UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2007
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)
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 whether the Registrant is an accelerated filer
(as defined by Rule 12b-2 of the Act). Yes [ ] No [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 ]
The number of shares of the Registrant?s Common Stock, $0.001 par
value, outstanding as of November 1, 2007, was 28,781,639 shares.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 2007 and December 31, 2006 F-1
Schedule of Investments as of September 30, 2007 F-2
Statements of Operations for the three and Nine-month periods
ended September 30, 2007 and 2006 F-3
Statements of Cash Flows for the Nine-month periods ended
September 30, 2007 and 2006 F-4
Notes to Financial Statements F-5
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 3
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
Item 4. Controls and Procedures 9
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
UNITED ECOENERGY CORP.
BALANCE SHEETS
September 30, 2007 December
31,
2006
(unaudited)
--------------- --------------
--
Assets:
Cash and cash equivalents $ 115 $ 24,169
Due from affiliate 18,300 6,800
Rent deposit 972 972
------------ ------------
Total Current Assets 19,387 31,941
Other Assets:
Investments in Portfolio Companies - -
------------ ------------
Total Assets $ 19,387 31,941
============ ============
Liabilities and Stockholders?
Equity (Deficit)
Accounts payable $ 37,899 $ 2,666
Due to affiliate 149,600 90,000
Short term loans 80,000 -
Accrued interest 3,867 -
------------ ------------
Total Current Liabilities 271,366 92,666
Long Term Liabilities: - -
------------ -------------
Total Liabilities 271,366 92,666
------------ -------------
Commitments and Contingencies
Stockholders? Equity (Deficit):
Common stock, par value $0.001
authorized 150,000,000 shares,
issued 28,781,639 shares at
September 30, 2007 and December 31, 2006 28,782 28,782
Convertible preferred stock, par value
$0.001, authorized 5,000,000 shares,
issued 1,000,000 shares at September 30,
2007 and December 31, 2006. 1,000 1,000
Additional paid-in capital 126,742 126,742
Accumulated deficit (408,503) (217,249)
------------ ------------
Total Stockholders? Equity (Deficit): (251,979) (60,725)
------------ ------------
Total Liabilities and
Stockholders? Equity (Deficit): $ 19,387 $ 31,941
============ ============
Net Asset value per common share $ (0.00875) $ (0.00211)
The accompanying notes are an integral part of these financial statements.
F-1
UNITED ECOENERGY CORP.
SCHEDULE OF INVESTMENTS (unaudited)
September 30, 2007
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-2
UNITED ECOENERGY CORP.
STATEMENTS OF OPERATIONS
For the three and nine months ended
September 30, 2007 September 30, 2006
(unaudited) (unaudited)
3 months 9 months 3 months 9 months
---------- ---------- ---------- ----------
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 50,000 172,500 52,500 130,620
Rent expense 1,350 4,050 2,700 4,950
Professional fees 2,333 8,499 2,334 3,834
Other expenses 1,704 6,205 4,178 6,562
---------- ---------- ---------- ----------
Total operating costs 55,387 191,254 61,712 145,966
---------- ---------- ---------- ----------
Net investment loss (55,387) (191,254) (61,712) (145,966)
---------- ---------- ---------- ----------
Net realized income from
disposal of investments - - - -
Net unrealized appreciation
in investments - - - -
---------- ---------- ---------- ----------
Net decrease in stockholders
equity resulting from
operations $ (55,387) $(191,254) $ (61,712) $(145,966)
========== =========== ========== ==========
Basic and diluted net decrease
in stockholder equity per
common share resulting from
operations $ (0.0019) $ (0.0066) $ (0.0021) $ (0.0051)
========== =========== =========== =========
Weighted number of common shares
outstanding-basic 28,781,639 28,781,639 28,721,488 28,555,463
========== =========== =========== =========
Weighted number of common shares
outstanding-diluted 43,781,639 43,781,639 43,721,881 41,027,991
========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
UNITED ECOENERGY CORP.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
September 30, 2007 and 2006
(unaudited)
For the Nine months ended
September 30, 2007 September 30, 2006
Unaudited) (unaudited)
----------------- ----------------
Cash flows from operating activities:
Net decrease in stockholders? equity
from operations $ (191,254) $ (145,966)
Adjustments to reconcile net decrease
in stockholders? equity from
operations to net cash used
in operating activities:
Increase in accounts payable 35,233 -
Increase in amounts due to affiliate 59,600 67,500
Decrease in amounts due from affiliate (11,500) (10,500)
Increase in deposits - (972)
Decrease in amounts due to stockholder - (21,880)
Increase in accrued interest 3,867 -
------------ -----------
Net cash used in operating activities (104,054) (112,218)
Cash flows from financing activities:
Net proceeds from issuance of preferred
stock 60,000
Net proceeds from issuance of common
stock - 92,315
Net proceeds from issuance of short-
term debt 80,000 -
------------ -----------
Net cash provided by financing
activities 80,000 152,315
------------ -----------
Net increase (decrease) in cash (24,054) 40,097
Cash, beginning of period 24,169 -
------------ -----------
Cash, end of period $ 115 $ 40,097
============ ===========
The accompanying notes are an integral part of these financial statements.
