XOTC:EGCT Ecologic Transportation Inc Quarterly Report 10-Q Filing - 5/16/2012

Effective Date 5/16/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or

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

For the transition period from__________ to _________

Commission File Number 333-139045

 

ECOLOGIC TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)

Nevada 26-1875304
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

1327 Ocean Avenue, Suite B, Santa Monica, California 90401
(Address of principal executive offices) (Zip Code)

 

310-899-3900

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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.   [X] YES [ ] NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   [X] YES [ ] NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [   ]   Accelerated filer [    ]
Non-accelerated filer [   ]   Smaller reporting company [ X ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.  [ ] YES [X] NO

 

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

 

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. [ ] YES [ ] NO

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

26,245,038 common shares issued and outstanding as of May 11, 2012

 

 

 

 

 
 

 

 

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

Our unaudited interim consolidated financial statements for the three months ended March 31, 2012 form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.

These financial statements should be read in conjunction with the audited financial statements and notes included thereto for the year ended December 31, 2011, on Form 10K, as filed with the Securities and Exchange Commission.

 

 

 

 

 
 

 

 
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
             
    March 31, 2012     December 31, 2011  
ASSETS                
                 
Cash   $ 29,834     $ 29,550  
Accounts receivable, net     20,771       8,030  
Prepaid expenses and other current assets     5,247       12,003  
                 
Total Current Assets     55,852       49,583  
                 
Other Assets     8,060       7,694  
                 
TOTAL ASSETS   $ 63,912     $ 57,277  
                 
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)                
                 
LIABILITIES:                
Current Liabilities                
Accounts payable and accrued expenses   $ 670,554     $ 627,830  
Due to related parties     568,182       498,682  
Total Current Liabilities     1,238,736       1,126,512  
                 
Long term Liabilities                
Related party loans     1,591,740       1,556,469  
Notes & loans payable     166,575       307,392  
Total Long term Liabilities     1,758,315       1,863,861  
                 
Total Liabilities     2,997,051       2,990,373  
                 
                 
STOCKHOLDERS' (DEFICIT)                
Preferred stock, no par value, 10,000,000 shares authorized, no shares issued or outstanding            
Common stock, $0.001 par value, 75,000,000 shares authorized, 26,245,038 and 24,732,834 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively     26,245       24,733  
Additional paid in capital     3,866,555       3,223,658  
(Deficit) accumulated during the development stage     (6,825,939 )     (6,181,487 )
                 
Total Stockholders' (Deficit)     (2,933,139 )     (2,933,096 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)   $ 63,912     $ 57,277  

 

 

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

 

 

 

 
 

 

ECOLOGIC TRANSPORTATION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
          Inception  
    For the three months ended     (December 16, 2008)  
    March 31, 2012     March 31, 2011     To March 31, 2012  
Revenue   $ 103,123     $ 88,368     $ 925,864  
                         
Cost of sales     95,854       82,533       900,214  
                         
Gross profit     7,269       5,835       25,650  
                         
General and administrative expenses     680,642       400,132       6,646,014  
                         
Operating (loss)     (673,373 )     (394,297 )     (6,620,364 )
                         
Interest expense     (31,090 )     (22,007 )     (205,741 )
Interest income     11       15       166  
                         
Net (loss)   $ (704,452 )   $ (416,289 )   $ (6,825,939 )
                         
Weighted average common shares outstanding - basic and diluted     24,416,937       23,812,824          
                         
Net (loss) per common share - basic and diluted   $ (0.03 )   $ (0.02 )        

 

 

 

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

 

 

 

 
 

 

ECOLOGIC TRANSPORTATION, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
                Cumulative From  
                December 16, 2008  
    Three Months Ended     (Inception) to  
    March 31, 2012     March 31, 2011     March 31, 2012  
                   
Cash Flow from operations:                        
Net loss   $ (704,452 )   $ (416,289 )   $ (6,825,939 )
Adjustments to reconcile net (loss) to net cash (used in) operating activities:                        
Stock compensation/amortization of deferred compensation     495,450       78,750       3,246,180  
Expenses converted to related party loans     30,000       150,000       728,500  
Depreciation                 600  
Changes in operating assets and liabilities:                        
(Increase) in accounts receivable     (12,741 )     (19,356 )     (20,772 )
(Increase) decrease in other assets     6,384       (3,124 )     (11,586 )
Increase (decrease) in accounts & notes payable, accrued expenses, deferred compensation     42,730       (17,047 )     646,369  
Increase in due to related parties     97,665       60,559       681,590  
Net cash (used in) operating activities     (44,964 )     (166,507 )     (1,555,058 )
                         
Cash Flow from investing activities:                        
Cash received in reverse merger                 10,448  
Cash used to purchase fixed assets                 (600 )
Net cash provided by investing activities                 9,848  
                         
Cash Flow from financing activities:                        
Net proceeds from related party loans     40,790       165,250       756,517  
Proceeds from loans and notes payable           25,000       284,500  
Repayment of note payable     (144,500 )           (144,500 )
Contributed capital                 710  
Issuance of capital stock for cash     1,050             523,860  
Issuance of capital stock related to debt conversion     462             462  
Subscriptions received                 6,049  
Increase in paid in capital related to debt conversion     147,446             147,446  
Net cash provided by financing activities     45,248       190,250       1,575,044  
                         
Increase (decrease) in cash     284       23,743       29,834  
                         
Cash - beginning of period     29,550       21,579        
                         
Cash - end of period   $ 29,834     $ 45,322     $ 29,834  
                         
                         
NONCASH ACTIVITIES                        
Recapitalization for reverse acquisition   $     $     $ (31,908 )
Conversion of related party payable to note payable   $ 30,000     $ 150,000     $ 728,500  
Conversion of debt to capital stock   $ 147,908             147,908  
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                        
Interest paid   $ 3,408     $     $ 3,408  
Income taxes paid   $     $     $  

 

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

 

 
 

 

ECOLOGIC TRANSPORTATION, INC.

(A Development Stage Company)

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2012

 

NOTE 1. OVERVIEW

 

The accompanying unaudited financial statements of Ecologic Transportation, Inc. (formerly USR Technology, Inc.) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Item 210 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and notes included thereto for the year ended December 31, 2011, on Form 10K, as filed with the Securities and Exchange Commission.

 

The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown.

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The Company was incorporated in the State of Nevada on September 30, 2005. The Company is a development stage company as defined by ASC 915-10, “Accounting and Reporting by Development Stage Enterprises”. A development stage enterprise is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from.

 

On April 26, 2009, the Company entered into an agreement and plan of merger, as amended, with Ecologic Sciences, Inc. (formerly, Ecologic Transportation, Inc.), a private Nevada corporation, and Ecological Acquisition Corp., a private Nevada corporation and wholly-owned subsidiary of the Company. Ecological Acquisition Corp. was formed by the Company for the purpose of acquiring all of the outstanding shares of Ecologic Sciences, Inc. Pursuant to the agreement and plan of merger, as amended, Ecologic Sciences, Inc. (formerly, Ecologic Transportation, Inc.) was to be merged with and into Ecological Acquisition Corp., with Ecologic Sciences, Inc. continuing after the merger as a wholly-owned subsidiary of the Company.

 

On July 2, 2009, the Company’s wholly-owned subsidiary Ecological Acquisition Corp. was merged into Ecologic Sciences, Inc. with Ecologic Sciences, Inc. being the sole surviving entity under the name “Ecologic Sciences, Inc.” and the Company being the sole shareholder of the surviving entity. Pursuant to the merger, the Company plans to raise additional capital required to meet immediate short-term needs and to meet the balance of its estimated funding requirements for the twelve months, primarily through the private placement of its securities. Upon closing of the transactions contemplated by the agreement and plan of merger on July 2, 2009, the Company issued 17,559,486 shares of its common stock to the former shareholders of Ecologic Sciences, Inc. in consideration for the acquisition of all of the issued and outstanding common shares in the capital of Ecologic Sciences, Inc. As of the closing date, the former shareholders of Ecologic Sciences, Inc. held approximately 75.85% of the issued and outstanding common shares of the Company.

 

We are a development stage company in the business of environmental transportation. We are structured with two operating units. Our primary operation is the car rental division which will focus on an environmental car rental operation.

 

Ecologic Systems, Inc.

 

Through our subsidiary, Ecologic Systems, Inc. (“EcoSys”), we intended to develop and manage the “greening” of gas stations along with retrofitting them with alternative energy options and solutions. To build this infrastructure, we intended to provide turnkey management, installation, and integration of equipment procurement, equipment installation, contracting, fuel, and regulatory tax incentive and grant subsidization proposals.

 

On May 13, 2011, EcoSys presented a proposed transaction to the Company’s Board of Directors in which EcoSys would spin out of the Company, and merge with a newly formed company, thereby facilitating EcoSys’ desire to pursue the alternative retail fuel network. The Board requested that further information be presented, with a focus on the financials of the proposed business transaction.

 

During the months of June through September, 2011, EcoSys prepared its due diligence package, including market forecasts and an extensive business plan, and continued to research strategic business opportunities and potential strategic partners.

 

The Company determined that, although the EcoSys business plan was strong and there was a positive probability for success, there remained too many uncertainties that were out of the realm of EcoSys’ control. The Board, therefore, decided to pursue selling the EcoSys business to a better-capitalized company that had longer return on investments horizons.

