NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - Summary of Significant Accounting Policies
Business
Organization and Summary of Significant Accounting
Policies
About
Energtek
Energtek
provides proprietary solutions to meet the technical, economical and logistical
challenges of Natural Gas (NG) delivery for vehicles worldwide, with a major
focus on the 2- and 3-wheel vehicles market.
The
Company is considered to be a development stage company and as such the
financial statements presented herein are presented in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting by
Development Stage Enterprises”.
Inception
of Development Stage
The
cumulative data from inception of the development stage entity is presented
since September, 2006, when the Company changed its area of activities to clean
energy related technologies.
Basic
and Dilutive Net Income (Loss) Per Share
Basic
net
income (loss) per share amounts is computed based on the weighted average number
of shares actively outstanding in accordance with SFAS NO. 128 “Earnings Per
Share". All outstanding stock options and warrants have been excluded from
the
calculation of the diluted net loss per share since their effect was
anti-dilutive.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt securities purchased with original
or
remaining maturities of three months or less to be cash equivalents. The
carrying value of cash equivalents approximates fair value.
Fair
Value of Financial Instruments
The
carrying value of current assets and liabilities approximated their fair values
as of December 31, 2007.
Financial
and Concentration Risk
The
Company does not have any concentration or related financial credit
risk.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
1 -Summary of Significant Accounting Policies (Cont.)
Fixed
Assets:
Fixed
assets are stated at cost.
Cost
is
depreciated by the straight-line method on the basis of the estimated useful
life of the assets. Estimated useful lives are as follows:
|
Useful Life - Years
|
|
|
Building
and Land Improvements*
|
25
|
Computers
and peripheral equipment
|
3
|
Instruments
and laboratory equipment
|
5-7
|
Furniture
and office equipment
|
15
|
Motor
vehicles
|
7
|
Patent**
|
10
|
*
As
of
December 31, 2007 the Company did not start production in its plant in Ukraine,
where the production line is
under
construction. The building, land improvements, prepayments for machinery and
equipment were not depreciated.
**
The
patent is not part of Fixed Assets
Presentation
According
to EITF 06-3, "How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus
Net Presentation)".
The
Company can choose gross or net presentation. The policy of the company to
present all expense items Net in the income statement.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts
of
Energtek Inc., its wholly owned subsidiaries Energtek Products Ltd., Gatal
(Natural Gas for Israel) Ltd., MoreGasTech LLC, Primecyl LLC , Ukcyl Ltd. and
the newly acquired Angstore Technologies Ltd. .All inter-company transactions
have been eliminated. These financial statements reflect all adjustments that,
in the opinion of management, are necessary to present fairly the results of
operations for the yearly periods presented. All adjustments are of a normal
recurring nature, unless otherwise disclosed.
Stock
Issued for Services
The
value
of stock issued for services is based on management’s estimate of the fair value
of the Company’s stock at the date of issue or the fair value of the services
received, whichever is more reliably measurable in accordance with EITF 96-18.
The fair value of each stock option is estimated on the date of balance using
the Black-Scholes option pricing model that uses the following assumptions:
Expected term is based on the Company’s management estimate for future behavior;
Expected volatility is based on the historical volatility of share prices for
similar companies over a period equal to, or greater than, the expected term;
The risk free rate is based on the U.S. Treasury constant maturity for a term
consistent with the expected term of the award (or weighed average of the two
closest available bonds), as in effect at the date of grant. The fair value
of
options granted during the year ended December 31, 2007 was estimated using
the
following assumptions: (a) average expected term of the option of 4.68 years
(b)
average risk free interest rate of 4.15% (c) dividend yield of 0% and (d)
volatility of 107%.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
1 —Summary of Significant Accounting Policies (Cont.)
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of these financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recently
issued accounting pronouncements:
In
September 2006, the FASB issued FAS 157, “Fair Value Measurements”. This
standard establishes a framework for measuring fair value and expands related
disclosure requirements; however, it does not require any new fair value
measurement. FAS 157 is effective for fiscal years beginning after
November 15, 2007 and should be applied prospectively (with a limited form
of retrospective application). On February 12, 2008, the FASB issued Staff
Position (“FSP”) FAS 157-2, which delays the effective date of FAS 157 for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements. As applicable to the
Company, FAS 157, except as it relates to non-financial assets and liabilities
as noted in proposed FSP FAS 157-b, will be effective as of the year beginning
January 1, 2008. The Company does not expect the partial adoption of this
statement to have a material effect on its consolidated financial statements.
