation of management, risk analysis and transaction size,
* pricing, and
* structure analysis.
Much of this work will be done by management and professionals who are well
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known by management. The criteria delineated above provide general
parameters for our investment decisions. We intend to pursue an investment
strategy by further imposing such criteria and reviews that best insures
the value of our investments. As unique circumstances may arise or be
uncovered, not all of such criteria will be followed in each instance but
the process provides a guideline by which investments can be prudently made
and managed. Upon successful completion of the preliminary evaluation, we will
decide whether to deliver a non-binding letter of intent and move forward
towards the completion of a transaction.
In our review of the management team, we look at the following:
* Interviews with management and significant shareholders, including
any financial or strategic sponsor;
* Review of financing history;
* Review of management's track record with respect to:
o product development and marketing,
o mergers and acquisitions,
o alliances,
o collaborations,
o research and development outsourcing and other
strategic activities;
* Assessment of competition; and
* Review of exit strategies.
In our review of the financial conditions, we look at the following:
* Evaluation of future financing needs and plans;
* Detailed analysis of financial performance;
* Development of pro forma financial projections; and
* Review of assets and liabilities, including contingent liabilities,
if any, and legal and regulatory risks.
In our review of the products and services of the portfolio company, we
look at the following:
* Evaluation of intellectual property position;
* Review of existing customer or similar agreements and arrangements;
* Analysis of core technology;
* Assessment of collaborations;
* Review of sales and marketing procedures; and
* Assessment of market and growth potential.
Upon completion of these analyses, we will conduct on-site visits with the
target company's management team. Also, in cases in which a target company
is at a mature stage of development and if other matters exist that warrant
such an evaluation, we will obtain an independent appraisal of the target
company.
Ongoing Relationships with Portfolio Companies
Monitoring. We will continuously monitor our portfolio companies in order
to determine whether they are meeting our financing criteria and their
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respective business plans. We may decline to make additional investments
in portfolio companies that do not continue to meet our financing criteria.
However, we may choose to make additional investments in portfolio
companies that do not do so, but we believe that we will nevertheless
perform well in the future.
We will monitor the financial trends of each portfolio company to assess
the appropriate course of action for each company and to evaluate overall
portfolio quality. Our management team and consulting professionals, who
are well known by our management team, will closely monitor the status and
performance of each individual company on at least a quarterly and, in some
cases, a monthly basis.
We will use several methods of evaluating and monitoring the performance
and fair value of our debt and equity positions, including but not limited
to the following:
* Assessment of business development success, including product
development, financings, profitability and the portfolio company's
overall adherence to its business plan;
* Periodic and regular contact with portfolio company management to
discuss financial position, requirements and accomplishments;
* Periodic and regular formal update interviews with portfolio company
management and, if appropriate, the financial or strategic sponsor;
* Attendance at and participation in board meetings;
* Review of monthly and quarterly financial statements and financial
projections for portfolio companies.
Managerial Assistance. As a business development company, we will offer,
and in many cases may provide, significant managerial assistance to our
portfolio companies. This assistance will typically involve:
* monitoring the operations of our portfolio companies,
* participating in their board and management meetings,
* consulting with and advising their officers,
* providing other organizational and financial guidance, and
* placing a representative on the Board of Directors or other governing
body of each portfolio company.
Diversification
As a BDC, we must invest at least 70% of our total assets in qualifying
assets consisting of investments in eligible portfolio companies and
certain other assets including cash and cash equivalents. In order to
receive favorable pass-through tax treatment on any distributions to our
shareholders, we intend to diversify our pool of investments in such a
manner so as to qualify as a diversified closed end management investment
company. However, because of the limited size of the funding which is
likely to be available to us, we will likely be classified as a non-
diversified closed end investment company under the 1940 Act. Until we
qualify as a registered investment company, we will not be subject to the
diversification requirements applicable to RICs under the Internal Revenue
Code. Therefore, we will not receive favorable pass through tax treatment
on distributions to our shareholders. In the future, we will seek to
increase the diversification of our portfolio so as to make it possible to
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meet the RIC diversification requirements, as described below. We cannot
assure you, however, that we will ever be able to meet those requirements.
To qualify as a RIC, we must meet the issuer diversification standards
under the Internal Revenue Code that require that, at the close of each
quarter of our taxable year,
* not more than 25% of the market value of our total assets is
invested in the securities of a single issuer, and
* at least 50% of the market value of our total assets is represented
by cash, cash items, government securities, securities of other RICs,
and other securities.
Each investment in these other securities is limited so that not more than
5% of the market value of our total assets is invested in the securities of
a single issuer and we do not own more than 10% of the outstanding voting
securities of a single issuer. For purposes of the diversification
requirements under the Internal Revenue Code, the percentage of our total
assets invested in securities of a portfolio company will be deemed to
refer, in the case of financings in which we commit to provide financing
prior to funding the commitment, to the amount of our total assets
represented by the value of the securities issued by the eligible portfolio
company to us at the time each portion of the commitment is funded.
Investment Amounts
The amount of funds committed to a portfolio company and the ownership
percentage received will vary depending on the maturity of the portfolio
company, the quality and completeness of the portfolio company's management
team, the perceived business opportunity, the capital required compared to
existing capital, and the potential return. Although investment amounts
will vary considerably, we expect that the average investment, including
follow-on investments, will be between $250,000 and $5,000,000.
Competition
Our primary competitors to provide financing to target companies, including
target companies in the alternative energy industry, will include private
equity and venture capital funds, other equity and non-equity based investment
funds and investment banks and other sources of financing, including
traditional financial services companies such as commercial banks and
specialty finance companies. Many of these entities have substantially
greater financial and managerial resources than we will have. We believe
that our competitive advantage with regard to quality target companies relates
to our ability to negotiate flexible terms and to complete our review process
on a timely basis. We cannot assure you that we will be successful in
implementing our strategies.
Financial information about geographic areas.
The Company has not engaged in any activities, and has no customers or
portfolio investments, outside of the United States. As a BDC, our
investment portfolio is limited to U.S. companies, although a portfolio
company in which we invest may have operations in both the U.S. and outside
the U.S.
-11-
Item 1A. Risk Factors.
THE COMPANY HAS LIMITED RESOURCES AND NO PRESENT SOURCE OF REVENUES
The Company has limited resources and has had no revenues to date. In
addition, the Company will not achieve any revenues until, at the earliest,
the consummation of a Portfolio Investment. Moreover, there can be no
assurance that any Portfolio Investment, at the time of the Company's
consummation of an investment, or at any time thereafter, will provide any
material revenues from its operations or operate on a profitable basis.
THE COMPANY MAY NEED ADDITIONAL FINANCING IN ORDER TO EXECUTE ITS BUSINESS
PLAN
The Company has had no revenues to date and will be entirely
dependent upon its limited available financial resources. The Company
cannot ascertain with any degree of certainty the capital requirements for
the execution of its business plan. In the event that the Company's limited
financial resources prove to be insufficient to implement the Company's
business plan, the Company may be required to seek additional financing.
ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO THE COMPANY IF NEEDED
There can be no assurance that additional financing, if needed, will be
available on acceptable terms, or at all. To the extent that additional
financing proves to be unavailable when needed, the Company would, in all
likelihood, be compelled to abandon plans for a Portfolio Investment, and
would have minimal capital remaining to pursue other Portfolio Companies.
The failure by the Company to secure additional financing, if needed, could
also have a material adverse effect on the continued development or growth
of the Portfolio Company. The Company has no arrangements with any bank or
financial institution to secure additional financing and there can be no
assurance that any such arrangement, if required or otherwise sought, would
be available on terms deemed to be commercially acceptable and in the best
interests of the Company.
THE COMPANY MAY NOT BE ABLE TO BORROW FUNDS IF NEEDED
There currently are no limitations on the Company's ability to borrow funds
to increase the amount of capital available to the Company to effect a
Portfolio Investment, other than the general limitation of the ratio
between debt and equity imposed on all BDCs by the 1940 Act. Moreover, the
limited resources of the Company and lack of operating history will make it
difficult to borrow funds. The amount and nature of any borrowings by the
Company will depend on numerous considerations, including the Company's
capital requirements, the Company's perceived ability to meet debt service
on any such borrowings and the then prevailing conditions in the financial
markets, as well as general economic conditions. There can be no assurance
that debt financing, if required or sought, would be available on terms
deemed to be commercially acceptable by and in the best interests of the
Company. The inability of the Company to borrow funds required to effect or
facilitate an investment, or to provide funds for an additional infusion of
capital into a Portfolio Company, may have a material adverse effect on the
Company's financial condition and future prospects. Additionally, to the
extent that debt financing ultimately proves to be available, any
-12-
borrowings may subject the Company to various risks traditionally
associated with indebtedness, including the risks of interest rate
fluctuations and insufficiency of cash flow to pay principal and interest.
Furthermore, a Portfolio Company may have already incurred borrowings and,
therefore, all the risks inherent thereto.
THE COMPANY IS UNABLE TO ASCERTAIN RISKS RELATING TO THE INDUSTRY AND
NATURE OF UNIDENTIFIED PORTFOLIO INVESTMENT TARGETS
The Company has not yet selected any particular Portfolio Company in the
alternative energy industry in which to concentrate its investment efforts.
The directors and executive officers of the Company have had no contact or
discussions with any entity or representatives of any entity regarding
consummation of a Portfolio Investment. Accordingly, there is no basis to
evaluate the possible merits or risks of a Portfolio Investment, and
therefore risks of a currently unascertainable nature may arise when a
specific Portfolio Company is chosen. For example, to the extent that the
Company effects an investment in a financially unstable company or an
entity in its early stage of development or growth (including entities
without established records of revenues or income), the Company will become
subject to numerous risks inherent in the business and operations of
financially unstable and early stage or potential emerging growth
companies. In addition, to the extent that the Company effects an
investment in an entity in an industry characterized by a high level of
risk such as the alternative energy industry, the Company will become subject
to the currently unascertainable risks of that industry. Although management
will endeavor to evaluate the risks inherent in a particular Portfolio
Company, there can be no assurance that the Company will properly ascertain or
assess all such risks.