 

In October, 2011, EcoSys met with Amazonas Florestal, Inc. (“Amazonas”), a corporation headquartered in Florida, and a mutual Non-Disclosure Agreement was executed. After the two companies completed due diligence in January, 2012, it became apparent to the EcoSys management that there existed a viable opportunity to enhance shareholder value by combining EcoSys with Amazonas.

 

The Company’s Board of Directors continues to support the overall business thesis of EcoSys, but is faced with the reality that the lack of development in the alternative fuel retail market is not compatible with the Company’s cash flow requirements. The Company, as the parent of EcoSys, has been unable to raise sufficient working capital to fully exploit and grow the business of EcoSys due to a number of factors.

 

The Company’s Board of Directors has therefore made the strategic decision to focus the majority of its resources and time on the development of its environmental car rental business, and on March 16, 2012 entered into a Share Exchange Agreement and Plan of Merger with Amazonas and EcoSys. The following actions were taken pursuant to the unanimous written consent of the Board of Directors of the Company on March 15, 2012, in lieu of a special meeting of the stockholders.

 

EcoSys entered into a Share Exchange Agreement with Amazonas wherein EcoSys acquired one hundred percent (100%) of the issued and outstanding shares of common stock of Amazonas in exchange for seventy million (70,000,000) authorized but un-issued shares of common stock of EcoSys. It is intended that the Share Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall be a plan of reorganization for purposes of Section 368(a) of the Code.

 

Subsequent to the Closing on March 16, 2012, Amazonas became a wholly owned subsidiary of EcoSys. The Company owns three percent (3%) of the EcoSys outstanding capital stock (the “EGCT shares”), and the former Amazonas shareholders (“Amazonas Shareholders”) own ninety-seven percent (97%) of the EcoSys outstanding capital stock. For a period of one hundred and eighty (180) days after the Closing, the EGCT Shares will be subject to an anti-dilution provision. The anti-dilution provision will protect the three (3%) percent ownership of the issued and outstanding capital stock of EcoSys owned by the Company.

 

Ecologic Products, Inc.

 

Our car rental business and our products business intend to provide distribution channels for certain environmental products, and generate certain internal product requirements in order to allow us to be “green” throughout our operation. Initially, our business plan calls for the products to be focused on transportation and its ancillary markets.

 

In anticipation of our first rental car location and our need for environmentally friendly car cleaning (one of the most important aspects of a rental operation), we developed Ecologic Shine®, a device and system for near-waterless car cleaning that delivers cleaning comparable to normal washing without using any harmful chemicals.

 

The commercialization of the Ecologic Shine® products and services are:

 

  · Good for the environment

 

  · Good for the customer

 

  · Good for the vehicle

 

  · Good for the bottom line

 

We have launched Ecologic Shine® in collaboration with Park ‘N Fly, the airport parking chain with prominent locations in 15 airport markets, and in this regard Park ‘N Fly has launched an initial test market. Since 2008, we have opened and currently have operations in Atlanta, San Diego and Los Angeles, with encouraging results. No new locations have been established as of March 31, 2012. We are currently in negotiations with Park ‘N Fly to revise the existing arrangements we have with them

 

The Company has incurred losses since inception resulting in an accumulated deficit of $6,825,939 since inception, and further losses are anticipated in the development of its business. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.

 

The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The Company’s fiscal year end is December 31.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Cash and Cash Equivalents: The Company considers cash in banks, deposits in transit, and highly-liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.

 

Accounts Receivable: The Company extends credit to customers based upon individual credit evaluation and the specific circumstances of the customer. The Company provides an allowance for doubtful accounts that is based upon a review of outstanding receivables, historical collection information, and existing economic conditions.

 

Net Income (Loss) Per Common Share: The Company calculates net income (loss) per share as required by ASC 450-10, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when anti-dilutive, common stock equivalents, if any, are not considered in the computation.

 

Income Taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes and the effect of net operating loss carry-forwards. Deferred tax assets are evaluated to determine if it is more likely than not that they will be realized. Valuation allowances have been established to reduce the carrying value of deferred tax assets in recognition of significant uncertainties regarding their ultimate realization. Further, the evaluation has determined that there are no uncertain tax positions required to be disclosed. Management evaluated the Company’s tax positions under FASB ASC No. 740 “Uncertain Tax Positions,” and concluded that the Company had taken no uncertain tax positions that require adjustment to the consolidated financial statements to comply with the provisions of this guidance.

 

Use of Estimates: The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Estimates that are critical to the accompanying consolidated financial statements include the, estimates related to asset impairments of long lived assets and investments, classification of expenditures as either an asset or an expense, valuation of deferred tax assets, and the likelihood of loss contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are revised periodically and the effects of revisions are reflected in the financial statements in the period it is determined to be necessary. Actual results could differ from these estimates.

 

Revenue Recognition: Revenue is recognized when all applicable recognition criteria have been met, which generally include (a) persuasive evidence of an existing arrangement; (b) fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) collectability of the sales price is reasonably assured.

 

The Company’s current revenue stream is from Ecologic Products’ Ecologic Shine®. Through the agreement with Park ‘N Fly, Ecologic Shine® is currently operating in five Park ‘N Fly locations. The Company invoices Park ‘N Fly every two weeks by Ecologic Products for the total cars serviced, and Park ‘N Fly pays the Company within two weeks of receipt of the invoice. The Company is currently in negotiations with Park ‘N Fly to revise the existing arrangement.

 

Impairment of Long-Lived Assets: The Company evaluates its long-lived assets for impairment. If impairment indicators exist, the Company performs additional analysis to quantify the amount by which capitalized costs exceed recoverable value.

 

Stock Based Compensation: The Company records compensation expense for the fair value of stock options that are granted. Expense is recognized on a pro-rata basis over the vesting periods, if any, of the options. The fair value of stock options at their grant date is estimated by using the Black-Scholes-Merton option pricing model.

 

Fair Value of Financial Instruments: ASC 825, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2012.

 

The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash and cash equivalents, accounts receivable, leases receivable, prepaid and other current assets, inventory, accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are either short term in nature and their carrying amounts approximate fair value, they are receivable or payable on demand.

 

Recently Adopted Accounting Standards: The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the US Securities and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company. The Company has adopted the following new accounting standards during 2012:

 

Trouble Debt Restructuring: Issued in April, 2011, ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted.

 

Comprehensive Income: Issued in June, 2011, ASU 2011-05 eliminates the current option to present other comprehensive income and its components in the statement of changes in equity. It will require companies to report the total of comprehensive income including the components of net income and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the ASU are effective for interim and annual periods beginning on or after December 15, 2011, and should be applied retrospectively. Early adoption is permitted.

 

Intangibles: Issued in September, 2011, ASU 2011-08 permits entities to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it would then perform the first step of the goodwill impairment test; otherwise, no further impairment test would be required. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.

 

Disclosures about Offsetting Assets and Liabilities: Issued in December, 2011, ASU 2011-11 requires disclosures to provide information to help reconcile differences in the offsetting requirements under U.S. GAAP and IFRS. The differences in the offsetting requirements account for a significant difference in the amounts presented in statements of financial position prepared in accordance with U.S. GAAP and IFRS for certain entities. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

 

Recently Issued Accounting Standards Updates: There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

 

Going Concern: We have incurred losses of $6,825,939 since inception and our ability to continue as a going concern depends upon our ability to develop profitable operations and to continue to raise adequate financing. We are actively targeting sources of additional financing to provide continuation of our operations. In order for us to meet our liabilities as they come due and to continue our operations, we are solely dependent upon our ability to generate such financing.

 

There can be no assurance that the Company will be able to continue to raise funds, in which case we may be unable to meet our obligations and we may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

NOTE 3. PREPAID EXPENSES

 

The prepaid expenses of $5,247 and $12,003 as of March 31, 2012 and December 31, 2011, respectively, consist of prepaid insurance premiums.

 

NOTE 4. NOTES AND LOANS PAYABLE

 

On January 24, 2011, Skyy Holdings, Ltd. loaned the Company $100,000 evidenced by a Promissory Note bearing interest at the rate of 15%, with principal and interest payable 45 days from the date of issue, and if not then paid, interest shall accrue at a rate of 25% per annum. As at the date of this filing, the note remains outstanding and no demand has been made.

 

On March 29, 2011, Prominence Capital LLC loaned the Company $25,000 evidenced by a Promissory Note bearing interest at the rate of 8% per annum with the principal balance due on demand. As at the date of this filing, no demand has been made.


On September 30, 2011, the Company executed a Convertible Promissory Note (the “Note”) in the amount of $144,500 representing monies owed to Kunin Business Consulting for executive services provided by, and expenses reimbursable to, Norman A. Kunin through September 30, 2011, pursuant to the terms and conditions of the Advisory Agreement dated July 1, 2010, and subsequent Amendment dated April 1, 2011. The Note bears interest at 7% per annum and includes a provision to convert the Note into shares of the Company’s common stock at a price of $0.12 per share. Mr. Kunin was formerly the CFO, but resigned August 16, 2011. On November 15, 2011, a modification was made to the Note, changing the conversion price to $0.32 per share. No other terms of the Note were modified.

 

On January 31, 2012, the Company received a Notice to Convert from Mr. Kunin, requesting that the Note Payable in the amount of $144,500, plus accrued interest in the amount of $3,409, be converted to shares of the Company’s common stock. As such, the Company issued 462,214 restricted shares of common stock at a price of $0.32 per share, representing payment in full of the Note payable plus accrued interest.