In
February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” This standard permits entities to choose to
measure various financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected would be reported in earnings. As applicable to the Company, this
statement will be effective as of the year beginning January 1, 2008. The
Company does not expect the adoption of this statement to have a material effect
on its consolidated financial statements.
In
June
2007, the FASB ratified Emerging Issues Task Force Issue 07-3, “Accounting for
Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities” (“EITF 07-03”). EITF 07-3 provides guidance on the
capitalization of non-refundable advance payments for goods and services to
be
used in future research and development activities, until such goods have been
delivered or the related services have been performed. As applicable to the
Company, this pronouncement will be effective as of the year beginning
January 1, 2008. The Company does not expect the adoption of this
pronouncement to have a material effect on its consolidated financial
statements.
In
December 2007, the FASB issued FAS 141 (revised 2007) (“FAS 141R”), “Business
Combinations”. FAS 141R will change how business acquisitions are accounted for
and will impact financial statements both on the acquisition date and in
subsequent periods. Key changes include: acquired in-process research and
development will no longer be expensed on acquisition, but capitalized and
amortized over its useful life; fair value will be based on market participant
assumptions; acquisition costs will be expensed as incurred; restructuring
costs
will generally be expensed in periods after the acquisition date. Early adoption
is not permitted. As applicable to thr Company, this statement will be effective
as of the year beginning January 1, 2009. The Company believes that the
adoption of FAS 141R could have an impact on its consolidated financial
statements; however, the impact would depend on the nature, terms and magnitude
of acquisitions it consummates in the future.
In
December 2007, the FASB issued FAS 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
51” (“FAS 160”), which establishes accounting and reporting standards for
non-controlling interests in a subsidiary and deconsolidation of a subsidiary.
Early adoption is not permitted. As applicable to The Company, this statement
will be effective as of the year beginning January 1, 2009. The Company is
currently evaluating the potential impact the adoption of FAS 160 would have
on
its consolidated financial statements.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
1 —Summary of Significant Accounting Policies (Cont.)
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”)
relating to the use of a “simplified” method in developing an estimate of the
expected term of “plain vanilla” share options. SAB 107 previously allowed the
use of the simplified method until December 31, 2007. SAB 110 allows, under
certain circumstances, to continue to accept the use of the simplified method
beyond December 31, 2007. The Company believes that the adoption of SAB 110
will not have a material impact on its consolidated financial statements.
Note
2 – Accounts receivable:
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
Comprise:
|
|
(U.S.$)
|
|
|
|
|
|
|
|
Vat
Refund Receivable
|
|
|
127,296
|
|
|
37,879
|
|
Advances
paid to suppliers
|
|
|
274,150
|
|
|
15,385
|
|
Prepaid
Expenses
|
|
|
7,500
|
|
|
-
|
|
Others
|
|
|
1,897
|
|
|
-
|
|
|
|
|
410,843
|
|
|
53,264
|
|
|
|
|
|
|
|
|
|
Note
3 – Fixed Assets:
|
|
December
31
|
|
|
|
2007
|
|
|
2006
|
|
Comprise:
|
|
(U.S.$)
|
|
|
|
|
|
|
|
|
Building
and Land Improvements
|
|
|
112,766
|
|
|
-
|
|
Machinery,
equipment and other
|
|
|
51,046
|
|
|
-
|
|
Motor
vehicles
|
|
|
36,310
|
|
|
-
|
|
Office
equipment
|
|
|
27,992
|
|
|
2,955
|
|
Fixed
assets
|
|
|
228,114
|
|
|
2,955
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(42,537
|
)
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
Fixed
assets less accumulated depreciation
|
|
|
185,577
|
|
|
2,882
|
|
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
4 - Investment in Equity Securities
Investment
in MoreGasTech India Private Limited:
On
March
30, 2007, our wholly owned subsidiary Moregastech LLC entered into a
Collaboration Agreement with Moregastech (India) Private Limited and Mahinder
Singh Khatkar. Pursuant to such agreement, we agreed to acquire 50% of the
ownership of Moregastech India Private Limited. In consideration
therefore, we agreed to pay such Company a purchase price of 4,100,000 Indian
Rupees (approximately $93,300), payable by the issuance of equity capital or
unsecured loans in the amount of such purchase price. Moregastech India
Private Limited is a development stage company and has not started any business
activities as of December 31, 2007. The total amount of $24,500 was paid on
behalf of this investment.