SUCCESS OF THE COMPANY'S BUSINESS PLAN DEPENDS IN LARGE PART UPON THE
CONSUMMATION OF A PORTFOLIO INVESTMENT
The success of the Company's proposed plan of operation will depend to a
great extent on locating and consummating an investment in a Portfolio
Company. Subsequent to any investment, the Company's success will depend
greatly on the operations, financial condition, and management of the
identified Portfolio Company. While management intends to seek an
investment in a company that has an established operating history, it
cannot assure that the Company will successfully locate candidates meeting
such criteria. In the event the Company completes an investment, the
success of the Company's operations may be dependent upon management of the
Portfolio Company and numerous other factors beyond the Company's control.
THE COMPANY DEPENDS UPON ITS EXECUTIVE OFFICERS AND DIRECTORS
The ability of the Company to successfully effect a Portfolio Investment
will be dependent upon the efforts of its executive officers and directors,
as well as its ability to attract additional directors and executive
officers. The Company has not entered into employment agreements or other
understandings with any officer or director concerning compensation or
obtained any "key man" life insurance on his or her life.
-13-
THERE EXIST RISKS TO STOCKHOLDERS RELATING TO DILUTION: AUTHORIZATION OF
ADDITIONAL SECURITIES AND REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING
A PORTFOLIO INVESTMENT
To the extent that additional shares of Common Stock are issued, the
Company's stockholders would experience dilution of their respective
ownership interests in the Company. Additionally, if the Company issues a
substantial number of shares of Common Stock in connection with or
following a Portfolio Investment, a change in control of the Company may
occur which may affect, among other things, the Company's ability to
utilize net operating loss carry forwards, if any. Furthermore, the
issuance of a substantial number of shares of Common Stock may adversely
affect prevailing market prices, if any, for the Common Stock and could
impair the Company's ability to raise additional capital through the sale
of its equity securities. The Company may use consultants and other third
parties providing goods and services, including assistance in the
identification and evaluation of potential Portfolio Companies. These
consultants or third parties may be paid in cash, stock, options or other
securities of the Company, and the consultants or third parties may be
Placement Agents or their affiliates.
THE COMPANY EXPECTS TO PAY NO CASH DIVIDENDS
The Company does not expect to pay dividends prior to the consummation of a
Portfolio Investment. The payment of dividends after consummating any such
investment will be contingent upon the Company's revenues and earnings, if
any, capital requirements, and general financial condition subsequent to
consummation of an investment. The payment of any dividends subsequent to
an investment will be within the discretion of the Company's then Board of
Directors. The Company presently intends to retain all earnings, if any,
for use in the Company's business operations and accordingly, the Board
does not anticipate declaring any dividends in the foreseeable future.
THE COMPANY IS AUTHORIZED TO ISSUE PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance
of 5,000,000 shares of preferred stock (the "Preferred Stock"), with such
designations, powers, preferences, rights, qualifications, limitations and
restrictions of such series as the Board of Directors, subject to the laws
of the State of Nevada, may determine from time to time. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of Common Stock. In addition, the Preferred Stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. As of the date of this report,
the Company has one million outstanding shares of Preferred Stock.
On February 26, 2006, the Board of Directors authorized the establishment of a
Class A Convertible Preferred Stock, with one million shares authorized to be
issued. A Designation of Preferences for the Class A Convertible Preferred
Stock was filed with the Secretary of State of Nevada on February 27, 2006.
The Board of Directors authorized the issuance of the 1 million shares to
Enterprise Partners, LLC, our majority stockholder, in return for conversion
of an outstanding liability in the amount of $60,000 owed to Enterprise
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Partners, LLC for initial seed capital for operations. On June 30, 2006, at
our Annual Meeting of Shareholders, an Amended Certificate of Designations for
the Class A Convertible Preferred Stock was approved by our public
shareholders and the issue of those shares also was approved.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
The Company neither owns nor leases any significant real estate or
other properties at the present time. The Company requires minimal office
space and the Company has subleased space for corporate and administrative
purposes in Cocoa, Florida from CF Consulting, LLC., an independent
consultant to the Company, for $450 per month commencing in February, 2006.
This arrangement will continue until the Company raises funding and
determines that more extensive office space is necessary for its operations.
Item 3. Legal Proceedings
There are no legal proceedings pending, or to the best knowledge of management,
threatened against the Company. There were no legal proceedings previously
pending which were resolved during the fourth quarter of the fiscal year ended
December 31, 2006.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year, ended December 31, 2006.
PART II
Item 5. Market for Registrant?s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
(a) Market information. During 2006, no shares of stock of the Company were
listed or admitted for trading on any national exchange or on the over-the
counter markets, and there was no established public trading market for our
common stock. As a result, no information regarding high and low sales prices
or high and low bid information for the common shares is available or provided
in this report.
On January 19, 2007, the Company was notified that its common shares had been
admitted for trading on the OTC Bulletin Board under the symbol UEEC. There
has been only limited, sporadic trading activity to date.
(b) Holders. As of February 1, 2007, there were approximately 62 holders of
record of our common stock.
(c) Dividends. The Company has not paid any dividends to date, has not yet
generated earnings sufficient to pay dividends, and currently does not intend
to pay dividends in the foreseeable future.
(d) Securities authorized for issuance under equity compensation plans.
Although the Company has two authorized equity compensation plans approved by
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its shareholders in 1997, before it elected to be treated as a business
development company, no stock options, grants, warrants or other awards have
ever been made under the plans. The By-laws of the Company prohibit
the grant or award of any such options, grants, warrants or other awards so
long as the Company maintains its election to be treated as a business
development company. Under the rules regulating a business development
company under the Investment Company Act of 1940, the Company may not issue or
award any such options, grants, warrants or other incentive compensation
awards because it also has a capital gains based incentive in effect with its
investment adviser, United EcoEnergy Advisers, LLC.
The following table sets forth, as of the year ended December 31,
2006, certain information with respect to the compensation plans and individual
compensation arrangements to which the Company is a party, if any, under which
any equity securities of the Company are authorized for issuance.
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights under equity
warrants and rights compensation plans
(a) (b) (c)
------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders
1997 EMPLOYEE STOCK
COMPENSATION PLAN -0- N/A 1,000,000
1997 COMPENSATORY STOCK
OPTION PLAN -0- N/A 1,500,000
Equity compensation plans
not approved by
security holders
NONE N/A N/A N/A
------------------------------------------------------------------------------
Total -0-
Item 6. Selected Financial Data.
The Company was in a development stage through the end of 2005 and had no
income or assets during the period from its incorporation in 1997 through the
end of 2005. Therefore, the information required by Item 301 of Regulation S-K
is omitted for that period as not material.
During 2006, after the election to be treated as a BDC, the Company has had no
revenues, income from continuing operations, and similar items, and has not had
any accounting changes, or business combinations or dispositions. The net loss,
net loss per common share, net asset values, net asset value per common share,
and related financial data as a BDC are included in the financial statements
included in this report
-16-
Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operations.
We have elected to be treated as a business development company under the 1940
Act. Accordingly, we are required to comply with certain regulatory
requirements. For instance, we generally have to invest at least 70% of our
total assets in qualifying assets, including securities of private or thinly
traded public U.S. companies, cash, cash equivalents, U.S. government
securities and high-quality debt investments that mature in one year or less.
We will typically invest under normal circumstances, at least 80 percent of
net assets in alternative energy companies.
We intend to invest in companies in the alternative energy industry, including
bio-fuel companies, most of which have relatively short or no operating
histories. These companies are and will be subject to all the business risks
and uncertainties associated with any new business enterprise, including the
risk that these companies may not reach their investment objective and the
value of our investment in them may decline substantially or fall to zero.
As of December 31, 2006, we had not yet made any portfolio or other
investments. However, we signed several letters of intent for acquisitions,
subject to our obtaining funding. On February 6, 2007, we announced the
signing of a binding letter of intent to acquire GEI Development, LLC and Solid
Waste Properties, LLC, in exchange for 25,290,600 shares of our common stock.
Subject to due diligence and the raising of an initial working capital amount
of $2 million, we expect to close on these acquisitions on or before March 31,
2007. A copy of the binding letter of intent was attached to our report on
Form 8-K, filed with the SEC on February 6, 2007.
Results of Operations
During the year ended December 31, 2006, the Company made considerable efforts
to carry out its business plan as a Business Development Company. These
efforts included both business development and financing activities.
William K. Mackey, our CEO, traveled extensively in pursuit of these
objectives, meeting with numerous potential venture partners and portfolio
investment companies. Mr. Mackey met with the principals of investment
partners as well as potential portfolio companies in New York, Texas,
Tennessee, Alabama, Georgia and parts of Florida during the year. These efforts
resulted in either mutual understandings, non-binding letters of intent or
proposed joint ventures. Also, management explored several potential
technologies in both alternative energy and renewable fuels arena as possible
investments. AS noted, we also negotiated a binding letter of intent to acquire
GEI Development, LLC and Solid Waste Properties, LLC for 25,290,600 shares
of our common stock, and are in the due diligence stage of that acquisition.
On the finance side, the Company submitted several proposals to its then
investment banker, Lempert Brothers International USA. The Company has
subsequently terminated that relationship for lack of performance and has
demanded a return of the initial fee of $10,000. The Company also was
introduced to several sources for debt side financing of potential
acquisitions. The Company also initiated discussions with Access Energy for
the purpose of financing various wind projects. These talks have progressed
and will continue into the next fiscal year.