 

Accrued interest at March 31, 2012 was $41,575.

 

NOTE 5. RELATED PARTY LOANS

 

As at March 31, 2012, affiliates and related parties are due a total of $2,159,922 which is comprised of loans to the Company of $1,468,233, accrued interest of $123,507, unpaid compensation of $552,967, and unpaid reimbursable expenses of $15,215. During the three months ended March 31, 2012, loans to the Company increased by $70,790, accrued interest increased by $24,471, and unpaid compensation increased by $69,500.

 

The Company’s increase in Related Party Loans of $95,271 is comprised of an increase in already outstanding cash loans of $40,790 from Huntington Chase Financial Group, accrued compensation converted to notes payable in the amount of $30,000, and accrued interest increase of $24,481. The increases in notes payable for accrued compensation is comprised of an increase of $30,000 in the already existing Senior Convertible Promissory Note (the “Senior Note”) issued to William B. Nesbitt. The Senior Note bears interest at a rate of five percent (5%) per annum, and is payable upon completion of certain funding goals of the Company. All other outstanding related party notes bear interest at the rate of seven percent (7%) per annum and are due and payable within one (1) year of receipt of written demand by the related party creditors.

 

In addition, an assignment of debt was effected in the amount of $60,000 as a result of the merger between Ecologic Systems, Inc. and Amazonas Florestal, Inc. The debt is part of the Share Exchange Agreement entered into on March 16, 2012 (see Note 1), and is no longer reflected as debt within the consolidated financial statements as of March 31, 2012.

 

The Company’s increase in Related Party Payables is due to an increase in accrued compensation of $69,500 payable to Huntington Chase, Ltd., The Kasper Group, and Calli Bucci, all related party creditors.

 

Accrued interest at March 31, 2012, was $123,507.

 

NOTE 6. STOCKHOLDERS’ (DEFICIT)

 

The total number of authorized shares of common stock that may be issued by the Company is 75,000,000 with a par value of $0.001 per share.

 

The Board of Directors has approved an action to amend the Articles of Incorporation to provide for the issuance of 10 million shares of preferred stock with no par value. The amendment of the Articles has not yet been filed with the Nevada Secretary of State's Office.

 

During January, 2009, the Company issued 500,000 common shares for investor relations consulting services valued at $120,000.

 

During March, 2009, the Company issued 9,560,745 common shares for cash at $0.001 per share.

 

During April, 2009, the Company issued 1,200,000 common shares for cash at $0.25 per share.

 

During April, 2009, the Company issued 100,000 common shares for web site design services valued at $180,000, of which $5,833 is deferred at March 31, 2012.

 

During May, 2009, the Company issued 50,000 common shares for web site design services valued at $90,000 of which $2,917 is deferred at March 31, 2012.

 

During June, 2009, the Company issued 100,000 common shares for radio operations services valued at $180,000 which was fully expensed during 2009 and 2010.

 

Effective June 11, 2009, we changed our name from “USR Technology, Inc.” to “Ecologic Transportation, Inc.”, by way of a merger with our wholly owned subsidiary Ecologic Transportation, Inc., which was formed solely for the change of name.

 

On July 2, 2009, USR’s wholly owned subsidiary Ecological Acquisition Corp. was merged into Ecologic Sciences, Inc. with Ecologic Sciences, Inc. being the sole surviving entity under the name “Ecologic Sciences, Inc.” and our company being the sole shareholder of the surviving entity. In connection with the closing of the merger, the Company issued an aggregate of 17,559,486 restricted shares of common stock representing approximately 75.85% of the issued and outstanding shares of the Company to the former shareholders of Ecologic Sciences, Inc. As a result, the issued and outstanding shares increased from 5,620,832 shares of common stock to 23,180,318 shares of common stock.

 

Effective July 2, 2009, the Company issued 7,520,834 common shares to the shareholders of predecessor Ecologic Transportation, Inc. (formerly USR Technology, Inc.), on an exchange basis of one share of Ecologic Sciences, Inc. (formerly Ecologic Transportation, Inc.) common stock for each share of Ecologic Transportation, Inc. (formerly USR Technology, Inc.), common stock.

 

During July, 2009, certain stockholders canceled 1,900,002 post split shares of common stock for no consideration.

 

During October, 2009, certain stockholders canceled 1,369,494 post split shares of common stock for no consideration.

 

During October, 2009, the Company issued 852,000 shares of its common stock for $213,000 in cash.

 

During May, 2010, the Company issued 1,000,000 shares of its common stock to a consultant for services valued at $450,000 of which $28,125 is deferred at March 31, 2012.

 

On May 20, 2010 the Company entered into a Memorandum of Understanding and Binding Effect (“Memorandum”) with Wakabayashi Fund, LLC (“Wakabayashi”) to cancel the agreement that the Company entered into with Wakabayashi on May 11, 2010, wherein Wakabayashi was to provide institutional market awareness and public relations services to the Company. Under the original agreement, the Company issued to Wakabayashi a retainer of 250,000 shares of the Company’s common stock (the “Shares”). Under the terms of the Memorandum, Wakabayashi agreed to return the Shares and the Company agreed to cancel the Shares and issue 50,000 new shares valued at $0.45 per share for a total of $22,500 of stock compensation expense to Wakabayashi (the “Replacement Shares”). The Company has recorded the cancellation and issuance as stated above in 2010.

 

During September, 2010, the Company issued 100,000 shares for services valued at $31,000.

 

On April 1, 2011, the Company issued 620,000 restricted shares of common stock for services for the period April 1, 2011 to September 30, 2011. As a result, the Company recorded a total of $229,400 of deferred compensation, which has been fully amortized in 2011.

 

On May 9, 2011, the Company issued 50,000 of restricted shares of the Company’s common stock relating to the April 1, 2011 amendment to the Agreement for Executive Services with Kunin Business Consulting. The shares were valued at $14,500.

 

On December 16, 2011 the Company issued 250,000 shares of its common stock for cash at $0.001 per share. The shares were valued at $30,000, which has been expensed in the current period.

 

On January 31, 2012, the former Chief Financial Officer, Norman A. Kunin, converted his debt in the amount of $147,908 into 462,214 restricted shares of the Company’s common stock at $0.32 per share. As a result, $147,446 has been recorded as paid in capital.

 

On February 6, 2012, two Directors of the Company received the right to purchase 250,000 each shares of common stock at par value of $0.001 for their services over and above their roles as Directors of the Company. Both Directors elected to purchase the shares and, as a result, a total of 500,000 restricted shares of the Company’s common stock were issued. The shares were valued at $90,000, which has been expensed in the current period, and $89,500 has been recorded as paid in capital.

 

On February 6, 2012, William B. Nesbitt, the Company’s Chief Executive Officer, was afforded the opportunity to purchase 500,000 shares of common stock at par value of $0.001 for his contribution to the Company prior to executing an employment agreement with the Company. Mr. Nesbitt elected to purchase the shares and, as a result, 500,000 restricted shares of the Company’s common stock were issued for $500 cash. The shares were valued at $90,000, which has been expensed in the current period, and $89,500 has been recorded as paid in capital.

 

On February 29, 2012, 50,000 restricted shares of the Company’s common stock were issued to a consultant in exchange for services. The shares were valued at $9,000, which has been expensed in the current period, and $8,950 has been recorded as paid in capital.

 

The Company expensed deferred stock compensation of $78,750 for the three months ended March 31, 2012. There remains $36,875 of deferred stock compensation which will be expensed over the following three months.

 

As at March 31, 2012 the Company has 26,245,038 common shares issued and outstanding.

 

NOTE 7. WARRANTS AND OPTIONS

 

On October 1, 2009, the Company entered into a consulting agreement for services under which the Company issued options to purchase 2,287,547 shares of its common stock for an option price of $0.25. The options vested on September 1, 2010. The options are exercisable for a period of three years after the vesting date. The Company has valued the options utilizing The Black-Scholes Valuation at $989,645 and for accounting purposes has amortized the option value over the eleven month period commencing with the date of issuance and ending when the options vest. The full amount was amortized during 2009 and 2010. Assumptions used in valuing the options: expected term is 3.67 years, expected volatility is 0.33, risk-free interest rate is 2.00%, and dividend yield is 0.00%.

 

On June 30, 2010, the Company, under its 2009 Stock Option Plan, granted qualified stock options to purchase 435,000 shares of its common stock for five years at $0.473 per share. Of the total options granted, 240,000 were granted to three members of the Board of Directors, 120,000 of which vested on July 2, 2010, and 120,000 of which vested on July 2, 2011. In addition, 195,000 were granted to four consultants, all of which vested on July 2, 2010. The options were valued using the Black-Scholes valuation method at $0.13 per share or $56,550. The full amount was amortized during 2010 and 2011. The Company used the following assumptions in valuing the options: expected volatility 33%; expected term 5 years; expected dividend yield 0%, and risk-free interest rate of 1.49%.