F-4
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 1. Organization and Interim Financial Statements
United EcoEnergy Corp. (United EcoEnergy or the Company), a Nevada
corporation,
was organized in February, 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 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 original focus of the Company was primarily on investments in alternative
energy companies, including bio-fuel companies. Changes in the alternative
energy market and the inability to locate or close on suitable portfolio
investments in this market has lead the Company to re-think its market focus,
a process which is on-going. At September 30, 2007, the Company had no net
assets invested in alternative energy companies or other portfolio companies.
The accompanying financial statements are un-audited and have been prepared
in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and the instructions to Form
10-Q, including Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in audited financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited financial
statements that were included in the Form 10-K filed by the Company for the
year ended December 31, 2006. 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-5
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 1. Organization and Interim Financial Statements (continued)
Operating results for the interim periods presented are not necessarily
indicative of the results to be expected for a full year.
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:
Investments:
(a) Security transactions are recorded on a trade-date basis.
(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 where the board of
directors
considers that advisable, using a valuation policy and a consistently applied
valuation process which is under the direction of our board of directors.
F-6
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 2. Significant Accounting Policies (continued)
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 management?s 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.
(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
F-7
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 2. Significant Accounting Policies (continued)
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 September 30, 2007, the Company has approximately $408,000
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 management? 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 September 30, 2007, the Company did not
have
any consolidated subsidiaries.
Recent Accounting Pronouncements
In September 2006, the FASB issued FAS No. 157, ?Fair Value Measurements?,
which establishes a framework for reporting fair value and expands disclosure
about fair value measurements. FAS 157 is effective for the Company?s 2008
fiscal year. The Company is currently evaluating the impact of this standard
on its financial statements.
In February 2007, the FASB issued FAS No. 159, ?The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115. FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. FAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company
is currently evaluating the impact of adopting FAS 159 on its financial
statements.
F-8
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
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 provide investment advisory services to the Company. United
EcoEnergy Advisors, LLC is owned equally by Patrick Donelan and Adam Mayblum.
Mr. Mayblum and Mr. Donelan are also the equal owners of Enterprise Partners,
LLC, which holds 1,567,700 of our common stock, representing approximately
5.47 percent of the common shares outstanding, and 268,481 shares of our
Series A Convertible Preferred Stock, representing about 26.8 percent of that
class outstanding. Mr. Mayblum also serves as a director of the Company.
For providing these services the Investment Advisor will receive a fee from
the
Company, consisting of two components--a base management fee and an incentive
fee. The base management fee will be calculated at an annual rate of 2.00
percent 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.
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
F-9
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 4. Related Party Agreements and Transactions (Continued)
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 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.
No investment advisory fees have been accrued for the quarter ended
September 30, 2007.