-17-
The Company has reviewed numerous alternative energy technologies, including
proprietary technologies of Woodland Chemical Systems, Pure Energy, Inc. and
CTI Bio-fuels. The Company has signed non-disclosure agreements with all of
these firms and with Emissions Technologies, Inc., in order to further explore
the technologies and consider an investment.
United entered into a joint venture with Alternative Fuels LLC to explore
converting biomass into ethanol. The Company also has exchanged non-binding
letters of intent with SafeFuels, Inc. of Houston, Texas, Imperial Recovery of
Houston, Texas, and Novis Energy of Atlanta, Georgia, with the goal of
entering into definitive investment agreements with each of these companies.
Further, management continued to explore potential relationships or investments
in ethanol, bio-diesel, biomass and wind opportunities from Venezuela (Mandioca
Project), Minnesota (Gamasa Project), and Arkansas (Arkansas and Helens
Projects).
The Company?s President meets with the Company?s Investment Advisor each
Monday, Wednesday and Friday to review the current investment activities of the
Company. Management believes that recent conversations matching business
development opportunities and potential financings are moving toward several
potential investment scenarios in the current fiscal year.
Besides exploring traditional sources of financings with its investment banker,
management also has met with CRT LLC, Ardour Capital, Giordano Securities and
others. The Company has attended conferences such as Value Rich and obtained
various memberships in web news letters advising the Company on industry
developments. Examples of these sites include HedgeFund.net, Renewable Energy
Weekly and North American Wind Power.
Through the end of the fiscal year, the Company has expended over $190,000
in connection with its Business Development Company operations, and has entered
into many financing agreements, investment banking agreements and letters of
intent for acquisitions of portfolio companies.
Critical Accounting Policies
In determining the fair value of our investments, the Audit Committee will
consider valuations from an independent valuation firm, as needed, from our
Investment Committee, our investment adviser and from management
Results of Operations
A comparison of the current annual results to the year ended December 31,
2005 is not meaningful, as we had not then made the election to be treated as a
business development company and our business model in 2005 was to locate and
merge with an operating business.
Financial Highlights
Financial highlights of the Company for the fiscal year ending December 31,
2006 are included in Footnote 6 to our Financial Statements.
Investment Activity
We engaged Lempert Brothers US in New York to assist us in raising not less
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than $10 million to enable us to continue with several pending letters of
intent. In February, 2007, we terminated the relationship with Lempert
Brothers for non-performance and have demanded a refund of the $10,000 initial
Fee. We have also worked with a number of other underwriters, investment
bankers, hedge funds and other sources of capital to raise the funds needed
for our planned portfolio investments.
Long-Term Portfolio Investments
There were no portfolio investments made during the twelve months ended
December 31, 2006.
Investment Income
We expect to generate revenue in the form of interest income on the debt
securities that we own, dividend income on any common or preferred stock that
we own, and capital gains or losses on any debt or equity securities that we
acquire in portfolio companies and subsequently sell. Our investments, if in
the form of debt securities, will typically have a term of one to ten years
and bear interest at a fixed or floating rate. To the extent achievable, we
will seek to collateralize our investments by obtaining security interests in
our portfolio companies assets. We also may acquire minority or majority equity
interests in our portfolio companies, which may pay cash or in-kind dividends
on a recurring or otherwise negotiated basis. In addition, we may generate
revenue in other forms including commitment, origination, structuring or due
diligence fees, management fees and possibly consultation fees. Any such fees
generated in connection with our investments will be recognized as earned. We
earned no investment income during the year ended December 31, 2006.
Operating Expenses
Operating expenses are broken down as follows:
Consulting expenses $ 173,120
Rent 4,950
Audit fees 6,168
Other expenses:
Bank fees $ 155
Filing fees 854
Office supplies 575
Postage and delivery 237
Registered agent 295
Transfer agent 4,566
Miscellaneous 240
------
6,922
-------
Total operating expense 191,160
The consulting expenses were paid or due to CF Consulting, LLC, pursuant to a
consulting agreement under which Robert Hipple serves as our CFO and Chief
Compliance Officer for a monthly fee of $5,000, to William K. Mackey, our CEO,
under his consulting agreement, to Lempert Brothers International ($10,000)
and the balance to unaffiliated consultants. The specific breakdown of the
consulting expenses for 2006 is as follows:
-19-
William K. Mackey $ 90,000
CF Consulting, LLC 60,000
Lempert Brothers 10,000
John Tristino 5,000
Stephen F. Seidow 8,120
$173,120
The rent expense represents rent paid or due to CF Consulting, LLC for sub-
leasing office space, telephone, office equipment and related office services
at the rate of $450 per month under the same Consulting Agreement. The
remaining expenses were paid or due to non-affiliated parties, including
$6,188 in professional fees to our independent audit firm for audit
services and $4,566 paid to our transfer agent for issuing of stock and
related services.
Net Investment Income, Net Unrealized Appreciation and Net Increase in
Stockholders Equity Resulting from Operations
Our net investment income totaled $0 for the year ended December 31, 2006
compared to $0 for the year ended December 31, 2005. Net unrealized
appreciation totaled $0 for the year ended December 31, 2006 compared to $0
or the year ended December 31, 2005.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources were generated initially from an advance
of $60,000 by our then major shareholder, Enterprise Partners, LLC, which was
later paid by the issuance of 1 million shares of Series A Convertible
Preferred Stock. We also undertook an exempt offering of our common shares
pursuant to a Form 1-E Application and Notice filed with the SEC on June 19,
2006, and accepted subscriptions for a total of 312,739 common shares,
representing $92,366 in additional working capital. We generated no cash flows
from operations during 2006. In the future, we may fund a portion of our
investments through borrowings from banks, issuances of senior securities or
secondary offerings of equity, including further exempt offerings. We may also
securitize a portion of our investments in mezzanine or senior secured loans
or other assets. Our primary use of funds will be investments in portfolio
companies.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are subject to financial market risks, including changes in interest rates,
equity price risk and some of the loans in our portfolio may have floating
rates in the future. We may hedge against interest rate fluctuations by using
standard hedging instruments such as futures, options and forward contracts
subject to the requirements of the 1940 Act. While hedging activities may
insulate us against adverse changes in interest rates, they may also limit our
ability to participate in the benefits of higher interest rates with respect
to our portfolio of investments. During the twelve months ended December 31,
2006, we did not engage in any hedging activities.
Since the Company to date has had no significant operations, the
information and disclosures required by Item 305 of Regulation S-K are
omitted as not material.
-20-
Item 8. Financial Statements and Supplementary Data.
See the index to the financial statements of the Company on page 32.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item 9A. Controls and Procedures.
Within 90 days prior to the filing of this Form 10-K, an evaluation was
carried out by William K. Mackey, our CEO and President and Robert Hipple, our
Chief Financial Officer, as of the end of the reporting period covered by this
report, of the effectiveness of our disclosure controls and procedures.
Disclosure controls and procedures are procedures that are designed with the
objective of ensuring that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, such as this Form 10-K, is
recorded, processed, summarized and reported within the time period specified
in the Securities and Exchange Commission's rules and forms. Based on that
evaluation, Mr. Mackey and Mr. Hipple concluded that, as of December 31, 2006,
and as of the date that the evaluation of the effectiveness of our disclosure
controls and procedures was completed, our disclosure controls and procedures
were effective to satisfy the objectives for which they are intended.
There were no changes in our internal control over financial
reporting identified in connection with the evaluation performed that
occurred during the fiscal year covered by this report that has
materially affected or is reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information.
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
IDENTIFICATION OF DIRECTORS and EXECUTIVE OFFICERS
The persons who served as directors and executive officers of the Company
through the period ending December 31, 2006 covered by this report, their ages
and positions held in the Company, are listed below.
Name Age Position
Stephen Siedow _1/ 56 Former Chief Executive
Officer, President and
Chief Financial Officer
William Mackey 55 Chairman, CEO, Director
Adam Mayblum 41 Director
William L. Sklar 59 Director
Alec Hoke 40 Director
John Paul DeVito 50 Director
Robert Hipple 62 Contract CFO
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1. Mr. Siedow resigned as an officer and director of the Company effective
February 22, 2006.
BIOGRAPHICAL INFORMATION
William Mackey - Chief Executive Officer, Chairman and Director. Mr. Mackey,
age 55, joined United EcoEnergy after thirty years of C level experience in
both public and private companies. He began his career in the chemical process
industry where he spent 21 years in various roles from sales & marketing,
the laboratory from technician to Technical Director, as Plant Manager and
various executive positions including President and Chairman of the Board. Mr.
Mackey also has 10 years of public company experience acting as a Director,
Chairman and CFO, President and CEO. He has managed multiple locations and
hundreds of employees at a time during his tenure. His experience has allowed
him to access the capital markets for both debt & equity, communicate his
company's message to the investing public and close 22 M & A transactions. Mr.
Mackey is also a managing director and one-third owner of United EcoEnergy
Advisers, LLC, the Company investment adviser
Adam Mayblum, age 41, co-founded United EcoEnergy Advisors, LLC and is a
principal and founder of Enterprise Partners, LLC, the former majority
shareholder of the Company. Prior to founding Enterprise Partners, LLC, he
had 17 years of experience in the financial markets as a top retail producer
specializing in Public Venture Capital. In 1998 Mr. Mayblum left his position
as Branch Manager of HJ Meyers in NY to become a Managing Director of The May
Davis Group, specializing in PIPES (Private Investments in Public Equity). In
2002, Mr. Mayblum took a position as the Managing Director of the Private
Equities Group of Joseph Stevens & Company where he successfully completed
numerous financings and advised many companies on changes in the regulatory
environment and the impact those changes have on their ability to raise
capital in the public and private markets. He graduated from Emory University
in 1987 with a BBA in Management. Mr. Mayblum is also a managing director and
one-third owner of United EcoEnergy Advisers, LLC, the Company investment
adviser, and also serves as a director of American Development & Investment
Fund, Inc., a BDC focused on markets other than alternative energy.