 

On April 19, 2011 the Board of Directors, under the Company’s 2009 Stock Option Plan, granted qualified stock options to its Former Chief Executive Officer and its Chairman of the Board (“Ten Percent Holders”) to purchase 1,750,000 shares of its common stock for five years at $0.32 per share, qualified stock options to five of its employees (“Employee Options”) to purchase 775,000 shares of its common stock for ten years at $0.32, and qualified stock options to four of its directors (“Directors Options”) to purchase 500,000 shares of its common stock for ten years at $0.32, for a total grant of 3,025,000 stock options. Of the total options granted, 1,000,000 were granted to our Former Chief Executive Officer, which vest quarterly over a 12 month period at 250,000 shares per quarter. Of the total options granted, 750,000 were granted to our Chairman of the Board which vest quarterly over a 12 month period at 187,500 shares per quarter. Of the total options granted, 775,000 were granted to five employees, which vest quarterly over a 12 month period at 193,750 shares per quarter. Of the total options granted, 500,000 were granted to three directors which vest up to 450,000 at any time after the date of grant and 50,000 were granted to one director which vests up to 50,000 at any time after the date of grant. The value of the options for the Ten Percent Holders, using the Black-Scholes valuation method is $0.27 per share or $472,500. The 775,000 Employee Options and 500,000 Directors Options were valued at $0.30 per share or $382,500. The Company used the following assumptions in valuing the options: expected volatility 1.2; expected term 5 years for the Ten Percent Holders and 10 years for the Employee Options and the Directors Options; expected dividend yield 0%, and risk-free interest rate of 1.97%. At April 19, 2011, the Company expensed $150,000 in stock compensation for the 500,000 options vested any time after the date of grant, and recorded $705,000 of deferred stock compensation for the balance of the options granted, for a total value of the options granted of $855,000. The Company has expensed $176,250 in stock compensation during the current period.

 

On November 1, 2011, the Company entered into an employment agreement with its Chief Executive Officer, under which the Company granted qualified stock options to purchase 1,500,000 shares of its common stock for five years at an option price of $0.20 per share. The options vest quarterly over a three (3) year period at 125,000 shares per quarter. The options have been valued using the Black-Scholes valuation method at $0.18 per share or $270,000. The Company used the following assumptions in valuing the options: expected volatility 1.97; expected term 5 years; expected dividend yield 0%, and risk-free interest rate of 1.10%. As of March 31, 2012, the Company has expensed $22,500 in stock compensation for the 125,000 options vested during the current period, and recorded $247,500 of deferred stock compensation for the balance of the options granted, for a total value of the options granted of $270,000.

 

The Company has expensed a total of $198,750 in deferred compensation for the three months ended March 31, 2012. There remains $423,750 in deferred compensation at March 31, 2012.

 

As of March 31, 2012, the Company has no Warrants and 7,247,547 Options issued and outstanding.

 

Outstanding and Exercisable Options        
          Remaining   Exercise Price   Weighted  
    Number of     Contractual Life   times Number   Average  
Exercise Price   Shares     (in years)   of Shares   Exercise Price  
$0.250   2,287,547     2.50   $ 571,887     $0.25  
$0.473   435,000     3.25     205,755     $0.37  
$0.320   1,750,000     4.00     560,000     $0.35  
$0.320   1,275,000     9.00     408,000     $0.35  
$0.200   1,500,000     4.75     300,000     $0.33  
    7,247,547         $ 2,045,642   $ $0.33  

 

 

Options   Number   Weighted Average  
    Of Shares   Exercise Price  
             
Outstanding at December 31, 2011   5,747,547   $  0.35  
Issued   1 500,000     0.33  
Exercised   -     -  
Expired / Cancelled   -     -  
Outstanding at March 31, 2012   7,247,547   $ 0.33  

 

 

NOTE 8. COMMITMENTS AND CONTINGENCIES

 

On October 12, 2009 the Company entered into a consulting agreement with Huntington Chase, Ltd., a Nevada corporation, wherein Edward W. Withrow III, Ecologic Transportation’s Chairman, owns a majority control. The consulting agreement provides for Huntington Chase, Ltd. to perform certain advisory functions, and to be paid $15,000 per month for a period of three years.

 

The Company signed an Investment Banking and Financial Advisory Agreement (“the Innovator Agreement”) with Innovator Capital of London England (“Innovator”) dated January 9, 2010. The Agreement provides for Innovator to provide certain financial advisory services in exchange for remuneration consisting of an engagement fee of pay £7,812.50 pound sterling (US$12,481), a monthly retainer in the amount of £15,625 pounds sterling (US$23,437) deferred until certain funding goals are met by the Company, and a 5% fee for funding raised by Innovator. As at March 31, 2012, the Company and Innovator are in dispute with respect to the Innovator Agreement. It is management’s belief, however, that the outcome will not adversely affect the Company.

 

Matrix Advisors, LLC a New York Limited Liability Company (“Matrix”) signed a consulting agreement with the Company effective October 1, 2009. The consulting agreement provides for Matrix Advisors to deliver advisory services to the Company for a period of three years for a fee of $10,000 per month and options to purchase 2,287,547 shares exercisable at $0.25 per share for a term of three years from September 1, 2009. The vesting period for the options ended on September 1, 2010. On November 24, 2010, Matrix waived its right of first refusal to participate in the financing transaction contemplated in the engagement letter between BMO Capital Markets Corp. and the Company.

 

On May 18, 2010, the Company entered into an Independent Consulting Agreement (“Consulting Agreement”) with Prominence Capital, LLC (“Prominence”) to represent the Company in investor communications and public relations for a term of two (2) years commencing May 18, 2010. As remuneration for the services, the Company issued 1,000,000 restricted shares of the Company’s common stock to Prominence, valued at $0.45 per share. The Company recorded deferred compensation valued at $450,000, of which $365,625 has been expensed through December 31, 2011. The Company expensed $56,250 of deferred compensation for the three months ended March 31, 2012, and there remains a deferred compensation balance of $28,125 at March 31, 2012.

 

The Company entered into an independent consulting agreement (“the Oracle Agreement”) with Oracle Capital Partners, LLC (“Oracle”) on April 1, 2011, wherein Oracle was engaged to represent the Company in investors’ communications and public relations from the date of issuance of the Remuneration Shares until September 30, 2011. Remuneration for the services to be provided by Oracle was the issuance, on April 4, 2011, of Six Hundred Twenty Thousand (620,000) restricted shares of the Company’s common stock at par value (the “Remuneration Shares”). The Remuneration Shares were recorded on the books and records of the Company at a value of $229,400 ($0.37 per share on the date of the Oracle Agreement) and has been amortized ratably over the period April 1, 2011 to September 30, 2011. The Oracle Agreement expired on September 30, 2011.

 

On April 12, 2011 the Company entered into a non-exclusive Placement Agent Agreement with View Trade Securities, Inc. to act as the Company’s exclusive agent to sell up to $2,000,000 of the Company’s Senior Convertible Notes and paid View Trade a fee of $15,000. As of December 31, 2011, the Company is no longer pursuing the efforts of View Trade.

 

On July 1, 2010 the Company entered into an Advisory Agreement with Kunin Business Consulting (“KBC”) (the “Advisory Agreement”) for the non-exclusive services of Norman A. Kunin to serve as Chief Financial Officer of the Company. The term of the engagement was for one year commencing on July 1, 2010, at a rate of $5,000 per month, payment of which was deferred until the Company reached certain funding goals. In addition, the Advisory Agreement provided for an additional one-time payment of $25,000 for services already provided to the Company. On April 1, 2011, the Company amended the Advisory Agreement (the “Amendment”). The Amendment (i) increased the monthly Executive Fee from $5,000 to $7,500 effective October 1, 2010; (ii) defined payment terms of executive fee deferment; (iii) added an additional one-time deferred payment of $10,000; and (iv) provided for the issuance of 50,000 restricted shares of the Company’s common stock, which were issued on May 9, 2011. The Amendment also provided for compensation after the Company reached certain capitalization goals.

 

Mr. Kunin resigned as Chief Financial Officer of the Company in August, 2011, due to certain health conditions. As a result, both the Advisory Agreement dated July 1, 2010, and subsequent Amendment dated April 1, 2011, were effectively terminated. Mr. Kunin continues to provide the Company with services, and on August 2, 2011, the Company entered into a Consulting Agreement with Kunin Business Consulting for Mr. Kunin’s services. The Consulting Agreement is for an initial term of 2 years, and provides for monthly compensation in the amount of $5,000 for the first year, increasing to $7,500 per month for the second year, and a monthly allowance of $300 for transportation costs. All cash compensation payable under this agreement has been deferred until the Company meets certain funding goals.

 

On September 30, 2011, a total of $144,500 in Executive Fees, including all one-time payments, and expense reimbursements, was payable to Kunin Business Consultants. On September 30, 2011, the Company executed a Convertible Promissory Note (the “Note”) in the amount of $144,500 in favor of Mr. Kunin. The Note bore interest at 7% per annum and included a provision to convert the Note into shares of the Company’s common stock at a price of $0.12 per share. On November 15, 2011, a modification was made to the Note, changing the conversion price to $0.32 per share. No other terms of the Note were modified. The Company received a Notice to Convert from Mr. Kunin on January 31, 2012, requesting that the Note in the amount of $144,500, plus accrued interest in the amount of $3,409, be converted to shares of the Company’s common stock. Accordingly, the Company issued 462,214 restricted shares of common stock at a price of $0.32 per share, representing payment in full of the Note payable, plus accrued interest.

 

On September 21, 2011, the Company engaged William B, Nesbitt to serve as Chief Operating Officer of the Company. The engagement was to provide the Company with additional internal support for the daily operations of the Company. The terms of Mr. Nesbitt’s engagement included compensation in the amount of $10,000 per month on a consultant basis for his services, reporting directly to the Company’s Chief Executive Officer and Board of Directors.