Investment
in Gatal Ltd:
On
January 12, 2007, the Company and its wholly owned subsidiary, Energtek Products
Ltd, entered into a Share Purchase Agreement (the "Share Purchase Agreement")
with MoreGasTech SRL, a Nevis company ("MoreGasTech"). MoreGasTech was the
holder of 100% of the issued and outstanding shares of capital stock of Gatal
(Natural Gas for Israel) Ltd. (hereinafter "Gatal") formed under the laws of
Israel on October 5, 2006. Gatal is a development stage company having minimal
assets and no business operations or revenues.
Pursuant
to the Share Purchase Agreement, Energtek Products Ltd. agreed to acquire Gatal
by purchasing from MoreGasTech all of its shares of Gatal's capital stock,
which
represent 100% of the issued and outstanding capital stock of Gatal. In
consideration therefore, the Company agreed to issue to MoreGasTech 3,500,000
Class 2007-A stock purchase warrants (the "Class 2007-A Warrants"). Each Class
2007-A Warrant grants to the holder thereof the right to purchase one share
of
common stock of the Company, exercisable from July 1, 2008 until December 31,
2011 at a per share exercise price equal to $0.05. The transactions contemplated
under the Share Purchase Agreement were consummated at a closing held on January
12, 2007, simultaneously with the execution of such agreement. As a result
of
such closing, Gatal became the wholly owned subsidiary of Energtek Products
Ltd.
The
fair
value of each of the aforementioned stock option is estimated on the date of
balance using the Black-Scholes option pricing model that uses the following
assumptions: Expected term is based on the Company’s management estimate for
future behavior; Expected volatility is based on the historical volatility
of
the share price for similar companies over a period equal to, or greater than,
the expected term; The risk free rate is based on the U.S. Treasury constant
maturity for a term consistent with the expected term of the award (or weighed
average of the two closest available bonds), as in effect at the date of grant.
The fair value of options granted during the year ended December 31, 2007 was
estimated using the following assumptions: (a) average expected term of the
option of 5 years (b) average risk free interest rate of 4.78% (c) dividend
yield of 0% and (d) volatility of 107%.
The
Company recorded stock-based compensation of $138,730 related to the acquisition
of Gatal.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
4 - Investment in Equity Securities (Cont.)
Investment
in Angstore Technologies Ltd:
Between
November 8, 2006 and June 25, 2007, the Company had purchased an aggregate
7,364
shares representing of 45% of issued and outstanding common stock of Angstore
Technologies Ltd., (“Angstore”) an Israeli company engaged in the development of
Adsorbed Natural Gas systems and other clean energy technologies relating to
natural gas vehicles, pursuant to, and in accordance with, the Letter of
Agreement, dated November 8, 2006, between the Company and Angstore. The
aggregate purchased priced for these shares was $ 270,075.
On
June
29, 2007 the company had purchased an aggregate of 4,000 shares of Angstore’s
common stock at a price per share of $27.50 for an aggregate amount of $110,000,
pursuant to, and in accordance with the Investment Agreement, which Company
entered with Angstore. As of June 30, 2007 the Company owned 11,364 out of
the
20,364 of Angstore’s issued and outstanding common stock, representing
approximately 55.8% of Angstore’s total issued and outstanding
shares.
Between
July 1, 2007 and August 31, 2007, the company had purchased an aggregate of
12,364 shares of Angstore’s common stock, pursuant to, and in accordance with
the Investment Agreement, which Company entered with Angstore on June 29,
2007.at a price per share of $27.50 for an aggregate amount of
$340,010
On
August
23, 2007, the Board of Directors of the Company approved an agreement with
Radel
LLC, a New York limited liability company (“Radel”), to acquire all of the
shares of Angstore owned by Radel. On August 27, 2007, the Company entered
into
a Share Purchase Agreement with Radel pursuant to which the Company purchased
the 9,000 shares of common stock of Angstore owned by Radel. The purchase price
to be paid in exchange for the purchased shares was $275,000, which was paid
by
issuing 550,000 shares of the Company’s common stock to Radel.
With
the
completion of the Radel and Angstore transactions discussed above, the Company
has acquired all of the outstanding common stock of Angstore. Accordingly,
Angstore has become a wholly owned subsidiary of the Company.
The
acquisition was accounted for as a purchase business combination. The
consideration paid in the acquisition has been accounted for under FAS141
"Business Combinations". The Company allocated total amount of 1,074,417 to
IPRD
and expended it immediately in accordance with fin 4
(
Applicability of FASB Statement No. 2 to Business Combinations Accounted for
by
the Purchase Method (An Interpretation of FASB Statement No. 2))
Note
5 – Patent
The
Company has rights for the “Storage systems for absorbable gaseous fuel and
methods of producing the same” patent application. This patent application
provides protection to the inventions and know-how of the Company relating
to
certain design principles and manufacturing methods of the gas tank being
developed by the Company, intended for storage of natural gas on the basis
of
the Adsorbed Natural Gas storage technology. The Company entered into the
process of registration of the patent application in several countries. The
registration fees for these registrations were capitalized to other
assets.