Alec Hoke is a senior vice president of Summit Brokerage Services in Boca
Raton, Florida. Prior to that he was a senior vice president at First Union
Securities until it merged with Wachovia Securities. He has extensive
experience in venture capital as well as specialized industry analysis. Alec
expanded his knowledge into stock market related work with several venture
capital and investment banking firms, specializing in start-up financing. Mr.
Hoke started his investment career with Massachusetts Mutual Life Insurance
Company where he developed skills in estate planning and needs analysis to
manage risk. He is a native of Princeton, New Jersey. He attended Rutgers
University on a football scholarship, where he was an All-American linebacker
and earned his degree in Management.
William L. Sklar has served as a consultant with Willmar Management Corp. since
1988. Since September 2004 Mr. Sklar has been the Chairman and a Director of
PaperFree Medical Solutions, Inc., a company trading on the OTC BB. Since
October 26, 2005 Mr. Sklar has been a director of Radiate Research a
public company. From July 1983 to October 1988 Mr. Sklar was the owner of
Western Bag & Burlap a textile manufacturer. Mr. Sklar, aged 59, holds a
Bachelor of Commerce from the University of Toronto.
-22-
John DeVito is currently Director of Business Development for Bon-Trade
Solutions, Inc., and has worked in the securities and investment banking
industry for thirty years. He has served as COO of May Davis Group, Inc.;
CEO of EastBrokers International, Inc., a broker Dealer specializing in
emerging markets in Central and Eastern Europe; and Vice President of JB
Oxford & Company, Inc. He has also worked with PaineWebber Incorporated and
Smith Barney Harris Upham & Co. He holds a BA in Psychology from New York
University and a Diploma in Financial Planning, also from New York
University. He currently holds Series 4, 7, 24, 27, 54, 55, 63 and 65
licenses from the NASD, Inc.
Robert Hipple serves as Chief Financial Officer of the Company on a
consulting basis through CF Consulting, LLC. Mr. Hipple is an attorney,
former law professor and senior executive with 35 years experience as president
and chief executive officer, chief financial officer and general counsel, as
well as a director, for several public (NYSE, AMEX and NASDAQ) companies.
He also has extensive experience with public mergers, acquisitions and capital
raising, along with personal relations with investment banks, broker/dealers,
and market makers, and has taught both taxation and federal securities law at
Georgetown University Law School, Emory University Law School, the University
of San Diego School of Law and Florida A&M University College of Law. Mr.
Hipple also serves as Chief Financial Officer for Neptune Industries, Inc., an
OTC BB traded (NPDI) company in the aquaculture business based in Boca Raton,
Florida, again on a contract consulting basis, and as Interim CEO and CFO of
American development & Investment Fund, Inc., a public reporting, but non-
trading business development company in which Enterprise Partners, LLC, former
majority shareholder of the Company, is also the majority shareholder.
POTENTIAL CONFLICTS OF INTEREST
For all periods subsequent to the Company election to operate as a BDC
on February 28, 2006, the Company is required to and will maintain a Board of
Directors made up of a majority of independent directors, and will operate
within the rules and requirements of a BDC under the 1940 Act. The Company
has adopted a Conflicts of Interest Policy which is designed to prevent any
real or potential conflicts of interest for its directors and officers. The
Company is not aware of any conflicts of interest, actual or potential,
between its intended plan of operations and any director or officer of the
Company, or any company in which that officer or director is an officer or
director. There are no known interlocking directorships among the officers or
directors of the Company which could create potential conflicts of interest.
As required by the applicable BDC rules, the Company will hold an Annual
Meeting of Shareholders as soon as possible after the filing of this report in
order to elect its Board of Directors and to conduct such other business as
might be required. No date has been set yet for the Annual Meeting, but it is
expected that the Annual Meeting will be held in April, 2007.
SIGNIFICANT EMPLOYEES
None, other than the two officers of the Company listed above, who act as
Officers pursuant to consulting agreements.
COMMITTEES AND BOARD MEETINGS
The Company has adopted charters for its Audit Committee, Investment
Committee, Compensation Committee and Governance and Nominating Committee,
-23-
which it submitted for approval by its shareholders at the Annual Meeting of
Shareholders, held on June 30, 2006. Following approval of the charters,
members of the Board of Directors elected at the Annual Meeting were
appointed to each of the Committees, as follows:
AUDIT COMMITTEE
The Audit Committee is made up entirely of independent, non-affiliated
Directors William L. Sklar, Alec Hoke and John Paul DeVito. The Company has
identified William L. Sklar, an independent director, as its Audit Committee
Financial Expert by virtue of his background and experience. Mr. Sklar serves
as Chair of the Audit Committee of the Company.
COMPENSATION COMMITTEE
The Compensation Committee is made up entirely of independent, non-
interested Directors William L. Sklar, Alec Hoke and John Paul DeVito. Mr.
Sklar also serves as Chairman of the Compensation Committee.
GOVERNANCE AND NOMINATING COMMITTEE
The Governance and Nominating Committee is made up of Mr. Mackey, who serves
as the Chair, Mr. Sklar and Mr. Hoke.
INVESTMENTCOMMITTEE
The Investment Committee is made up of Mr. Mayblum, who serves as Chair, Mr.
Hoke and Mr. DeVito
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to all of its
directors, officers and employees performing financial functions for the
Company, including its chief executive officer, chief financial officer,
controller and any person performing similar functions.
EXCLUSION of DIRECTOR LIABILITY
Pursuant to the General Corporation Law of Nevada, the Company
Certificate of Incorporation excludes personal liability on the part of its
directors to the Company for monetary damages based upon any violation of their
fiduciary duties as directors, except as to liability for any acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law or
for improper payment of dividends. This exclusion of liability does not limit
any right which a director may have to be indemnified and does not affect any
director's liability under federal or applicable state securities laws.
Item 11. Executive Compensation.
CASH and OTHER COMPENSATION
For the years ended December 31, 2006 and 2005 and through the date of
this report, the Company has not paid any executive officers or directors any
cash and cash equivalent compensation directly. Mr. Mackey, as President and
CEO, and Mr. Hipple, as CFO, serve in those capacities on a contract basis,
-24-
through consulting agreements, Mr. Mackey through a direct agreement and Mr.
Hipple through a consulting agreement with CF Consulting, LLC. The Company has
paid Mr. Mackey a total of $90,000 in 2006 through this consulting arrangement
and has paid CF Consulting, LLC a total of $60,000 in consulting fees under
its agreement in 2006. The Company has no other agreement or understanding,
express or implied, with any director or executive officer concerning
employment or cash or other compensation for services. Any new compensation
arrangements with any officer or director of the Company will be adopted and
approved by the independent Compensation Committee.
COMPENSATION PURSUANT to PLANS
For the years ended December 31, 2006 and 2005 and through the date of
this report, no director or executive officer has received compensation from
the Company pursuant to any compensatory or benefit plan. There is no plan or
understanding, express or implied, to pay any compensation to any director or
executive officer pursuant to any compensatory or benefit plan of the Company.
The Company currently has in place an employee stock compensation plan
and compensatory stock option plan. There are no other compensatory or benefit
plans, such as retirement or pension plans, in effect or anticipated to be
adopted.
COMPENSATION of DIRECTORS and EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation
of the Company Chairman of the Board, Chief Executive Officer and its other
most highly compensated executive officers for the fiscal years ended
December 31, 2006, 2005 and 2004.
Long-Term Compensation
Annual Compensation Awards Payouts
-------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities All
Name and Restricted Underlying ($) Other
Principal ($) ($) ($) Stock Options LTIP Compen-
Position Year Salary Bonus Other Awards($) & SARs(#) Payouts sation($)
--------------------------------------------------------------------------------------------------
Stephen M. Siedow 2006 $ -0- None 8,120 None None None $ -0-
Former Chairman, 2005 $ -0- None None None None None $ -0-
President/CFO 2004 $ -0- None None None None None $ -0-
William K. Mackey 2006 $ -0- None 90,000 None None None $ -0-
Chairman, CEO 2005 NA NA NA NA NA NA NA
President 2004 NA NA NA NA NA NA NA
Robert Hipple 2006 $ -0- None None None None None $ -0-
CFO 2005 NA NA NA NA NA NA NA
2004 NA NA NA NA NA NA NA
Mr. Mackey is due the sum of $7,500 per month under a consulting agreement with the Company.
This amount has been paid during 2006 by Enterprise Partners, LLC and is reflected as
$90,000 due affiliate on the Company?s books. Mr. Hipple is employed by CF Consulting LLC
which has a consulting agreement with the Company to provide various services for an amount
equal to $5,000 per month in 2006. Mr. Hipple is not paid any amounts directly or indirectly
by the Company.
-25-
OPTION/SAR GRANTS
No individual grants of stock options, whether or not in tandem with
stock appreciation rights ("SARs") and freestanding SARs, have been made to
any executive officer or any director during the year ended December 31, 2006,
Accordingly, no stock options were exercised by any of the officers or
directors in fiscal 2006.
EMPLOYEE STOCK COMPENSATION PLAN
The Company adopted the 1997 Employee Stock Compensation Plan for
employees, officers, directors of the Company and advisors to the Company (the
ESC Plan). The Company reserved a maximum of 1,000,000 common shares to be
issued upon any grant of awards under the ESC Plan. Employees will recognize
taxable income upon the grant of common stock equal to the fair market value
of the common stock on the date of the grant and the Company will recognize a
compensating deduction for compensation expense at such time. The ESC Plan is
administered by the Compensation Committee of the Board of Directors. No
shares have been awarded or currently are anticipated to be awarded under the
ESC Plan, and the By-laws of the Company prohibit the issue of any such awards
So long as the Company has an investment adviser agreement providing for
compensation based in part on capital appreciation, in order to conform to the
applicable limits under the 1940 Act relating to stock benefit plans of a BDC.