 

On October 10, 2011, William N. Plamondon III resigned from his position as Chief Executive Officer of the Company. Mr. Plamondon has claimed to the Company that he was constructively discharged on this date, but the Company denies such claim. The employment agreement with William N. Plamondon III, dated January 30, 2009, which provided for compensation in the amount of $35,000 per month and standard health benefits, was terminated effective October 31, 2011. The employment agreement with Mr. Plamondon contains certain terms with respect to remuneration received or that may be received in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000.

 

The Company entered into an employment agreement with Mr. Nesbitt effective November 1, 2011, for his services as President and Chief Executive Officer of the Company. The Agreement supersedes any other existing engagement for Mr. Nesbitt’s services. The initial term of the Agreement is for a period of twelve (12) months and is automatically renewed annually unless terminated by either party. The Agreement provides for initial compensation of $10,000 per month for the first six months, increasing to $20,833 thereafter, contingent upon certain funding of the Company. Any unpaid compensation shall be converted to a Senior Note Payable on a monthly basis, accruing interest at a rate of five percent (5%) per annum. In addition, the Agreement provides for expense reimbursements, an initial Stock Option grant of 1,500,000 shares of the Company’s common stock, and annual Performance Options.

 

On November 15, 2011 the Company, as Plaintiff, filed a lawsuit in the Superior Court of California, County of Los Angeles, West District - Case No. SC114884 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants. Mr. Plamondon is the Company’s former Director, President and Chief Executive Officer. Erin Davis, Mr. Plamondon’s wife, is the Company’s former Secretary and R.I. Heller & Co. is the corporation controlled by Mr. Plamondon. Mr. Plamondon resigned as Chief Executive Officer of the Company on October 10, 2011. The Company’s Complaint for Damages includes: Breach of Fiduciary Duty; Conspiracy to Steal Corporate Assets and Opportunities; Fraud; Breach of Contract; Theft of Corporate Assets and Opportunities; Intentional Tortious Interference with Business Relationships and Negligent Tortious Interference with Business Relationships.

 

The Case Management Conference scheduled for March 8, 2012 has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages.

 

The Company also intends to take additional legal action to recoup any and all equity securities previously issued to Defendants.

 

On January 9, 2012 Defendants filed a General Denial to the above action with Affirmative Defenses and Cross Complaints.

 

In connection with the lawsuit filed by the Company on November 15, 2011 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants, the Defendants filed a General Denial to the action with Affirmative Defenses and Cross Complaints on January 9, 2012. The Case Management Conference was scheduled for March 8, 2012, but has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages.

 

The Company also intends to take additional legal action to recoup any and all equity securities previously issued to Defendants.

 

NOTE 9. INCOME TAXES

 

Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the ultimate realization of a deferred tax as The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2012 and December 31, 2011 are presented below:

 

         
  March 31, 2012   December 31, 2011  
Deferred tax assets:            
Net operating loss carry forwards $ 2,642,000   $ 2,275,000  
Less valuation allowance   (2,642,000 )   (2,275,000 )
Net deferred tax asset $ -   $ -  
             

 

At this time, the Company is unable to determine if it will be able to benefit from its deferred tax asset. There are limitations on the utilization of net operating loss carry forwards, including a requirement that losses be offset against future taxable income, if any. In addition, there are limitations imposed by certain transactions which are deemed to be ownership changes. Accordingly, a valuation allowance has been established for the entire deferred tax asset. The increase in the valuation allowance was approximately $367,000 for the three month period ending March 31, 2012.

 

The amount of income taxes the Company pays is subject to ongoing examinations by federal and state tax authorities. To date, there have been no reviews performed by federal or state tax authorities on any of the Company’s previously filed returns. The Company’s 2008 and later tax returns are still subject to examination.

 

NOTE 10. SUBSEQUENT EVENTS

 

The Company has evaluated events and transactions that occurred between March 31, 2012 and the date the consolidated financial statements were available for issue, for possible disclosure or recognition in the consolidated financial statements. The Company has determined that there were no such events or transactions that warrant disclosure or recognition in the consolidated financial statements except as noted below.

 

On April 2, 2012, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement”) between EV Transportation, Inc., a Nevada corporation (“EV”), Ecologic Transportation, Inc. (the “Company”) and Edward W. Withrow III, the Company’s Chairman and Founder.  The Settlement was in connection with a complaint filed by EV with the Superior Court of California, County of Los Angeles, Case No. BC475402, on December 16, 2011, against Ecologic Transportation, Inc., and William N. Plamondon III(1), former CEO of the Company, Erin E Davis(1) (Mr. Plamondon’s wife), former Secretary of the Company and a former consultant to EV Rentals, Inc., and R.I. Heller & Co. LLC(1), a company controlled by Mr. Plamondon ((1)collectively, the “Plamondon Parties”). In the Complaint, EV made certain claims against the Plamondon Parties, including Breach of Fiduciary Duties, Conspiracy to Steal Corporate Assets and Opportunities, Fraud, Breach of Contract, and Theft of Corporate Assets and Opportunities.

 

The Settlement does not include any Plamondon Parties, but resolves any disputes between the Company and EV. In connection with the Settlement, 1,250,000 shares of the Company’s common stock will be issued. All other terms and conditions of the Settlement shall remain confidential.

 

During the period April 1, 2012 through May 15, 2012 the Company increased its loans from related parties by $29,649, from a total of $2,159,922 at March 31, 2012 to $2,189,571 at May 15, 2012. The increase represents accrued compensation owed to related parties in the amount of $16,500, and accrued interest of $8,149. The loans bear interest at the rates of 5% and 7% per annum, are unsecured and are payable within one year upon demand.

 

 

 

 
 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors” that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.

 

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report, particularly in the section entitled "Risk Factors".

 

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "common shares" refer to the common shares in our capital stock.

 

As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “our company” and “Ecologic” refer to Ecologic Transportation, Inc., and unless otherwise indicated, our subsidiaries.

 

Corporate History

 

We were incorporated in the State of Nevada on September 30, 2005 under the name Heritage Explorations Inc. On June 20, 2008, we merged with our wholly owned subsidiary and changed our name to USR Technology, Inc. and on June 26, 2008 and our shares began trading under the symbol “USRT”. We were engaged primarily in the provision of drilling services internationally.

 

On July 2, 2009, USR's wholly owned subsidiary Ecological Acquisition Corp. was merged into Ecologic Sciences, Inc. (formerly, Ecologic Transportation, Inc.) with Ecologic Sciences, Inc. being the sole surviving entity under the name “Ecologic Sciences, Inc.” and our company being the sole shareholder of the surviving entity. In connection with the closing of the merger, we issued an aggregate of 17,309,486 restricted shares of our common stock representing approximately 75.85% of the issued and outstanding shares of our company to the former shareholders of Ecologic Sciences, Inc.

 

Following the completion of the acquisition of Ecologic Sciences, Inc., we are a development stage company that plans to be engaged in the rental of environmentally friendly hybrid, electric and low-emission vehicles to the public.

 

Pursuant to the terms of the Agreement and Plan of Merger, as amended:

 

  · effective June 11 2009, we effected a 2 old for 1 new reverse stock split of our issued and outstanding common stock. As a result, our authorized capital decreased from 150,000,000 shares of common stock with a par value of $0.001 to 75,000,000 shares of common stock with a par value of $0.001 and our issued and outstanding shares decreased from 15,020,017 shares of common stock to 7,510,000 shares of common stock;

 

  · effective June 11, 2009, we changed our name from “USR Technology, Inc.” to “Ecologic Transportation, Inc.”, by way of a merger with our wholly owned subsidiary Ecologic Transportation, Inc., which was formed solely for the change of name. The name change and forward stock split became effective with the Over-the-Counter Bulletin Board at the opening of trading on June 11, 2009 under the new stock symbol “EGCT”. Our CUSIP number was changed to 27888B 105;

 

  · certain of our pre-closing stockholders canceled 2,000,002 pre-consolidated shares of our common stock for no consideration for the purpose of making our capitalization more attractive to future equity investors; and

 

  · certain affiliates of our company cancelled an aggregate of $108,500 of debt at no consideration.

 

On July 2, 2009 and in connection with the closing of the agreement and plan of merger, there was a change in control of our company that resulted from the issuance of 17,559,486 shares of our common stock to the former shareholders of Ecologic Sciences, Inc.

 

The issuance of the 17,559,486 common shares to the former shareholders of Ecologic Sciences, Inc. was deemed to be a reverse acquisition for accounting purposes. Ecologic Sciences, Inc., the acquired entity, is regarded as the predecessor entity as of July 2, 2009. Starting with the periodic report for the quarter in which the acquisition was consummated, the Company has filed annual and quarterly reports based on the December 31st fiscal year end of Ecologic Sciences, Inc.

 

Until April 2009, we were a company focused on the drilling services sector of the oil and gas industry. As of the closing date of the agreement and plan of merger on July 2, 2009, we became a development stage company in the business of environmental transportation. We are structured with three operating units. Our primary operation is the car rental division which will focus on an environmental car rental operation.