Comprise:
|
|
December 31, 2007
|
|
|
|
(U.S.$)
|
|
|
|
|
|
Cost
|
|
|
47,342
|
|
Less
- accumulated amortization
|
|
|
(5,422
|
)
|
|
|
|
41,920
|
|
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
6 - Account payable and Accrued Liabilities:
|
|
December 31
|
|
|
|
2007
|
|
2006
|
|
Comprise:
|
|
(U.S.$)
|
Employees
and Employee institutions
|
|
|
82,797
|
|
|
9,942
|
|
Service
providers
|
|
|
38,681
|
|
|
13,140
|
|
Short
Term Loans
|
|
|
468,965
|
|
|
-
|
|
Accrued
expenses and others
|
|
|
117,970
|
|
|
9,349
|
|
|
|
|
708,413
|
|
|
32,431
|
|
Note
7 - Stockholders Equity
Between
January 18, 2007 and February 6, 2007, we raised $47,000 by selling 940,000
shares of our common stock to seven non-U.S. persons pursuant to a Regulation
S
Subscription Agreement entered into with each such person. The purchase price
paid to the Company for the purchase of such shares was $0.05 per share,
amounting in the aggregate to $47,000.
On
January 26, 2007, we raised $5,000 by selling 100,000 shares of our common
stock
to a purchaser pursuant to a Regulation D Subscription Agreement. The purchase
price paid to the Company for the purchase of such shares was $0.05 per share,
amounting in the aggregate to $5,000.
On
February 16, 2007, we raised $400,000 by selling 1,111,111 shares of our common
stock to a purchaser pursuant to a Regulation S Subscription Agreement entered
into with such person. The purchase price paid to the Company for the purchase
of such shares was $0.36 per share, amounting in the aggregate to $400,000.
On
February 23, 2007, we raised $250,000 by selling to a purchaser 500,000 units
of
the Company’s securities, each unit consisting of one share of common stock and
two warrants, one of which was designated the Class 2007-D Warrant and the
other
the Class 2007-E Warrant. Each Class 2007-D Warrant entitles the holder thereof
to purchase one share of common stock at a purchase price of $0.75 until June
30, 2008. Each Class 2007-E Warrant entitles the holder thereof to purchase
one
share of common stock at a purchase price of $1.05 until December 31, 2009.
The
purchase price paid to the Company for each unit was $0.50, amounting in the
aggregate to $250,000. A commission in cash amount of $12,500 and additional
25,000 shares of our common stock were issued as commission.
On
March
6, 2007, we raised $29,762 by selling to a purchaser 59,524 units of the
Company’s securities, each unit consisting of one share of common stock and two
warrants, one of which was designated the Class 2007-D Warrant and the other
the
Class 2007-E Warrant. Each Class 2007-D Warrant entitles the holder thereof
to
purchase one share of common stock at a purchase price of $0.75 until June
30,
2008. Each Class 2007-E Warrant entitles the holder thereof to purchase one
share of common stock at a purchase price of $1.05 until December 31, 2009.
The
purchase price paid to the Company for each unit was $0.50, amounting in the
aggregate to $29,762.. A commission in cash amount of $1,488 and additional
2,976 shares of our common stock were issued as commission.
On
March
16, 2007, we raised $34,000 by selling to a purchaser 68,000 units of the
Company’s securities, each unit consisting of one share of common stock and two
warrants, one of which was designated the Class 2007-D Warrant and the other
the
Class 2007-E Warrant. Each Class 2007-D Warrant entitles the holder thereof
to
purchase one share of common stock at a purchase price of $0.75 until June
30,
2008. Each Class 2007-E Warrant entitles the holder thereof to purchase one
share of common stock at a purchase price of $1.05 until December 31, 2009.
The
purchase price paid to the Company for each unit was $0.50, amounting in the
aggregate to $68,000. A commission in cash amount of $1,700 and additional
3,400
shares of our common stock were issued as commission.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
7 - Stockholders Equity (Cont.)