F-10
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 4. Related Party Agreements and Transactions (Continued)
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 completed its first portfolio investment in the
alternative energy market and appoints a permanent CEO. Under the terms
of the Consulting Agreement, Mr. Mackey was 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. Enterprise Partners has paid
the accrued amounts due to Mr. Mackey through July, 2007.and the total
accrued balance at September 30, 2007 of $149,600 is reflected as accrued
amounts due to affiliate. The amounts due are non-interest bearing and
payable on demand. In October, 2007, Mr. Mackey resigned as Chairman and
CEO of the Company and his consulting agreement was terminated. A
balance of $22,500 is due to Mr. Mackey under his Consulting Agreement
through October, 2007, and Mr. Mackey has agreed to defer payment of the
amount due until the Company has received an additional $500,000 in
capital contributions. The $22,500 due to Mr. Mackey is included in
accounts payable.
Amounts due from affiliate totaling $18,300 at September 30, 2007
represent short-term, non-interest bearing advances to an affiliated
company.
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.
Note 5. Stockholders? Equity.
The Company issued no common or preferred shares in the quarter ended
September
30, 2007. The Company Form 10-K report for the year ended December 31, 2006
contains a table setting forth all of the shares of common and preferred
stock
issued from inception through December 31, 2006.
As a result, there were 28,781,639 common shares issued as of September 30,
2007 and 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
F-11
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 5. Stockholders? Equity (continued)
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.
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 part of the termination of the Consulting Agreement with Mr.
Mackey, he agreed to return to Enterprise Partners a total of 8,440,200
shares of common stock which he had agreed to purchase from Enterprise,
but for which he had not yet made payment.
As a result of these transactions, Enterprise Partners, LLC holds
10,007,900 shares of our common stock, representing approximately 34.77
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
32.0 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 nine months ended
September 30, 2007 and for the twelve months ended December 31, 2006:
CHANGES IN NET ASSET VALUE
For the For the
nine months twelve months
ended ended
September 30, 2007 December 31, 2006
---------------- -----------------
Net asset value at
beginning of period (1) $ (0.00211) $ (0.00077)
Proceeds from preferred stock - 0.00209
Proceeds from common stock - 0.00321
Net investment income (0.00019) (0.00664)
Net unrealized appreciation - -
------------- --------------
Net asset value, end of period (2) $ (0.00023) $ (0.00211)
F-12
UNITED ECOENERGY CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED September 30, 2007
(unaudited)
Note 6. FINANCIAL HIGHLIGHTS (continued).
(1) Financial highlights as of September 30, 2007 and December 31, 2006 are
based on 28,781,639 common shares outstanding, giving effect to the 100 for 1
forward split. On a fully diluted basis, there would be 43,781,639 shares
outstanding as of September 30, 2007, 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.
Note 7. OTHER MATTERS
On February 1, 2007, the Company borrowed the sum of $50,000 from an existing
minority shareholder for a six month term with interest due at maturity at
the
rate of 9 percent per year. The Company also issued a warrant to purchase
8,000
shares of common stock at an exercise price of $0.40 per share for a period
of
two years.
On March 27, 2007, the Company borrowed the sum of $30,000, $15,000 each from
two unrelated parties for a six month term with interest due at maturity at
the
rate of 9 percent per year. The Company also issued a warrant to purchase
3,000
shares of common stock to each of the parties at an exercise price of $0.40
per
share for a period of two years.
A total of $3,867 in interest has been accrued on the above loans as of
September 30, 2007.
The borrowed funds were used as general working capital for the Company.
F-12
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
This quarterly report on Form 10-Q 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 quarterly report
represent our estimates as of the date of this quarterly report. We
specifically disclaim any obligation to update these forward-looking
statements in the future. Some of the statements in this quarterly report
constitute forward-looking statements, which relate to future events or our
future performance or financial condition. Such forward-looking statements
contained in this quarterly 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-Q, as well as the risk
factors included in our Form 10-K filed for the year ended December 31, 2006.
Overview
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, 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, 269,689 common shares, representing 94.7 percent of the outstanding
shares, were purchased by Enterprise Partners, LLC, 11,000 shares were
purchased by Peachtree Consultants, LLC, and 4,000 shares were purchased by
Fairmont East Finance, Ltd. As a result of this change of control, our then
sole director and president, Stephen Siedow, resigned effective February 22,
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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.