 

On April 1, 2011 we entered into an independent consulting agreement with Oracle Capital Partners, LLC wherein Oracle was engaged to represent our company in investors’ communications and public relations from the date of issuance of the remuneration shares until September 30, 2011. Remuneration for the services to be provided by Oracle was the issuance, on April 4, 2011, of 620,000 restricted shares of our company’s common stock at par value. The shares were recorded on the books and records of our company at a value of $229,400 ($0.37 per share on the date of the Oracle Agreement) and have been amortized ratably over the period April 1, 2011 to September 30, 2011. The Oracle Agreement expired on September 30, 2011.

 

On April 1, 2011, we amended the advisory agreement for executive services dated July 1, 2010 with Kunin Business Consulting, a division of Ace Investors, LLC. The amendment (i) increased the monthly executive fee from $5,000 to $7,500 effective October 1, 2010; (ii) defined payment terms of executive fee deferment; (iii) added an additional one-time deferred payment of $10,000; and (iv) provided for the issuance, not later than May 1, 2011, of 50,000 restricted shares of our company’s common stock (“Kunin Shares”) the Kunin shares were issued on May 9, 2011.

 

On April 12, 2011 we entered into a non-exclusive placement agent agreement with View Trade Securities, Inc. to act as our company’s exclusive agent to sell up to $2,000,000 of our company’s senior convertible notes and paid View Trade a fee of $15,000. As of December 31, 2011, the Company is no longer pursuing the efforts of View Trade.

 

On August 16, 2011, Norman A. Kunin resigned as Chief Financial Officer of the Company. This termination was in consideration of the condition of Mr. Kunin’s health. Mr. Kunin continues to provide services to the Company as a consultant. On August 2, 2011, the Company entered into a Consulting Agreement with Kunin Business Consulting for Mr. Kunin’s services. The Consulting Agreement is for an initial term of 2 years, and provides for monthly compensation in the amount of $5,000 for the first year, increasing to $7,500 per month for the second year, and a monthly allowance of $300 for transportation costs. All cash compensation payable under this agreement has been deferred until the Company meets certain funding goals.

 

On September 30, 2011, a total of $144,500 in Executive Fees, including all one-time payments, and expense reimbursements, was payable to Kunin Business Consultants,. On September 30, 2011, the Company executed a Convertible Promissory Note (the “Note”) in the amount of $144,500 in favor of Mr. Kunin. The Note bore interest at 7% per annum and included a provision to convert the Note into shares of the Company’s common stock at a price of $0.12 per share. On November 15, 2011, a modification was made to the Note, changing the conversion price to $0.32 per share. No other terms of the Note were modified. The Company received a Notice to Convert from Mr. Kunin on January 31, 2012, requesting that the Note in the amount of $144,500, plus accrued interest in the amount of $3,409, be converted to shares of the Company’s common stock. Accordingly, the Company issued 462,214 restricted shares of common stock at a price of $0.32 per share, representing payment in full of the Note payable, plus accrued interest.

 

On September 21, 2011, the Company engaged William B, Nesbitt to serve as Chief Operating Officer of the Company. The engagement was to provide the Company with additional internal support for the daily operations of the Company. The terms of Mr. Nesbitt’s engagement included compensation in the amount of $10,000 per month on a consultant basis for his services, reporting directly to the Company’s Chief Executive Officer and Board of Directors.

 

On October 10, 2011, William N. Plamondon III resigned from his position as Chief Executive Officer of the Company. Mr. Plamondon has claimed to the Company that he was constructively discharged on this date, but the Company denies such claim. On November 5, 2011 Mr. Plamondon resigned as a member of the Board of Directors of the Company and its subsidiaries.

 

Effective November 1, 2011, the Board appointed William B. Nesbitt, the Company’s current President and Chief Operating Officer, to serve as the Company’s Chief Executive Officer. Mr. Nesbitt, age 71, has served as Chief Operating Officer of the Company since September 21, 2011. The Company also entered into an Employment Agreement with Mr. Nesbitt effective November 1, 2011.The initial term of the Agreement is for a period of twelve (12) months and is automatically renewed annually unless terminated by either party. The Agreement provides for initial compensation of $10,000 per month for the first six months, increasing to $20,833 thereafter, contingent upon certain funding of the Company. Any unpaid compensation shall be converted to a Senior Note Payable on a monthly basis, accruing interest at a rate of five percent (5%) per annum. In addition, the Agreement provides for expense reimbursements, an initial Stock Option grant of 1,500,000 shares of the Company’s common stock, and annual Performance Options.

 

On November 15, 2011 the Company, as Plaintiff, filed a lawsuit in the Superior Court of California, County of Los Angeles, West District - Case No. SC114884 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants. Mr. Plamondon is the Company’s former Director, President and Chief Executive Officer. Erin Davis, Mr. Plamondon’s wife, is the Company’s former Secretary and R.I. Heller & Co. is the corporation controlled by Mr. Plamondon. Mr. Plamondon resigned as Chief Executive Officer of the Company on October 10, 2011. The Company’s Complaint for Damages includes: Breach of Fiduciary Duty; Conspiracy to Steal Corporate Assets and Opportunities; Fraud; Breach of Contract; Theft of Corporate Assets and Opportunities; Intentional Tortious Interference with Business Relationships and Negligent Tortious Interference with Business Relationships.

 

The Case Management Conference scheduled for March 8, 2012 has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages.

 

The Company also intends to take additional legal action to recoup any and all equity securities previously issued to Defendants.

 

On January 9, 2012 Defendants filed a General Denial to the above action with Affirmative Defenses and Cross Complaints.

 

In connection with the lawsuit filed by the Company on November 15, 2011 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants, the Defendants filed a General Denial to the action with Affirmative Defenses and Cross Complaints on January 9, 2012. The Case Management Conference was scheduled for March 8, 2012, but has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages.

 

The Company also intends to take additional legal action to recoup any and all equity securities previously issued to Defendants.

 

Overview

 

Our car rental business and our products business intends to provide distribution channels for certain environmental products and both generate certain internal product requirements in order to allow us to be “green” throughout our operation. Initially our business plan calls for the products to be focused on transportation and its ancillary markets.

 

We are a development stage company in the business of environmental transportation. We are structured with two operating units. Our primary operation is the car rental division which will focus on an environmental car rental operation.

 

In anticipation of our first rental car location and our need for environmentally friendly car cleaning (one of the most important aspects of a rental operation), we developed Ecologic Shine®, a device and system for near-waterless car cleaning that delivers cleaning comparable to normal washing without using any harmful chemicals.

 

The commercialization of the Ecologic Shine® products and services are:

 

  · Good for the environment

 

  · Good for the customer

 

  · Good for the vehicle

 

  · Good for the bottom line

 

We have launched Ecologic Shine® in collaboration with Park ‘N Fly, the airport parking chain with prominent locations in 15 airport markets, and in this regard Park ‘N Fly has launched an initial test market. Since 2008, we have opened and currently have operations in Atlanta, San Diego and Los Angeles, with encouraging results. An additional location was opened in Houston in March, 2010 but, having not met expectations was subsequently closed in June, 2010 upon mutual agreement by Park ‘N Fly and the Company. No new locations have been established as of December 31, 2011. We are currently in negotiations with Park ‘N Fly to revise the existing arrangements we have with them.

 

Results of Operations

 

Three months ended March 31, 2012 compared to three months ended March 31, 2011

 

The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended March 31, 2012, which are included herein.

 

                   
        Inception  
  Three months ended     (December 16, 2008)  
  March 31, 2012   March 31, 2011     to March 31, 2012  
Revenue $ 103,123   $ 88,368    $ 925,864  
                   
General and administrative expenses $ 95,854   $ 400,132   $ 900,214  
                   
Net (loss) $ (704,452 ) $  (416,289 ) $  (6,825,939 )
                   

 

Revenue

 

For the three month period ended March 31, 2012, revenue in the amount of $103,123 consisted of limited levels of car washing services in Atlanta, San Diego and Los Angeles, our initial cities of test market operations. For the three month period ended March 31, 2011, revenue in the amount of $88,368 consisted of limited levels of car washing services in Atlanta, San Diego and Los Angeles, our initial cities of test market operations.

 

As a development stage company, we have not yet launched our major business activity, which is car rental.

 

Cost of sales

 

For the three month period ended March 31, 2012, cost of sales in the amount of $95,854 consisted of cleaning supplies and direct labor costs, including payroll, related payroll taxes and insurance. For the three month period ended March 31, 2011, cost of sales in the amount of $82,533 consisted of cleaning supplies and payroll, including related payroll taxes and workers compensation insurance. A decrease in transportation expenses resulted in an increase in gross profit for the current period of $7,269 compared to a gross profit of $5,835 for the same period last year.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended March 31, 2012, were comprised of $354,000 of consulting, $277,500 of amortization of stock compensation, $15,450 of legal and accounting fees and $33,692 of office, overhead and other general and administrative expenses.

 

General and administrative expenses for the three months ended March 31, 2011, were comprised of $212,000 of consulting fees, $78,750 in amortization of stock compensation, $58,363 of legal and accounting fees and $51,019 of office overhead and other general and administrative expenses.

 

Increases in general and administrative expenses for the three months ended March 31, 2012 as compared to 2011 were significantly attributable to an increase consulting fees of $142,000, an increase in amortization of stock compensation of $198,750, a decrease in legal and accounting fees of $42,913, and a decrease in office overhead and other general and administrative expenses of $17,327.