On
March
27, 2007, we raised $287,000 by selling to a purchaser 574,000 units of
the
Company’s securities, each unit consisting of one share of common stock and two
warrants, one of which was designated the Class 2007-D Warrant and the
other the
Class 2007-E Warrant. Each Class 2007-D Warrant entitles the holder thereof
to
purchase one share of common stock at a purchase price of $0.75 until June
30,
2008. Each Class 2007-E Warrant entitles the holder thereof to purchase
one
share of common stock at a purchase price of $1.05 until December 31, 2009.
The
purchase price paid to the Company for each unit was $0.50, amounting in
the
aggregate to $287,000.
A
commission in cash amount of $14,350 and additional 28,700 shares of our
common
stock were issued as commission.
On
March
28 and March 29, 2007, we raised $70,000 by selling to purchasers 140,000
units
of the Company’s securities, each unit consisting of one share of common stock
and two warrants, one of which was designated the Class 2007-D Warrant
and the
other the Class 2007-E Warrant. Each Class 2007-D Warrant entitles the
holder
thereof to purchase one share of common stock at a purchase price of $0.75
until
June 30, 2008. Each Class 2007-E Warrant entitles the holder thereof to
purchase
one share of common stock at a purchase price of $1.05 until December 31,
2009.
The purchase price paid to the Company for each unit was $0.50, amounting
in the
aggregate to $70,000. Commissions in cash amount of $3,500 and additional
7,000
shares of our common stock were issued as commission.
On
April
26 and April 27, 2007, we raised $230,000 by selling to purchasers 460,000
units
of the Company’s securities. Commissions in cash amount of $11,500 and
additional 23,000 shares of our common stock were issued as commission.
On
May
21, 2007, we raised $200,000 by selling to a purchaser 400,000 units of
the
Company’s securities. A commission in cash amount of $10,000 and additional
20,000 shares of our common stock were issued as commission.
Between May
24, 2007 and May 30, 2007, we raised an aggregate of $850,000 by selling
to
three purchasers an aggregate of 1,700,000 units of the Company’s securities.
Commissions in cash amount $42,500 and additional 85,000 shares of the
Company’s
common stock were issued to as commission.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
7 - Stockholders Equity (Cont.)
On
June
19, 2007, the Company raised an additional $500,000 by selling to two purchasers
a total of 1,000,000 units of the Company’s securities. Commission in cash
amount of $25,000 was paid and additional 50,000 shares of the Company’s common
stock were issued to a as commission.
In
all
the preceding transactions between April 26 and June 19, each unit consisted
of
one share of common stock and two warrants, one of which was designated the
Class 2007-D Warrant and the other the Class 2007-E Warrant. Each Class 2007-D
Warrant entitles the holder thereof to purchase one share of common stock
at a
purchase price of $0.75 until June 30, 2008 (extended by the Company to December
31, 2008). Each Class 2007-E Warrant entitles the holder thereof to purchase
one
share of common stock at a purchase price of $1.05 until December 31, 2009
(extended by the Company to June 30, 2010). The purchase price paid to the
Company for each unit was $0.50.
On
June
20, 2007, the Company decided to redeem the 2,500,000 Class A Series warrants
it
had issued in August 2006 by purchasing such warrants from the holders thereof
at a redemption price of $0.05 per warrant for the aggregate amount of $125,000.
On the same date, the Company decided to redeem the 2,500,000 Class B Series
warrants which it had issued in August 2006 by purchasing such warrants from
the
holders thereof at a redemption price of $0.05 per warrant for the aggregate
amount of $125,000. These redemptions were made in accordance with the terms
of
the Warrant Agreements previously entered into between the Company and the
holders of such warrants upon their issuance.
On
July
19, 2007, the Company raised an additional $620,000 by selling to one purchaser
a total of 1,240,000 units of the Company’s securities, each unit consisting of
one share of common stock and two warrants, one of which was designated the
Class 2007-D Warrant and the other the Class 2007-E Warrant. The Class 2007-D
and Class 2007-E Warrants issued with respect to this transaction bear different
expiration dates than the Class 2007-D and Class 2007-E Warrants referenced
above. Each Class 2007-D Warrant entitles the holder thereof to purchase
one
share of common stock at a purchase price of $0.75 until December 31, 2008.
Each
Class 2007-E Warrant entitles the holder thereof to purchase one share of
common
stock at a purchase price of $1.05 until June 30, 2010. The purchase price
paid
to the Company for each unit was $0.50. Commissions in cash amount of
$ 31,000 and additional 62,000 shares of the Company’s common stock were
issued as commission.
On
July
29 and July 31, 2007, the Company signed subscription agreements for additional
$620,500 to be paid to the Company not later than August 17, 2007, by selling
to
two purchasers a total of 1,241,000. Commissions in cash amount of $ 31,025
and
additional 62,050 shares of the Company’s common stock were issued as
commission.