The Company currently maintains an investment adviser agreement with United
EcoEnergy Advisers, LLC containing such a compensation arrangement.
COMPENSATORY STOCK OPTION PLAN
The Company adopted the 1997 Compensatory Stock Option Plan for
officers, employees, directors and advisors (the CSO Plan). The Company has
reserved a maximum of 1,500,000 Common Shares to be issued upon the exercise of
options granted under the CSO Plan. The CSO Plan will not qualify as an
incentive stock option plan under Section 422 of the Internal Revenue Code of
1986, as amended. Options are granted under the CSO Plan at exercise prices
be determined by the Compensation Committee of the Board of Directors.
With respect to options granted pursuant to the CSO Plan, optionees will not
recognize taxable income upon the grant of options granted at or in excess of
fair market value. However, optionees will realize income at the time of
exercising an option to the extent the market price of the common stock at that
time exceeds the option exercise price, and the Company must recognize a
compensation expense in an amount equal to any taxable income realized by an
optionee as a result of exercising the option. The CSO Plan will is
administered by the Compensation Committee of the Board of Directors. No
options have been granted or currently are anticipated to be granted under the
CSO Plan and the By-laws of the Company prohibit the issue of any such awards
So long as the Company has an investment adviser agreement providing for
compensation based in part on capital appreciation, in order to conform to the
applicable limits under the 1940 Act relating to stock benefit plans of a BDC.
The Company currently maintains an investment adviser agreement with United
EcoEnergy Advisers, LLC containing such a compensation arrangement.
COMPENSATION OF DIRECTORS
The Company has no standard arrangements in place or currently
contemplated to compensate the Company directors for their service as directors
-26-
or as members of any committee of directors. Any compensation to directors
will be determined and approved by the Company Compensation Committee.
EMPLOYMENT CONTRACTS
No person has entered into any employment or similar contract with the
Company, other than the two consulting agreements already discussed with Mr.
Mackey and with CF Consulting, LLC. It is anticipated that the Company may
enter into employment or similar contracts in connection with its activities
as a BDC, and any such contracts will be approved by the independent
Compensation Committee of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
BENEFICIAL OWNERSHIP
The following table sets forth, as of the end of the reporting period
covered by this report, and as of the date of this report, the stock ownership
of each executive officer and director of the Company, of all executive
officers and directors of the Company as a group, and of each person known by
the Company to be a beneficial owner of 5% or more of its common stock. Except
as otherwise noted, each person listed below is the sole beneficial owner of
the shares and has sole investment and voting power as to such shares. No
person listed below has any option, warrant or other right to acquire
additional securities of the Company, except as may be otherwise noted.
Name and Address Amount & Nature
of Beneficial of Beneficial Percent
Owner Position Ownership of Class
------------------------------------------------------------------------------
William Mackey Chairman, CEO 8,430,000 29.3
9632 NW 7th Circle Director
#1724
Plantation, FL 33324
Adam Mayblum Director(1) 7,830,000 26.3
50 Andrew Lane
New Rochelle, NY 10804
William L. Sklar Director 20,000 --
513 Roselawn Avenue
Toronto, Canada M5N 1K2
Alec Hoke Director 20,000 --
721 Carriage Hill Lane
Boca Raton, FL 33486
John Paul DeVito Director 20,000 --
1201 Hardscrabble Road
Chappaqua, NY 10514
-27-
Robert Hipple CFO 20,000 --
412 Brevard Avenue Secretary/Treasurer
Cocoa, Fl 32922
*All directors & officers 16,340,000 56.6
as a group (6 persons)
-----------------------------------------------------------------------------
Enterprise Partners, LLC (2) 1,567,700 5.4
50 Andrew Lane
New Rochelle, NY 10804
Patrick Donelan(3) 8,030,000 27.9
3570 Lakeview Drive
Delray Beach, FL 33445
(1) Adam Mayblum is a 50 percent owner of Enterprise Partners, LLC, which
owns 1,567,000 shares off common stock and therefore may be considered
the beneficial owner of an additional 783,500 common shares. Mr.
Mayblum also is the custodian of 600,000 shares held for the benefit of
his three minor children and therefore may be considered the beneficial
owner of those shares.
(2) Enterprise Partners, LLC also is the holder of 268,481 Series A
Convertible Preferred shares, convertible into a maximum of 4,027,500
Common shares.
(3) Patrick Donelan is a 50 percent owner of Enterprise Partners, LLC, which
owns 1,567,000 shares off common stock and therefore may be considered
the beneficial owner of an additional 783,500 common shares. Mr.
Mayblum also is the custodian of 400,000 shares held for the benefit of
his two minor children and therefore may be considered the beneficial
owner of those shares.
Item 13. Certain Relationships and Related Transactions and Director
Independence.
During 2005 and 2004, the Company incurred corporate, administrative
and accounting fees of approximately $15,500 and $3,500 for services performed
by the then Company president and for expenses paid by the then president on
behalf of the Company. The Company had a payable to its then president in the
amount of $21,880 and $4,783 at December 31, 2005 and 2004, respectively. This
payable was retired on February 22, 2006 from funds advanced by Enterprise
Partners, LLC to the Company totaling $60,000. Those funds were re-paid by
the issue of 1 million shares of Series A Convertible Preferred Stock to
Enterprise Partners, LLC.
No officer, director or employee of the Company has received a salary of
$60,000 or more in 2006 or 2005. Mr. Mackey, the Company President and CEO,
received a total of $90,000 in consulting fees from the Company in 2006, and
CF Consulting, LLC, through which Mr. Hipple serves as CFO, received a total
of $60.000 in consulting fees during 2006. CF Consulting, LLC also received
payments totaling $4,950 rent for office space and serves under a sub-lease
agreement, at the rate of $450 per month. There were no other transactions, or
series of transactions, for the years ended December 31, 2006 or 2005, nor are
there any currently proposed transactions, or series of transactions, to which
the Company is a party, in which the amount exceeds $60,000, and in which to
the knowledge of the Company any director, executive officer, nominee, five
-28-
percent or greater shareholder, or any member of the immediate family of any of
the foregoing persons, have or will have any direct or indirect material
interest.
The Company has entered into an investment advisory agreement with United
EcoEnergy Advisors, LLC, which is owned equally by Adam Mayblum, Patrick
Donelan and William Mackey. Under the terms of the Agreement, the Advisor
will provide investment advice and assistance to the Company with respect to
locating, reviewing and investing in suitable portfolio investments by the
Company recommended by the Investment Committee and will assist the Investment
Committee in determining the value of its portfolio investments
from time to time as required for reporting purposes.
The Company has agreed to pay, and the Advisor has agreed to accept, as
compensation for the services to be provided by the Advisor, a base management
fee (Base Management Fee) and an incentive fee (Incentive Fee).
(a) Base Management Fee.
(i) For services rendered during the period from the effective date
of the election under Section 54(a) of the 1940 Act (the Effective Date)
through the end of the reported second full fiscal quarter of the Company
thereafter, the Base Management Fee is payable monthly in advance, and is
calculated at an annual rate of 2.00% of the value of the total assets of the
Company, less the cash proceeds and cash equivalent investments from equity
investors that are not invested in debt or equity securities of portfolio
companies in accordance with the investment objectives of the Company (the
Gross Invested Assets), valued as of the end of each preceding month during
the period.
(ii) For services rendered after the end of the reported second full
fiscal quarter of the Company following the Effective Date, the Base Management
Fee is payable quarterly in arrears, and is calculated at an annual rate of
2.00% of the average value of the total assets of the Company, including
investments made with proceeds of borrowings, less any uninvested cash or cash
equivalents resulting from borrowings (the Gross Assets), valued as of the end
of the two most recently completed calendar quarters, and appropriately
adjusted for any share issuances or repurchases during the current calendar
quarter.
(iii) Base Management Fees payable for any partial month or quarter
will be appropriately prorated.
(b) The Incentive Fee consists of two parts, as follows:
(i) One part will be calculated and payable quarterly
in arrears based on the pre-Incentive Fee net investment income
for the immediately preceding calendar quarter. For this
purpose, pre-Incentive Fee net investment income means interest
income, dividend income and any other income (including any
other fees, such as commitment, origination, structuring,
diligence, consulting fees that the Corporation receives from
portfolio companies, but excluding fees for providing managerial
assistance) accrued by the Company during the calendar quarter,
minus the operating expenses of the Company for the quarter
(including the Base Management Fee, and any interest expense and
dividends paid on any issued and outstanding preferred stock,
but excluding the Incentive Fee). Pre-Incentive Fee net
investment income includes, in the case of investments with a
-29-
deferred interest feature (such as original issue discount, debt
instruments with payment-in-kind interest and zero coupon
securities), accrued income that the Company has not yet
received in cash and includes the proportionate share of the
portfolio companies net income allocable to equity holdings that
has not been distributed as dividends. Pre-Incentive Fee net
investment income does not include any realized capital gains,
realized capital losses or unrealized capital appreciation or
depreciation. Pre-Incentive Fee net investment income, expressed
as a rate of return on the value of the Corporations net assets
at the end of the immediately preceding calendar quarter, will
be compared to a hurdle rate of 1.75% per quarter (7%
annualized). The Company will pay the Adviser an Incentive Fee
with respect to the pre-Incentive Fee net investment income in
each calendar quarter as follows: (1) no Incentive Fee in any
calendar quarter in which the pre-Incentive Fee net investment
income does not exceed the hurdle rate; (2) 100% of the pre-
Incentive Fee net investment income with respect to that portion
of such pre-Incentive Fee net investment income, if any, that
exceeds the hurdle rate but is less than 2.1875% in any calendar
quarter (8.75% annualized); and (3) 20% of the amount of the
pre-Incentive Fee net investment income, if any, that exceeds
2.1875% in any calendar quarter (8.75% annualized). These
calculations will be appropriately pro rated for any period of
less than three months and adjusted for any share issuances or
repurchases during the current quarter.