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 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 Value
of
Price (1/per share price) on conversion of Common Stock
Preferred
------------------ ---------------- --------------- --------------- ------
---
0.0001 10,000.00 10,000,000,000 15,000,000 $
1,500
0.0003 3,333.33 3,333,333,333 15,000,000
4,500
0.0007 1,428.57 1,428,571,429 15,000,000
10,500
0.0014 714.29 714,285,714 15,000,000
21,000
0.0021 476.19 476,190,476 15,000,000
31,500
0.0042 238.10 238,095,238 15,000,000
63,000
0.0050 200.00 200,000,000 15,000,000
75,000
0.0075 133.33 133,333,333 15,000,000
112,500
0.0100 100.00 100,000,000 15,000,000
150,000
0.1000 10.00 10,000,000 10,000,000
1,000,000
0.5000 2.00 2,000,000 2,000,000
1,000,000
0.7500 1.33 1,333,333 1,333,333
1,000,000
1.0000 1.00 1,000,000 1,000,000
1,000,000
The Common shares of the Company did not then trade on an over-the-counter
market or exchange; however, based on the total acquisition price of the
Common
shares purchased from our former sole shareholder in February, 2006, the
shares
were purchased for the equivalent of $0.0006 per share in an arms? length
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transaction. This amount was in excess of the undiluted net asset value of
the
Common shares at the time.
In January, 2007, our common shares were admitted for quotation on the OTC
Bulletin Board under the symbol UEEC.
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
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% of net
assets in alternative energy companies.
As of September 30, 2007, we had not yet made any portfolio or other
investments. However, we had signed a letter of intent for the acquisition of
GEI Development, LLC, which is engaged in waste management and related
services,
subject to our obtaining funding.
In October, 2007, the letter of intent to acquire GEI Development, LLC,
expired, after several extensions, and the Company has abandoned any further
interest in acquiring GEI Development, LLC. In addition, the Company is in
the
process of re-evaluating its investment focus, as rising prices and
underperformance in the target market sector of bio-fuels and alternative
energy, and is considering other potential market segments.
As a result of the change in market focus and other reasons, the Company
and its former Chairman and CEO, William K. Mackey, agreed to Mr.
Mackey?s resignation from the Company and the termination of his Consulting
Agreement, and the deferral of his accrued consulting due of $22,500
through October, 2007, until the Company has raised an additional $500,000
of working capital. Mr. Mackey also resigned from United EcoEnergy
Advisors, LLC, the investment advisor for the Company, and agreed to
return to Enterprise Partners, LLC a total of 8,440,200 shares of the
Common stock of the Company which he had agreed to purchase from Enterprise,
but for which he had not yet paid. At the same time, William L. Sklar, a
director of the Company who had originally been asked to join the Board
by Mr. Mackey, also resigned as a director. Mr. Sklar had been Chair of
the Audit Committee of the Company.
The resignations of Mr. Sklar and Mr. Mackey were reported by the Company
on Form 8-K filed with the SEC on October 16, 2007. The Company has not yet
elected replacements for Mr. Mackey and Mr. Sklar as it undertakes an
evaluation of the market segments on which it should focus its attention
for portfolio investments.
Operating Activities
As of September 30, 2007, we had not yet made any portfolio or other
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investments. Through the end of the Third Quarter of 2007, the
Company has expended over $200,000 in connection with its Business
Development Company activities.
Critical Accounting Policies
In determining the fair value of our investments, the Audit Committee will
consider valuations from an independent valuation firm, from our Investment
Committee and from management
Results of Operations
For the quarter ended September 30, 2007, we incurred consulting expenses of
$50,000, rent expense of $1,350 and other expenses totaling $4,037,
compared to consulting expenses of $52,500, rent expenses of $2,700 and
other expenses of $6,512 for the quarter ended September 30, 2006. Our
total expenses were $55,387 and $61,712, respectively for the quarters ended
September 30, 2007 and 2006. We had no income reported for either quarter.
Financial Highlights
Financial highlights of the Company for the period ending September 30, 2007
are included in Footnote 6 to our Financial Statements.
Investment Activity
There were no portfolio investments made during the three months ended
September 30, 2007.