In
the
preceding transactions since July 19 to July 31, each unit consisted of one
share of common stock and two warrants, one of which was designated the Class
2007-D Warrant and the other the Class 2007-E Warrant. Each Class 2007-D
Warrant
entitles the holder thereof to purchase one share of common stock at a purchase
price of $0.75 until December 31, 2008. Each Class 2007-E Warrant entitles
the
holder thereof to purchase one share of common stock at a purchase price
of
$1.05 until June 30, 2010. The purchase price paid to the Company for each
unit
was $0.50.
On
August
22, 2007, the Company received an aggregate of $1,295,000 from several
warrantholders as a result of the exercise of a total of 3,716,666 warrants.
The
warrantholders exercised 2,516,666 Class A warrants at $0.10 per share for
7,549,998 common shares, and 1,200,000 Class B warrants exercisable at $0.15
per
share for 3,600,000 common shares. Accordingly, the Company issued an aggregate
of 11,149,998 shares of its common stock to the exercising
warrantholders
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
7 - Stockholders Equity (Cont.)
On
October 1, 2007, we entered into agreement with American Capital Ventures Inc.
("ACV"), to provide the Company with investor relations consulting services.
In
consideration therefore, the Company agreed to issue up to an aggregate of
150,000 shares of its common stock and warrants entitling ACV to purchase up
to
an aggregate of 100,000 restricted shares of our common stock at an exercise
price of $1.05 per share.
As
of
October 3, 2007 the Company issued to ACV, regarding past services, total amount
of 75,000 shares of its common stock. Total amount of $56,250 was charged to
G&A expenses.
.The
agreement was suspended on January 1, 2008 for a period of three
months.
On
November 29, 2007, the Company raised an additional $60,000 by selling to one
purchaser a total of 80,000 units of the Company’s securities, each unit
consisting of one share of common stock and one warrant, which was designated
the Class 2007-J. Each Class 2007-D Warrant entitles the holder thereof to
purchase one share of common stock at a purchase price of $1.5 until February
28, 2011. The purchase price paid to the Company for each unit was $0.75.
Commissions in cash amount of $ 3,000 and additional 4,000 shares of the
Company’s common stock were issued as commission.
Note
8 - General and administrative expenses:
|
|
December 31
|
|
|
|
2007
|
|
2006
|
|
Comprise:
|
|
(U.S.$)
|
|
Salary
|
|
|
743,294
|
|
|
56,153
|
|
Start-up
costs
|
|
|
138,730
|
|
|
-
|
|
Travel
expenses
|
|
|
239,262
|
|
|
1,866
|
|
Accounting
& Legal services
|
|
|
111,610
|
|
|
55,641
|
|
Vehicle
expenses
|
|
|
71,464
|
|
|
6,404
|
|
Advertising
& Promotion
|
|
|
62,600
|
|
|
-
|
|
Office
& Others
|
|
|
78,491
|
|
|
41,464
|
|
|
|
|
1,445,451
|
|
|
161,528
|
|
Note
9 - Compensation to Directors, Advisory Board
and
Officers
1)
On
January 17, 2007, the Board of Directors of Energtek Inc. approved issuing
to
its directors stock purchase warrants designated as "Class 2007-B Warrants,"
as
compensation for services previously rendered, as follows: (i) Joseph Shefet
was
issued 55,000 stock purchase warrants in consideration for serving as a director
of the Company from June, 2006 until October 2006, and as a member of the its
Advisory Board during November and December, 2006. (ii) Doron Uziel was issued
80,000 Class 2007-B Warrants in consideration for serving as a director from
May
2006 until December 2006, and additional 32,000 Class 2007-B Warrants in
consideration for serving as Chief Executive Officer of the Company from May
2006 until December 2006. (iii) Yishai Aizik was issued 30,000 Class 2007-B
Warrants in consideration for serving as director from October 2006 until
December 2006. Each Class 2007-B Warrant grants to the holder thereof the right
to purchase one share of common stock of the Company, exercisable from January
1, 2008 until December 31, 2011, at the exercise price of $0.05 per
share.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
9 - Compensation to Directors, Advisory Board
and
Officers
(cont.)