 

General and administrative expenses for the three month period ended March 31, 2012 were $680,642 as compared to $400,132 for the three month period ended March 31, 2011 which resulted in an increase in general and administrative expenses for the current period of $280,510.

 

Significant changes in general and administrative expenses for the three month period ended March 31, 2012, compared to the three month period ended March 31, 2011, were attributable to the following items:

 

  · an increase in amortization of stock options of $198,750, primarily due to additional stock options granted in the last nine months, resulting in stock option amortization of $198,750 in the current period versus no stock options being amortized prior to April 2011;

 

  · a decrease in legal, accounting and professional fees of $42,913 primarily due to the cancellation of a consulting agreement, which provided for $30,000 in the previous year versus none in the current year; a decrease in auditors fees of $19,513; an increase in general accounting services of $12,975, and a decrease in legal fees of $6,375;

 

  · an increase in management consulting fees of $142,000 primarily due to a $120,000 increase in stock compensation in the current period, versus none for the same period in 2011; an increase in directors’ compensation expense valued at $90,000 versus no expense for the same period in 2011; a decrease of $105,000 in accrued executive management fees due to the resignation of a principal executive, resulting in no expense in 2012 versus 3 months of expense for the same period in 2011; and an increase in executive management fees of $30,000 pursuant to an employment agreement commencing November1, 2011, resulting in 3 months of expense in the current period versus no expense in the same period in 2011;

 

  · an increase in other outside services of $9,000 primarily due to miscellaneous consulting fees of $9,000 in the current period compared to none for the same period in 2011; and

 

  · a decrease in rent expense of $6,450 due to a decrease in leased office space.

 

           
General and Administrative Expenses  For the three months ended        
  March 31,        
  2012   2011   Variances  
                   
Amortization of stock options granted $ 198,750   $ -   $ 198,750  
Amortization of deferred stock compensation   78,750     78,750     -  
Legal, accounting and professional fees   15,450     58,363     (42,913 )
Management consulting services   315,000     182,000     133,000  
Other outside services   39,000     30,000     9,000  
Office supplies and miscellaneous expenses   11,628     14,447     (2,819 )
Rent expense   16,950     23,400     (6,450 )
Travel, entertainment and promotion   160     8,475     (8,315 )
Employee benefits   4,954     4,697     257  
                   
Total  General and Administrative Expenses $ 680,642   $ 400,132   $ 280,510  

 

General and administrative expenses for both the three months ended March 31, 2012 and 2011 were incurred primarily for the purpose of advancing the Company closer to its goal of financing and operating an environment-friendly car rental business.

 

Off-Balance Sheet Arrangements:

 

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

 

Liquidity and Capital Resources

             
Working Capital At March 31,   At December, 31   Increase  
  2012   2011   (Decrease)  
Current Assets $ 55,852   $ 49,583   $ 6,269  
Current Liabilities   1,238,736     1,126,512     112,224  
Working Capital (Deficit) $ (1,182,884 ) $  (1,076,929 ) $ (105,955 )
                   

 

     
Cash Flows For the three months ended  
  March 31,  
  2012   2011  
Net Cash (Used in) Operating Activities $ (44,964 ) $ (166,512 )
Net Cash Provided by (used in) Investing Activities   Nil     Nil  
Net Cash Provided by Financing Activities   45,248     190,250  
Increase (Decrease) in Cash $ 284   $ 23,743  
             

 

 

We had cash in the amount of $29,834 as of March 31, 2012 as compared to $29,550 as of December 31, 2011. We had a working capital deficit of $(1,182,884) as of March 31, 2012.

 

We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. We anticipate that we will have to raise additional funds through private placements of our equity securities and/or debt financing to complete our business plan. There is no assurance that the financing will be completed as planned or at all. If we are unable to secure adequate capital to continue our planned operations, our shareholders may lose some or all of their investment and our business may fail.

 

As at March 31, 2012, affiliates and related parties are due a total of $2,159,922, which is comprised of loans to the Company of $1,468,233, accrued interest of $123,507, unpaid compensation of $552,967, and unpaid reimbursable expenses of $15,215. During the three months ended March 31, 2012, loans to the Company increased by $10,790, accrued interest increased by $24,481, and unpaid compensation increased by $69,500. The loans bear interest at the rate of 5% and 7% per annum, are unsecured and are payable one year from demand.

 

Our principal sources of funds have been from sales of our common stock and loans from related parties.

 

Going Concern

 

The consolidated unaudited financial statements included with this quarterly report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the consolidated unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

 

Contractual Obligations

 

As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.

 

Application of Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

 

Net Income (Loss) Per Common Share

 

Our company calculates net income (loss) per share as required by ASC 450-10, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when anti-dilutive, common stock equivalents, if any, are not considered in the computation.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president, chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As of March 31, 2012, the end of our period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our president, chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president, chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during the three month period ended March 31, 2012 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

 

 
 

 

PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On November 15, 2011 the Company, as Plaintiff, filed a lawsuit in the Superior Court of California, County of Los Angeles, West District - Case No. SC114884 against William N. Plamondon, III, an individual., Erin Davis, an individual, R.I. Heller & Co., a Florida limited liability company; and Does 1 to 50, inclusive, as Defendants. Mr. Plamondon is the Company’s former Director, President and Chief Executive Officer. Erin Davis, Mr. Plamondon’s wife, is the Company’s former Secretary and R.I. Heller & Co. is the corporation controlled by Mr. Plamondon. Mr. Plamondon, resigned as Chief Executive Officer of the Company on October 10, 2011. The Company’s Complaint for Damages includes: Breach of Fiduciary Duty; Conspiracy to Steal Corporate Assets and Opportunities; Fraud; Breach of Contract; Theft of Corporate Assets and Opportunities; Intentional Tortious Interference with Business Relationships and Negligent Tortious Interference with Business Relationships.

 

The Case Management Conference scheduled for March 8, 2012 has been extended and the Company intends to aggressively pursue its filing and Complaint for Damages and is seeking $20 million in actual damages and $40 million in punitive damages as well as taking additional legal action to recoup any and all equity securities previously issued to Defendants. It is anticipated that these actions will be pursuant to a Court Order.

 

On January 9, 2012 Defendants filed a General Denial to the above action with Affirmative Defenses and Cross Complaints.

 

We know of no other material existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

 

Item 1A. Risk Factors

 

Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections and estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

 

Such estimates, projections or other “forward looking statements” involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward looking statements”.

 

Risks Related to our Business

 

We have a limited operating history, and it is difficult to evaluate our financial performance and prospects. There is no assurance that we will achieve profitability or that we will not discover problems with our business model.

 

We have a limited operating history. As such, it is difficult to evaluate our future prospects and performance, and therefore we cannot ensure that we will operate profitably in the future.

 

We have limited funds available for operating expenses. If we do not obtain funds when needed, we will have to cease our operations.

 

Currently, we have limited operating capital. As of March 31, 2012, our cash available was $25,385. In the foreseeable future, we expect to incur significant expenses when developing our business. We may be unable to locate sources of capital or may find that capital is not available on terms that are acceptable to us to fund our additional expenses. There is the possibility that we will run out of funds, and this may affect our operations and thus our profitability. If we cannot obtain funds when needed, we may have to cease our operations.

 

Our business plan may not be realized. If our business plan proves to be unsuccessful, our business may fail and you may lose your entire investment.

 

Our operations are subject to all of the risks inherent in the establishment of a new business enterprise, including inadequate working capital and a limited operating history. The likelihood of our success must be considered in light of the problems, expenses, complications and delays frequently encountered in connection with the development of a new business. Unanticipated events may occur that could affect the actual results achieved during the forecast periods. Consequently, the actual results of operations during the forecast periods will vary from the forecasts, and such variations may be material. In addition, the degree of uncertainty increases with each successive year presented. There can be no assurance that we will succeed in the anticipated operation of our business plan. If our business plan proves to be unsuccessful, our business may fail and you may lose your entire investment.

 

We will need additional financing to expand our business, and to implement our business plan. Such financing may not be available on favorable terms, if at all.

 

If we need funds and cannot raise them on acceptable terms, we may not be able to:

 

  · execute our business plan;

 

  · acquire or lease our proposed fleet of rental cars;

 

  · take advantage of future opportunities, including synergistic acquisitions;

 

  · respond to customers, competitors or violators of our proprietary and contractual rights; or

 

  · remain in operation.

 

We will have to raise substantial additional capital if we wish to execute our business plan. There can be no assurance that debt or equity financing, or cash generated by operations, will be available or sufficient to meet our requirements. Additional funding may not be available under favorable terms, if at all.

 

We may be unable to predict accurately the timing and amount of our capital requirements. We have historically financed our activities through the sale of our equity securities, loans and from lines of credit. We may be required to raise additional funds through public or private financing, bank loans, collaborative relationships or other arrangements. It is possible that banks, venture capitalists and other investors may perceive our capital structure or operating history as too great a risk to bear. As a result, additional funding may not be available at attractive terms, or at all. If we cannot obtain additional capital when needed, we may be forced to agree to unattractive financing terms, change our method of operations, curtail operations significantly, obtain funds through entering into arrangements with collaborative partners or others, or issue additional securities. Any future issuances of our securities may result in substantial dilution to existing stockholders.

 

Our success will depend on our newly assembled senior management team.