(ii) The second part of the Incentive Fee (the
Capital Gains Fee) will be determined and payable in arrears
as of the end of each fiscal year (or upon termination of this
Agreement as set forth below), commencing on March 31, 2009, and
will equal 20.0% of the realized capital gains of the Company
for the 2008 calendar year, if any, computed net of all realized
capital losses and unrealized capital depreciation at the end of
such year; provided that the Capital Gains Fee determined as of
March 31, 2009 will be calculated for a period of shorter than
twelve calendar months to take into account any net realized
capital gains, if any, computed net of all realized capital
losses and unrealized capital depreciation for the period ending
March 31, 2009. The amount of capital gains used to determine
the Capital Gains Fee shall be calculated at the end of each
applicable year by subtracting the sum of the Cumulative Aggregate Realized
Capital Losses and Aggregate Unrealized Capital Depreciation of the Company
from the Cumulative Aggregate Realized Capital Gains. If this number is
positive at the end of such year, then the Capital Gains Fee for such year
is equal to 20.0% of such amount, less the aggregate amount of any Capital
Gains Fees paid in all prior years. In the event that the Agreement
terminates as of a date that is not a calendar year end, the termination date
is treated as though it were a calendar year end for purposes of calculating
and paying a Capital Gains Fee.
A copy of the Amended Investment Advisor Agreement with United EcoEnergy
Advisors LLC is attached to the Proxy Statement filed with the SECD on June 19,
2006 as Appendix C
-30-
Item 14. Principal Accounting Fees and Services.
AUDIT FEES
The aggregate fees billed for each of the fiscal years ended December 31,
2006 and 2005 for professional services rendered by the principal accountant
for the audit of the registrant's annual financial statements and review of the
financial statements included in the registrant's previously filed Forms 10-Q
or services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years, were
$6,168 and $1,250, respectively.
AUDIT RELATED FEES
None
TAX FEES
None
ALL OTHER FEES
None
PRE-APPROVAL POLICIES AND PROCEDURES
The Company Board of Director policy is to pre-approve all audit and
permissible non-audit services to be provided by the independent registered
public accounting firm. These services may include audit services, audit-
related services, tax services and other services. Pre-approval is generally
provided for up top one year and any pre-approval is detailed as to the
particular service or category of services and is generally subject to a
specific budget. The independent registered public accounting firm and
management are required to report periodically to the Audit Committee of the
Board of Directors regarding the extent of services provided by the
independent registered public accounting firm in accordance with this pre-
approval, and the fees for the services performed to date. The Audit Committee
of the Board of Directors may also pre-approve particular services in a case-
by-case basis. For all periods after the Company election to be treated as a
BDC, all of these functions are undertaken by the independent Audit Committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following exhibits are filed with this report, except those
indicated as having previously been filed with the Securities and Exchange
Commission and are incorporated by reference to another report, registration
statement or form. As to any shareholder of record requesting a copy of this
report, the Company will furnish any exhibit indicated in the list below as
filed with this report upon payment to the Company of its expenses in
furnishing the information. Any references to the "the Company" means
United EcoEnergy Corp. and its predecessor by name change, MSN Eagle Equity
Group III, Inc.
Reference
1A.1 Amended Designation of Preferences for Series A Convertible
Preferred Stock........................................................ 1
-31-
3.1 Certificate of Incorporation of the Company as filed with the
Nevada Secretary of State on February 28, 1997 ........................ 2
3.1.1 Amendment of the Certificate of Incorporation to change corporate
name to United EcoEnergy Corp.......................................... 1
Amended Investment Advisory Agreement ................................. 1
3.4 Bylaws of the Company ................................................. 3
4.1 Specimen common stock certificate...................................... 2
10.1 1997 Compensatory Stock Option Plan of the Company..................... 2
10.2 1997 Employee Stock Compensation Plan of the Company................... 2
14 Code of Ethics......................................................... 1
31 Certification of the Chief Executive Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.......................... 1
32 Certification of the 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 ...................... 1
Reference
1 Filed as an Exhibit to the Proxy Statement dated June 19, 2006
2 Filed as an exhibit to the Registration Statement on Form 10SB-12G (File
No. 0-27781) of the Registrant and incorporated by reference.
3 Filed herewith as an exhibit.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm............ F-1
Balance Sheets as of December 31, 2006 and 2005.................... F-2
Statements of Operations for the years ended December 31, 2006
and 2005....................................................... F-3
Statements of Changes in Stockholders' Deficit for the years
ended December 31, 2006 and 2005............................... F-4
Statements of Cash Flows for the years ended December 31, 2006 and
2005........................................................... F-5
Notes to Financial Statements ..................................... F-6
-32-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
To the Board of Directors and
Stockholders of United EcoEnergy Corp.
We have audited the accompanying balance sheets of United EcoEnergy Corp. as of
December 31, 2006 and 2005, and the related statements of operations, changes
in stockholders equity, and cash flows for each of the years in the two-year
period ended December 31, 2006. These financial statements are the
responsibility of the company s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company?s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our 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 United EcoEnergy Corp. as of
December 31, 2006 and 2005, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2006
in conformity with accounting principles generally accepted in the United
States of America.
/s/ Berman Hopkins Wright & LaHam, CPAs & Associates, LLP
March 10, 2007
Winter Park, Florida
F-1
UNITED ECOENERGY CORP.
BALANCE SHEETS
December 31, December 31,
2006 2005
--------------- -----------------
Assets:
Cash and cash equivalents $ 24,169 $ -
Due from affiliate 6,800 -
Rent deposit 972 -
----------- ------------
Total Current Assets 31,941 -
Other Assets:
Investments in Portfolio Companies - -
----------- ------------
Total Assets $ 31,941 -
=========== ============
Liabilities and Stockholders?
Equity (Deficit)
Accounts payable $ 2,666 $ -
Due to affiliate 90,000 -
Due to officer/stockholder - 21,880
---------- ------------
Total Short term Liabilities 92,666 21,880
Long term Liabilities: - -
---------- ------------
Total Liabilities 92,666 21,880
----------- ------------
Commitments and contingencies
Stockholders? Equity (Deficit):
Common stock, par value $0.001
authorized 150,000,000 shares,
issued 28,781,639 shares at
December 31, 2006 and 28,468,900 at
December 31, 2005 28,782 285
Convertible preferred stock, par value
$0.001, authorized 5,000,000 shares,
issued 1,000,000 shares and 0 shares at
December 31, 2006 and December 31, 2005,
respectively 1,000 -
Additional paid-in capital 126,742 3,924
Accumulated deficit (217,249) (26,089)
----------- ------------
Total Stockholder (Deficit): (60,725) (21,880)
----------- ------------
Total Liabilities and
Stockholders? (Deficit): $ 31,941 $ -
========== ===========
Net Asset value per common share $ (0.00211) $ (0.00077)
The accompanying notes are an integral part of these financial statements.
F-2
UNITED ECOENERGY CORP.
SCHEDULE OF INVESTMENTS
December 31, 2006
Portfolio Industry Amount Cost Fair % of
Investments or Number Value Net assets
------------------- --------- ----------- -------- --------- -----------
-- -- -- $ - $ - -
-------- --------- -----------
Total $ - $ - -
======== ========= ===========
The accompanying notes are an integral part of these financial statements.
F-3
UNITED ECOENERGY CORP.
STATEMENTS OF OPERATIONS
For the years ended December 31,
2006 2005
---------- ----------
Investment income:
Interest income $ - $ -
Dividend income - -
Other income - -
---------- ----------
Total income - -
Operating expenses:
Investment advisory fees
Base fee - -
Incentive fee - -
Capital gains fee - -
---------- ----------
Total investment
advisory fees - -
General & administrative:
Consulting expenses 173,120 12,500
Rent expense 4,950 -
Professional fees 6,168 1,250
Transfer agent 4,566 -
Other expenses 2,356 1,751
---------- ----------
Total operating costs 191,160 15,501
---------- ----------
Net investment loss (191,160) (15,501)
---------- ----------
Net realized income from
disposal of investments - -
Net unrealized appreciation
in investments - -
---------- ----------
Net decrease in stockholders?