2)
On
January 17, 2007, the Board of Directors of the Company set the terms of
compensation for the directors of the Company for the period commencing as
of
January 1, 2007. Commencing as of such date, each director of the Company shall
be entitled to the following compensation: (i) $4,200 per year, paid on a
monthly basis; (ii) $1,000 per participation at each meeting of the Board of
Directors; and (iii) 150,000 stock purchase warrants designated as "Class 2007-C
Warrants," which will vest pro-ratably in 24 equal and consecutive monthly
amounts of 6,250 Class 2007-C warrants, commencing on the last day of January,
2007 and continuing on the same day of each subsequent month until December
31,
2008. Each Class 2007-C Warrant shall grant to the holder thereof the right
to
purchase one share of common stock of the Company at an exercise price equal
to
$0.36 per share, exercisable from the date such warrant vests until December
31st of the fifth calendar year following the year in which the warrant vested.
3)
On
January 17, 2007, the Board of Directors of the Company set the terms of
compensation for the Advisory Board of the Company for the period commencing
as
of January 1, 2007. Commencing as of such date, each member of Advisory Board
of
the Company shall be entitled to the following compensation: (i) $500 per
participation at each meeting of the Board of Directors; and (ii) 102,000 stock
purchase warrants designated as "Class 2007-C Warrants," which will vest
pro-ratably in 24 equal and consecutive monthly amounts of 4,250 Class 2007-C
warrants, commencing on the last day of the nomination month and continuing
on
the same day of each subsequent month. Each Class 2007-C Warrant shall grant
to
the holder thereof the right to purchase one share of common stock of the
Company at an exercise price equal to $0.36 per share, exercisable from the
date
such warrant vests until December 31st of the fifth calendar year following
the
year in which the warrant vested.
4)
On
October 15, 2007, Doron Uziel was issued additional 100,000 Class 2007-F
warrants in recognition for the achievements and performance of the Company
during the period in which Mr. Uziel served as CEO.
5)
During
the year ended December 31, 2007, the Company recorded stock-based compensation
of $170,000 related to the compensation to directors, advisory board and
officers.
6)
The
fair value of each of the aforementioned stock option is estimated on the date
of balance using the Black-Scholes option pricing model that uses the following
assumptions: Expected term is based on the Company’s management estimate for
future behavior; Expected volatility is based on the historical volatility
of
the share price for similar companies over a period equal to, or greater than,
the expected term; The risk free rate is based on the U.S. Treasury constant
maturity for a term consistent with the expected term of the award (or weighed
average of the two closest available bonds), as in effect at the date of grant.
7)
The
fair value of options granted during the year ended December 31, 2007 was
estimated using the following assumptions: (a) average expected term of the
option of 4.28 years (b) average risk free interest rate of 4.15% (c) dividend
yield of 0% and (d) volatility of 107%.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
9 - Compensation to Directors, Advisory Board
and
Officers
(cont.)
8)
The
following table summarizes the changes in the above stock options for the year
ended December 31, 2007:
|
|
Options
|
|
Weighted-
Average
Exercise
Price
(U.S.
Dollars)
|
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
|
Aggregate
Intrinsic
Value
(U.S.
Dollars
)
|
|
Outstanding
at January 1, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
- below market price
|
|
|
1,488,000
|
|
$
|
0.32
|
|
|
4.68
|
|
|
88,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
1,488,000
|
|
$
|
0.32
|
|
|
4.68
|
|
|
88,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
829,541
|
|
$
|
0.29
|
|
|
4.68
|
|
|
55,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value of options granted during the year
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
9)
As Of
December 31, 2007 the total unrecognized compensation cost related to unvested
options was $ 177,693 which will be recognized over 1.20 years
period.
10)
When
the stock compensations are subject to graded vesting, the company recognizes
the compensation cost at a straight line basis.
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
10 - Deferred Income Taxes:
Deferred
tax assets reflect the net tax effects of temporary differences between the
carrying amounts of assets or liabilities for financial reporting purposes
and
the amounts used for income tax purposes. As of December 31, 2007 and 2006
the
Company’s deferred taxes were in respect of the following:
|
|
December 31
|
|
|
|
2007
|
|
2006
|
|
|
|
(U.S.$)
|
|
Net
operating losses carry forwards
|
|
|
965,844
|
|
|
211,791
|
|
Valuation
allowance
|
|
|
(965,844
|
)
|
|
(211,791
|
)
|
|
|
|
-
|
|
|
-
|
|
Note
11
-
Significant
Transactions
and Capital Commitments
On
April
17, 2007, our wholly-owned subsidiary UkCyl Ltd (“UkCyl”), entered into a
Purchase Agreement with Pavlograd Plant for Technological Equipment, a Ukrainian
limited liability company (“Pavlograd”). Pursuant to such agreement, Pavlograd
agreed to sell to UkCyl certain machinery. The aggregate purchase price to
be
paid by UkCyl to Pavlograd for such machinery is approximately
$343,000.