 

Our success will be largely dependent upon the performance of our senior management team. Investors must rely on the expertise and judgment of senior management and other key personnel. The failure to attract and retain individuals with the skill and experience necessary to execute our business plan could have a materially adverse impact upon our prospects. We currently do not have any key man insurance policies and have no current plans to obtain any; therefore, there is a risk that the death or departure of any director, member of management, or any key employee could have a material adverse effect on operations.

 

We face significant competition in the car rental industry. There can be no assurance that we will be able to compete successfully against our competitors.

 

The car rental business is highly competitive. We compete against a number of established rental car companies with greater marketing and financial capabilities. Our market specialization is the rental of hybrid electric and low-emissions cars. Although we believe that we will be the first rental company featuring predominately environmentally friendly cars, we may face difficulty competing against other car rental companies should they devote significant resources to such cars. There can be no assurance that one or more competitors may not initiate a rental business similar to ours, thus compromising the differentiating factor for us. Increased competition in the rental car industry may result in reduced operating margins, loss of market share and a diminished brand franchise. There can be no assurance that we will be able to compete successfully against our competitors, and competitive pressures faced by us may have a material adverse effect on our business, prospects, financial condition and results of operations.

 

We are dependent on fleet financing for acquiring cars. Our failure to obtain financing for the acquisition of cars could have a material adverse effect on our business and prospects.

 

Our ability to purchase and finance our proposed fleet of rental vehicles will depend on the calculation and assignment of risk for the resale value of the vehicles. Despite our plans for securing the resale value, lending companies may not be enticed to finance the cars. There can be no assurance that the financing required to purchase and deploy cars will be available to us in order to meet business projections. Our failure to obtain financing for the acquisition of cars could have a material adverse effect on our business and prospects.

 

We may not maintain insurance sufficient to cover the full extent of our liabilities. The payment of such uninsured liabilities would reduce the funds available to us.

 

We intend to maintain various forms of insurance. However, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. Also, such risks may not, in all circumstances, be insurable or, in certain circumstances, we may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of such uninsured liabilities would reduce the funds available to us. The occurrence of a significant event that we are not fully insured against, or the insolvency of the insurer of such event, could have a material adverse effect on our financial position, results of operations or prospects.

 

We may not be able to obtain all the necessary licenses and permits required to carry on our business activities.

 

Our operations may require licenses and permits from various governmental authorities. There can be no assurance that we will be able to obtain all necessary licenses and permits that may be required to carry required business activities.

 

We may not be able to maintain the information technology and computer systems required to serve our customers.

 

Our reputation and ability to attract retain, and serve customers are dependent upon the reliable performance of our technology infrastructure and fulfillment processes. Interruptions or technical problems could make our systems unavailable to service customers and could diminish the overall attractiveness of our service to potential customers.

 

Risks Relating to Our Common Shares

 

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common shares and make it difficult for our shareholders to resell their shares.

 

Our common shares are quoted on the OTC Bulletin Board service. Trading in shares quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common shares for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of the shares.

 

Our share is a penny stock. Trading of our share may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our shares.

 

Our share is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the shares that are subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common shares.

 

FINRA sales practice requirements may also limit a shareholder's ability to buy and sell our shares.

 

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority, or FINRA, has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our shares.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

 

Item 4. Mine Safety Standards

 

Not Applicable

 

 

Item 5. Other Information

 

None

Item 6. Exhibits

Exhibit

Number

Description
   
(3) Articles of Incorporation and Bylaws
   
3.1 Articles of Incorporation (incorporated by reference to our registration statement on form SB-2 filed on November 30, 2006).
   
3.2 Bylaws (incorporated by reference to our registration statement on form SB-2 filed on November 30, 2006).
   
3.3 Certificate of Change filed with the Secretary of State of Nevada on April 2, 2008 (incorporated by reference from our Current Report on Form 8-K filed on April 21, 2008).
   
3.4 Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on June 26, 2008).
   
3.5 Certificate of Change filed with the Secretary of State of Nevada on August 29, 2008 with respect to the reverse stock split (incorporated by reference from our Current Report on Form 8-K filed on September 17, 2008).
   
3.6 Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on June 11, 2009).
   
3.7 Certificate of Change filed with the Secretary of State of Nevada on May 15, 2009 with respect to the reverse stock split (incorporated by reference from our Current Report on Form 8-K filed on June 11, 2009).
   
3.8 Articles of Merger filed with the Secretary of State of Nevada on June 2, 2009 with respect to the merger between our wholly owned subsidiary, Ecological Acquisition Corp. and Ecologic Sciences, Inc. (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
3.9 Certificate of Change filed with the Secretary of State of Nevada on May 15, 2009, effective June 9, 2009 with respect to the merger between our wholly owned subsidiary, Ecological Acquisition Corp. and Ecologic Sciences, Inc.(incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
(10) Material Contracts
   
10.1 Agreement and Plan of Merger dated April 26, 2009 (incorporated by reference from our Current Report on Form 8-K filed on April 30, 2009).
   
10.2 Employment agreement dated January 30, 2009 between our company and Mr. Plamondon (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
10.3 Agreement dated April 28, 2009 between our company and Audio Eye, Inc. (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
10.4 Agreement dated May 15, 2009 between our company and Audio Eye, Inc. (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
10.5 Employment agreement dated June 29, 2009 between our company and Mr. Keppler. (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
10.6 Memorandum of Understanding dated May 12, 2009 between our company and Green Solutions & Technologies, LLC (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
10.7 Form of Debt Settlement Subscription Agreement dated July 1, 2009 between our company and John L. Ogden (incorporated by reference from our Current Report on Form 8-K filed on July 9, 2009).
   
10.8 Service Agreement dated September 24, 2009 between Ecologic Products, Inc. and Park ‘N Fly Inc. (incorporated by reference from our Current Report on Form 8-K filed on September 29, 2009).
   
10.9 Agreement dated September 29, 2009 between Ecologic Transportation, Inc. and North Sea Securities LP. (incorporated by reference from our Annual Report on Form 10-K filed on April 14, 2010).
   
10.10 Consulting Agreement with Matrix Advisors, LLC dated October 1, 2009 (incorporated by reference from our Annual Report on Form 10-K filed on April 14, 2010).
   
10.11 Consulting Agreement with Huntington Chase Ltd. for Advisory Services dated October 12, 2009 (incorporated by reference from our Annual Report on Form 10-K filed on April 14, 2010).
   
10.12 Advisory Agreement for Executive Services of Norman A. Kunin dated as of January 1, 2010 (incorporated by reference from our Current Quarterly Report on Form 10-Q filed on August 16, 2010).
   
10.13 Independent Consulting Agreement between our company and Prominence Capital, LLC effective as of April 5, 2010 (incorporated by reference from our Current Quarterly Report on Form 10-Q filed on August 16, 2010).
   
10.14 Agreement dated November 23, 2010 with BMO Capital Markets
   
10.15 Independent Consulting Agreement between our company and Oracle Capital Partners, LLC effective as of April 1, 2011. (incorporated by reference from our Current Quarterly Report on Form 10-Q filed on August 15, 2011)
   
10.16 Placement Agent Agreement between our company and View Trade Securities, Inc. effective as of April 12, 2011. (incorporated by reference from our Current Quarterly Report on Form 10-Q filed on August 15, 2011)
   
10.17 Employment Agreement between our company and William B. Nesbitt effective as of November 1, 2011(incorporated by reference from our Annual Report on Form 10-K filed on April 16, 2012)
   
10.18 Share Exchange Agreement and Plan of Merger dated March 16, 2012 (incorporated by reference from our Current Report on Form 8-K filed on March 22, 2012)
   
(16) Auditors Letters
   
16.1 Letter dated March 22, 2012 from StarkSchenkein, LLP addressed to the Securities and Exchange Commission. (incorporated by reference from our Current Report on Form 8-K filed on March 22, 2012)
   
16.2 Auditor Consent Letter dated March 27, 2012 from Stan J.H. Lee, CPA (incorporated by reference from our Annual Report on Form 10-K filed on April 16, 2012)
   
(21) Subsidiaries of the Registrant
   
21.1 Ecological Products, Inc.
  Ecologic Car Rentals, Inc.
  Ecologic Systems, Inc.
   
(31) Section 302 Certifications
   
31.1* Section 302 Certification of William B. Nesbitt
   
31.2* Section 302 Certification of Calli R. Bucci
   
(32) Section 906 Certifications
   
32.1* Section 906 Certification of William B. Nesbitt
   
32.2* Section 906 Certification of Calli R. Bucci
   
(101) Interactive Data Files
   
101.INS** XBRL Instance Document
   
101.SCH** XBRL Taxonomy Extension Schema Document
   
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
   

 

  * Filed herewith.

 

  ** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

  ECOLOGIC TRANSPORTATION, INC.
   
   
 Dated: May 15, 2012 /s/ William B. Nesbitt
  William B. Nesbitt
  President, Chief Executive Officer and Director
  (Principal Executive Officer)
   
   
   
 Dated: May  15, 2012 /s/ Calli R. Bucci
  Calli R. Bucci
  Chief Financial Officer
  (Principal Financial Officer and
  Principal Accounting Officer)

 

XOTC:EGCT Ecologic Transportation Inc Quarterly Report 10-Q Filling

Ecologic Transportation Inc XOTC:EGCT Stock - Get Quarterly Report SEC Filing of Ecologic Transportation Inc XOTC:EGCT stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:EGCT Ecologic Transportation Inc Quarterly Report 10-Q Filing - 5/16/2012
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