equity resulting from
operations $(191,160) $(15,501)
=========== ===========
Basic and diluted net decrease
in stockholders? equity per
common share resulting from
operations $ (0.0067) $ (0.0003)
=========== ==========
Weighted number of common shares
outstanding-basic 28,615,252 52,094,300
=========== ==========
Weighted number of common shares
outstanding-diluted 41,725,428 52,094,300
=========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
UNITED ECOENERGY CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS? EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 2006 AND 2005
Additional
Shares Par Value Paid-in
Accumulated
Common Preferred Common Preferred Capital
Deficit Total
--------- --------- --------- --------- -------- -----
--- --------
Balance at
December 31, 2004 647,584 - $ 648 - $ 4,287
$(10,588) $( 5,653)
Share repurchase (362,895) - (363) - (363)
- (726)
Net loss - - - - -
(15,501) (15,501)
----------- --------- --------- -------- -------- -------
-- --------
Balance at
December 31, 2005 284,689 - 285 - 3,924
(26,089) (21,880)
=========== ========= ========= ========= ========
========= ========
Stock split
(100 for 1) 28,468,900 - 28,184 - (28,184)
- -
Issuance of
convertible
preferred stock - 1,000,000 - 1,000 59,000
- 60,000
Issuance of common 177,600 - 178 - 44,222
- 44,400
Issuance of common 40,600 - 41 - 10,059
- 10,100
Issuance of common 94,539 - 94 - 37,721
- 37,815
Net loss - - - - -
(191,160) (191,160)
---------- --------- --------- ------- --------- ------
--- ---------
Balance at
December 31, 2006 28,781,639 1,000,000 $ 28,782 $ 1,000 $126,742
$(217,249) $ (60,725)
F-5
UNITED ECOENERGY CORP.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 2006 and 2005
For the years ended
December 31, 2006 December 31, 2005
----------------- ----------------
Cash flows from operating activities:
Net decrease in stockholders? equity
from operations $ (191,160) $ (15,501)
Adjustments to reconcile net decrease
in stockholders? equity from
operations to net cash (used) provided
by operating activities:
Decrease in accounts payable (19,214) (870)
Due to affiliate 90,000 17,097
Deposits (972) -
Due from affiliate (6,800) -
----------- ---------
Net cash (used)provided
by operating activities (128,146) 726
----------- ---------
Cash flow from financing activities:
Net proceeds from issuance of preferred
stock 60,000 -
Net proceeds from issuance of common
stock 92,315 -
Repurchase of common stock - (726)
----------- ----------
Net cash provided (used) by financing
activities 152,315 (726)
----------- ----------
Net increase in cash 24,169 -
Cash, beginning of period - -
----------- ---------
Cash, end of period $ 24,169 $ -
=========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 1. Organization and Financial Statement Presentation
United EcoEnergy Corp. (United EcoEnergy or Company), a Nevada corporation,
was organized on February 28, 1997 and is a closed-end investment company that
filed an election to be treated as a business development company (BDC) under
the Investment Company Act of 1940, (the 1940 Act) in February 2006. Prior to
the election to be treated as a BDC, the Company had been a development stage
company and had not engaged in any operating business activity. As a result of
the election to be treated as a BDC under the 1940 Act and the commencement of
its operations as a BDC, the Company was no longer a shell company and filed
the necessary information regarding the change of its status in its Form 10-K
report for the year ended December 31, 2005.
As a BDC, the company is subject to the filing requirements of the Securities
Exchange Act of 1934 and has elected to be subject to Sections 55 to 65 of
the 1940 Act, which apply only to BDCs. The Company is not a registered
investment company under the 1940 Act, however, and is not required to file
the semi-annual and annual reports required to be filed by registered
investment companies under Section 30 of the 1940 Act. As a BDC, the
Company also is not eligible to file its periodic reports under the 1934 Act
as a small business issuer, and therefore files its periodic reports on
applicable Forms 10-Q and 10-K, rather than Forms 10-KSB or 10-QSB. As a BDC,
the Company also is subject to the normal financial reporting requirements of
Regulation S-X issued by the SEC, but is not subject to Section 6 of
Regulation S-X, which provides specific rules for financial reporting of
registered investment companies.
The Company intends to focus primarily on investments in alternative energy
companies, including bio-fuel companies, and expects to invest, under normal
circumstances, at least 80 percent of its net assets (including the amount of
any borrowings for investment purposes) in these companies. At December 31,
2006, the Company had no net assets invested in alternative energy companies
but has signed letters of intent to acquire portfolio investments, subject to
funding. The Company expects to concentrate on making investments in
alternative energy companies having annual revenues of less than $250.0
million and in transaction sizes of less than $55.0 million. In most cases,
these companies will be privately held or have thinly traded public equity.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
financial information and the instructions to Form 10-K, including Regulation
S-X. As a BDC, and therefore as a non-registered investment company, the
Company is subject to the normal financial reporting rules of Regulation S-X,
as adopted by the SEC, in accordance with Regulation S-X 5.01. It is
specifically not subject to Section 6 of Regulation S-X, governing the
financial reporting of registered investment companies. The accompanying
financial reports have been prepared in accordance with the requirements of
Regulation S-X, as explained and interpreted in the Audit and Accounting Guide
for Investment Companies of the American Institute of Certified Public
Accountants (May 1, 2006)(the Audit Guide).
F-7
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 1. Organization and Financial Statement Presentation (continued)
Information presented for the period ended December 31, 2005 has been restated
To conform to the reporting requirements for a business development company for
comparison purposes, although the Company did not elect business development
company status until February, 2006. Management considers this restatement to
be a change in classification and not a change in accounting. Retrospective
application has been given to prior periods in accordance with SFAS No. 154.
In February, 2006, the Company implemented a 100 for 1 forward split of its
common shares. The stock split was given retroactive treatment in the
accompanying financial statements.
On June 30, 2006, the Company accepted subscriptions for 177,600 common shares
under a Regulation E, 1-E exemption offering, for a total of $44,400. Of the
total amount subscribed, $34,650 was received on June 30, 2006 and the balance
of $9,750 was reported as a subscription receivable at June 30, 2006. This
balance was collected during July, 2006. On August 13, 2006, the Company
accepted additional subscriptions for 40,600 common shares under the 1-E
offering, for a total of $10,150, all of which was received by check or wire
transfer from the subscribers. On August 22, 2006, the Company accepted
subscriptions for 94,539 common shares under the 1-E offering, for a total of
$37,815, which was received by wire transfer. As a result, 28,781,639 common
shares were outstanding as of September 30, 2006.
No common shares were issued during the quarter ending December 31, 2006.
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reported period. Changes in the economic environment,
financial markets and any other parameters used in determining these
estimates could cause actual results to differ.
The following are significant accounting policies consistently applied by the
Company and are based on Chapter 7 of the Audit Guide, as modified by
Appendix A thereof:
Investments:
(a) Security transactions are recorded on a trade-date basis.
F-8
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 2. Significant Accounting Policies (continued)
(b) Valuation:
(1) Investments for which market quotations are readily available are valued
at such market quotations.
(2) Short-term investments which mature in 60 days or less, such as U.S.
Treasury bills, are valued at amortized cost, which approximates market value.
The amortized cost method involves valuing a security at its cost on the date
of purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost. Short-term
securities which mature in more than 60 days are valued at current market
quotations by an independent pricing service or at the mean between the bid
and ask prices obtained from at least two brokers or dealers (if available, or
otherwise by a principal market maker or a primary market dealer). Investments
in money market mutual funds are valued at their net asset value as of the
close of business on the day of valuation.
(3) It is expected that most of the investments in the Company?s portfolio
will not have readily available market values. Debt and equity securities
whose market prices are not readily available are valued at fair value, with
the assistance of an independent valuation service, using a valuation policy
and a consistently applied valuation process which is under the
direction of our board of directors.
The factors that may be taken into account in fairly valuing investments
include, as relevant, the portfolio company ability to make payments, its
estimated earnings and projected discounted cash flows, the nature and
realizable value of any collateral, the financial environment in which the
portfolio company operates, comparisons to securities of similar publicly
traded companies and other relevant factors. Due to the inherent uncertainty
of determining the fair value of investments that do not have a readily
available market value, the fair value of these investments may differ
significantly from the values that would have been used had a ready market
existed for such investments, and any such differences could be material.
As part of the fair valuation process, the Audit Committee of the Company
will review the preliminary evaluations prepared by the Investment Advisor
engaged by the Board of Directors, as well as managements valuation
recommendations and the recommendations of the Investment Committee.
Management and the Investment Advisor will respond to the preliminary
evaluation to reflect comments provided by the Audit Committee. The Audit
Committee will review the final valuation report and managements valuation
recommendations and make a recommendation to the Board of Directors based
on its analysis of the methodologies employed and the various valuation
factors as well as factors that the Investment Advisor and management may
not have included in their evaluation processes. The Board of Directors
then will evaluate the Audit Committee recommendations and undertake a
similar analysis to determine the fair value of each investment in
the portfolio in good faith.
F-9
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 2. Significant Accounting Policies (continued)
(c) Realized gains or losses on the sale of investments are calculated using
the specific identification method.
(d) Interest income, adjusted for amortization of premium and accretion of
discount, is recorded on an accrual basis.
(e) Dividend income is recorded on the ex-dividend date.
(f) Loan origination, facility, commitment, consent and other advance fees
received by us on loan agreements or other investments are accreted into
income over the term of the loan.
Federal and State Income Taxes:
The Company has not elected to be treated as, and is not, a regulated
investment company and does not presently intend to comply with the
requirements of the Internal Revenue Code of 1986 (the Code), applicable
to regulated investment companies. A regulated investment company is
required to distribute at least 90% of its investment company taxable
income to shareholders, which the Company does not expect to do for the
foreseeable future. Therefore, the Company must make appropriate provision
for income taxes in accordance with SFAS 109, Accounting for Income Taxes,
using the liability method, which requires the recognition of deferred assets
and liabilities for the expected future tax consequences of temporary
differences between carry amounts and tax basis of assets and
liabilities. At December 31, 2006, the Company has approximately $217,249
of net operating loss carry-forwards available to affect future taxable
income and has established a valuation allowance equal to the tax benefit of
the net operating loss carry-forwards as realization of the asset is not
assured. The net operating loss carry-forwards may be limited under the
change of control provisions of the Internal revenue Code, Section 382.
Dividends and Distributions:
Dividends and distributions to common stockholders will be recorded on the
ex-dividend date. The amount, if any, to be paid as a dividend will be
approved by the board of directors each quarter and will be generally based
upon managements estimates of our earnings for the quarter and our investment
needs. Net realized capital gains, if any, will be reviewed at least
annually as part of any distribution determination.
Consolidation:
As an investment company, the Company will only consolidate subsidiaries which
are also investment companies. At December 31, 2006, the Company did not have
any consolidated subsidiaries.