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, 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 quarter ended September 30, 2007.
Operating Expenses
Operating expenses for the quarter ended September 30, 2007 are broken
Down as follows:
Consulting expenses $ 50,000
Rent 1,350
Other expenses:
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Accounting fees 2,333
Bank fees 71
Interest 1,600
Miscellaneous 33
---------
4,037
--------
Total operating expense 55,387
The consulting expenses were paid or due to our CEO, under his Consulting
Agreement ($22,500), and 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 $7,500 plus a contractual bonus payable at
the rate of $5,000 per month for five months commencing in February, 2007
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.
Net Investment Income, Net Unrealized Appreciation and Net Increase in
Stockholders? Equity Resulting from Operations
Our net investment income totaled $0 for the quarter ended September 30, 2007
compared to $0 for the quarter ended September 30, 2006 and $0 for the year
ended December 31, 2006. Net unrealized appreciation totaled $0 for the
quarter ended September 30, 2007 compared to $0 for the quarter ended
September 30, 2006 and $0 for the year ended December 31, 2006.
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 September
19,2006, and accepted subscriptions for a total of 312,739 common shares,
representing $92,366 in additional working capital.
On February 1, 2007, we borrowed the sum of $50,000 from an existing minority
shareholder for a Nine month term with interest due at maturity at the rate
of
9 percent per year. The Company also issued a warrant to purchase 8,000
shares
of common stock at an exercise price of $0.40 per share for a period of two
years. A total of $1,849 in interest has been accrued on this loan at
September
30, 2007. On March 27, 2007, the Company borrowed the sum of $30,000,
$15,000
each from two unrelated parties for a Nine month term with interest due at
maturity at the rate of 9 percent per year. The Company also issued a warrant
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to purchase 3,000 shares of common stock to each of the parties at an
exercise
price of $0.40 per share for a period of two years. A total of $351 in
interest has been accrued on each of these loans at September 30, 2007.
The borrowed funds were used as general working capital for the Company.
We generated no cash flows from operations during 2006 and the current year
to
date through September 30, 2007. 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.
Risk Factors
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A. Risk Factors in
our Annual Report on Form 10-K for the year ended December 31, 2006, which
could materially affect our business, financial condition or future results.
The risks described in our Annual Report on Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating results.
Item 3. 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 Nine months ended September 30,
2007
and the twelve months ended December 31, 2006, we did not engage in any
hedging
activities.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company carried out
an
evaluation, under the supervision and with the participation of our
management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 of the Securities Exchange Act of
1934).
Based on that evaluation, as of September 30, 2007, the Chief Executive
Officer
and the Chief Financial Officer have concluded that our current disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company that is required to be disclosed by the
Company in the reports it files or submits under the Securities Exchange Act
of
1934.
Internal Control Over Financial Reporting
Our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, is responsible for
establishing
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and maintaining adequate internal control over financial reporting, as such
responsibility is defined in Rule 13a-15(f) of the Securities Exchange Act of
1934, and for performing an assessment of the effectiveness of internal
control
of financial reporting. Internal control over financial reporting is a
process
designed to provide reasonable assurance regarding the reliability of
financial
reporting and the preparation of financial statements for external purposes
in
accordance with generally accepted accounting principles. Our internal
control
over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of
management
and directors of the company; and (iii) provide reasonable assurance
regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition
of assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance
of
achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
There have been no changes in our internal controls over financial reporting
that occurred during the three months ended September 30, 2007 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a defendant in any legal action arising out of its
activities. We are not aware of any other material pending legal proceeding,
and no such material proceedings are known to be contemplated, to which we
are
a party or of which any of our property is subject.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no sales or issues of any equity securities by the Company in the
quarter ended September 30, 2007.
As a result, there were 28,781,639 common shares issued as of September 30,
2007 and one million shares of Series A Convertible Preferred Stock issued at
September 30, 2007. 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
-9-
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.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits
Exhibit Description of Exhibit
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)/l5d-14(a)
32.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. 1350
32.2 Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. 1350
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
_/s/__Robert Hipple November 14, 2007
Robert Hipple
Chief Financial Officer
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