F-10
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 2. Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In July, 2006, the Financial Accounting Standards Board issued FASB
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes-
An Interpretation of FASB Statement No, 109. (FIN 48). Fin 48 clarifies
the accounting for uncertainty in income taxes recognized in an
enterprise?s financial statements in accordance with FASB Statement No.
109-Accounting for Income Taxes. FIN 48 also prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The provisions of FIN 48 are effective for fiscal
years beginning after December 15, 2006. We will adopt FIN 48 in the first
quarter of 2007. We do not believe the effect of adopting FIN 48 will have a
material impact on our financial statements.
Note 3. Portfolio Investments
As required by the 1940 Act, we will classify our investments by level of
control. As defined in the 1940 Act, control investments are those where there
is the ability or power to exercise a controlling influence over the management
or policies of a company. Control is generally viewed to exist when a
company or individual owns 25% or more of the voting securities of an investee
company. Affiliated investments and affiliated companies are defined by a
lesser degree of influence and are deemed to exist through ownership of an
amount greater than 5% but less than 25% of the voting securities of the
investee company. The Company currently has no controlled or affiliated
investments.
Note 4. Related Party Agreements and Transactions.
Investment Advisory Agreement
The Company has entered into an Investment Advisory Agreement
with United EcoEnergy Advisors, LLC (the Investment Advisor)
under which the Investment Advisor, subject to the overall
supervision of the board of directors of the Company, will manage
the day-to-day operations of, and provide investment advisory
services to, the Company. United EcoEnergy Advisors, LLC is
owned equally by William K. Mackey, Patrick Donelan and Adam
Mayblum. Mr. Mayblum and Mr. Donelan are also the equal owners
of Enterprise Partners, LLC, our majority Common Stockholder and
the holder of our Series A Convertible Preferred shares at the end of the
quarter. Mr. Mayblum also serves as a director of the Company and Mr.
Mackey is a director and our Chief Executive Officer.
For providing these services the Investment Advisor will receive
a fee from the Company, consisting of two components--a base
F-11
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 4. Related Party Agreements and Transactions (continued)
management fee and an incentive fee. The base management fee
will be calculated at an annual rate of 2.00% on the gross
assets of the Company (including amounts borrowed). The base management
fee is payable quarterly in arrears based on the average value
of the Company?s gross assets at the end of the two most
recently completed calendar quarters and appropriately adjusted
for any share issuances or repurchases during the current
calendar quarter. Base management fees for any partial month or
quarter will be appropriately pro rated.
Under the terms of the original Agreement, the Base Management Fee would
not be lower than $25,000 per month for the first two years of
the term of the Agreement; however, the Investment Advisor agreed with
the Company to eliminate the minimum fee, and the Company amended the
Agreement accordingly. The Amended Investment Advisory Agreement was
submitted to the shareholders of the Company for approval at the Annual
Meeting of shareholders held on June 30, 2006. The common shareholders,
other than Enterprise Partners which abstained, unanimously approved the
Amended Investment Advisory Agreement and the appointment of United
EcoEnergy Advisers, LLC as the investment adviser for the Company at the
Annual Meeting
No investment advisory fees have been accrued for the year ended December 31,
2006.
On April 1, 2006, the Company entered into a Consulting Agreement with
William Mackey, the President and CEO, to cover his services until such
time as the Company completes its first portfolio investment in the
alternative energy and appoints a permanent CEO. Under the terms of the
Consulting Agreement, Mr. Mackey is entitled to an initial signing amount of
$22,500 and thereafter to a monthly consulting fee of $7,500, payable on the
15th of each month. These amounts are accrued as Amounts Due to
Officer. On April 10, 2006, Enterprise Partners advanced the $22,500 for the
sign-on bonus to Mr. Mackey, and that amount was reflected as an Amount
Due to Affiliate of $22,500 on the accompanying financial statements. As of
December 31, 2006, Enterprise Partners paid the additional accrued amounts
due to Mr. Mackey and the total accrued balance at December 31, 2006 of
$ 90,000 are reflected as accrued amounts Due to affiliate. The amounts due
are non-interest bearing and payable on demand.
Managerial Assistance
As a business development company, we will offer, and provide upon request,
managerial assistance to certain of our portfolio companies. This assistance
could involve monitoring the operations of our portfolio companies,
participating in board and management meetings, consulting with and advising
officers of portfolio companies and providing other organizational and
financial guidance. The Company expects to receive fee income for providing
these services.
F-12
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 5. Stockholders? Equity.
The following table reflects the changes in the stockholders? equity
(deficit) of the Company from December 31, 2005 to December 31, 2006:
Additional
Shares Par Value Paid-in Accumulated
Common Preferred Common Preferred Capital Deficit Total
--------- --------- --------- --------- -------- -------- --------
Balance at
December 31, 2005 284,689 - $ 285 $ - $ 3,924 $(26,089) $(21,880)
=========== ========= ========= ========= ======== ========= ========
Stock split
(100 for 1) 28,468,900 - 28,184 - (28,184) - -
Issuance of
convertible
preferred stock - 1,000,000 - 1,000 59,000 - 60,000
Issuance of common 177,600 - 178 - 44,222 - 44,400
Issuance of common 40,600 - 41 - 10,059 - 10,100
Issuance of common 94,539 - 94 - 37,721 - 37,815
Net loss - - - - - (191,160) (191,160)
----------- --------- --------- --------- -------- --------- ---------
Balance at
December 31, 2006 28,781,639 1,000,000 $ 28,782 $ 1,000 $126,742 $(217,249) $ (60,725)
The Company completed an exempt offering of common shares under Regulation
E, using Form 1-E, for a total of 218,200 common shares and $54,550, at a price
of $0.25 per share. A total of 177,600 shares were subscribed for and accepted
as of June 30, 2006, the common shares were issued as of that date, and all
but $9,750 of the total subscription was received as of June 30, 2006. The
remaining $9,750 was received by the Company in July, 2006. Subsequently, the
Company accepted subscriptions for 40,600 common shares on July 13,2006 and
received subscription proceeds of $10,150, all of which was received. In
August, 2006, the Company undertook a second offering of common shares under
the 1-E Notice, receiving subscriptions for 94,539 common shares at $0.40 per
share, for a total of $37,815.
As a result of these offerings, there were 28,781,639 common shares issued as
of December 31, 2006.
The Series A Convertible Preferred Stock is $0.001 par value stock, and may be
converted into common stock based on a formula under which conversion is equal
to 1 divided by the 30 day trailing average stock price of the common shares at
the time of the conversion election, but not more than 15 common shares for
each preferred share converted, or a maximum of 15 million common shares. No
conversion may occur until after one year from the date of issue. The Company
may redeem the Series A Convertible Preferred Stock in whole or in part
beginning 181 days after issue at $0.75 per share, and after 365 days from
issue at $0.95 per share. The Series A Convertible Preferred Stock
automatically converts into common stock following the second anniversary of
issue, at the formula price if not redeemed prior to that date.
F-13
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005
Note 5. Stockholders? Equity (continued)
In August, 2006, Enterprise Partners, LLC, our majority common shareholder and
the sole holder of our Series A Convertible Preferred Stock, transferred
25,370,600 of the common shares held by it, and also conveyed 731,519 of the
Series A Convertible Preferred shares held by it to its debenture holders (23
persons) As a result of these transactions, Enterprise Partners, LLC holds
1,567,700 shares of our common stock, representing approximately 5.47 percent
Of our undiluted common stock outstanding, and 268,481 shares of our Series A
Convertible Preferred Stock, representing 26.8 percent of the 1,000,000 shares
outstanding, and convertible into a maximum of 4,020,000 shares of our common
stock. Therefore, Enterprise Partners, LLC now holds a total of approximately
12.8 percent of our common stock on a fully diluted basis, giving effect to the
maximum conversion of the Series A Convertible Preferred Stock held by it.
Note 6 FINANCIAL HIGHLIGHTS
Financial Highlights
The following is a schedule of financial highlights for the years ended
December 31, 2006 and December 31, 2005:
CHANGES IN NET ASSET VALUE
For the years ended
December 31, 2006 December 31, 2005
---------------- -----------------
Net asset value at
beginning of period (1) $ (0.00077) $ (0.00021)
Proceeds from preferred stock 0.00209 -
Proceeds from common stock 0.00321 -
Net investment income (0.00664) (0.00056)
Net unrealized appreciation - -
------------- --------------
Net asset value, end of period (2) $ (0.00211) $ (0.00077)
(1) Financial highlights as of December 31, 2006 and December 31, 2005 are
based on 28,781,639 and 28,468,900 common shares outstanding, respectively,
giving effect to the 100 for 1 forward split. On a fully diluted basis, there
would be 43,781,639 shares outstanding as of December 31, 2006, based on
conversion of the Series A Convertible Preferred Stock into 15 million common
shares, the maximum conversion possible under the terms of the Series A
Preferred Stock, and treating those shares as outstanding as of the date of
their issuance at the end of February, 2006.
(2) Total return based on net asset value is based upon the change in net
asset value per share between the opening and ending net asset values per
share in each period. The total return is not annualized.
F-14
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report on Form 10-K to be signed on its behalf
by the undersigned, thereto duly authorized individual.
Date: March 13, 2007
United EcoEnergy Corp.
/s/ William K. Mackey
By....................................
William K. Mackey, Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Name Title Date
/s/ William K. Mackey
............................ Director, Chief Executive March 13, 2007
William K. Mackey Officer, and Chairman
/s/ William L. Sklar
............................ Director March 13, 2007
William L. Sklar
/s/ Adam Mayblum Director March 13, 2007
............................
Adam Mayblum
/s/ Alec Hoke Director March 13, 2007
............................
Alec Hoke
/s/ John Paul DeVito Director March 13, 2007
............................
John Paul DeVito
-33-