Up
to
December 31, 2007 the company has paid to Pavlograd total $174,340 (not included
value added taxes) according to the progress in the done work.
On
September 26, 2007, UkCyl entered into an agreement with Dynatech Furnaces
(Bombay) Pvt. Ltd. (“Dynatech”) to purchase a high pressure steel seamless
Cylinder Heat Treatment Furnace Line (the “Agreement”). UkCyl is to pay a total
purchase price of $190,000, which will be paid in three installments at
specified intervals. The first installment, in the amount of $85,000, was paid
to Dynatech within 10 weeks following execution of the Agreement. Upon payment
of the first installment, the two directors of Dynatech have executed a personal
guarantee, guaranteeing the performance of Dynatech pursuant to the Agreement.
This guarantee is in the amount of $85,000 and will be expire upon the
inspection by Ukcyl of the equipment at Dynatech’s facility in India.
Pursuant
to the terms and provisions of the Agreement, on or before January 31, 2008,
Dynatech is to prepare the equipment for inspection and testing by Ukcyl at
Dynatech’s facility in India. Upon inspection and approval of the equipment,
Dynatech shall dismantle the equipment and prepare it for shipment to
Ukcyl’s facility in Ukraine. Upon completion of the inspection in India,
Dynatech shall receive a second installment in the amount of $75,000.
Upon
arrival of the equipment to Ukcyl's facilities in Ukraine, Dynatech shall assist
in the installation and testing of the equipment. Following the installation
and
the initial operation of the equipment, Dynatech shall be paid $30,000
representing the balance of the purchase price. In the event the equipment
does
not conform to the specifications required pursuant to the Agreement, Dynatech
shall pay damages in the amount of $160,000. The payment of such damage amount
does not limit any other legal rights and remedies available to
Ukcyl.
The
equipment purchased is subject to a one year warranty as of the date of
installation and commencement of operation in Ukcyl’s facility. In addition, for
a period of three years following installation, Dynatech shall provide technical
support with respect to the operation of the equipment.
Total
Commitments for the acquisition of the equipment
are
$273,660 (not including value added taxes)
ENERGTEK
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note
12- Commitments and Contingencies
Office
of the Chief Scientist Grants and Technological Incubator
A.T.I
Our
wholly-owned subsidiary Angstore Technologies Ltd ’s (“Angstore”), research and
development efforts have been partially financed through grants from the Office
of the Chief Scientist of the Israeli Ministry of Industry and Trade (the “OCS”)
which have been got by the means of the Ashkelon Technological Incubator A.T.I
("the ATI"), in Ashkelon, Israel. In return for the OCS’s financing, the Company
is committed to pay, by the means of the ATI, royalties to the Israeli
Government at the rate of 3% for each of the first three years of revenues
related to the technology developed with the support of the OCS, at the rate
of
4% for each of the next three years (starting from the fourth year )and , at
the
rate of 5% from the seventh year onwards, up to 100% of the amount of the grants
received. There are no future performance obligations related to the grants
received from the OCS. During the years 2003-2005 Angstore received from the
OCS
office a total cumulative amount of 267,799$.
In
addition, the Company is committed during the first seven years of research
and
development activity to manage activities in the area of Ashkelon, Israel.
if
not, the Company is committed to pay, in addition to the amount above, 1 %
of
the sales of its product up to the total of 500,000$.
Note
13 - Going Concern
The
Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course
of
business. The Company is working on the basis of a budget that will enable
it to
operate during the coming year. However the Company will need additional working
capital for its future planned expansion of activities and to service its debt,
which raises doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining
sufficient capital to be successful in that effort. The accompanying
consolidated financial statements do not include any adjustments relating to
the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty.
Note
14
-
S
ubsequent
E
vents
:
On
October 17, 2007, our wholly-owned subsidiary UkCyl Ltd (“UkCyl”), filed two
lawsuits with the Court for Commercial Demands at Transcarpathian province,
Ukraine, (hereinafter - the Court) against Steatite - Open Joint Stock Company
(hereinafter - Steatite), the seller of a building that was purchased by the
Company on May 15, 2007 . In these lawsuits, UkCyl requested that the Court
order Steatite to comply with the Sale-Purchase Agreement dated May 15, 2007
(hereinafter - the Agreement), by removing machinery belonging to Steatite
and
demolishing an old building located on the premises. According to the decisions
of the Court dated 23.11.2007, Steatite was obliged to release the production
premises from any objects belonging to Steatite and to demolish residuals of
the
old building. On January 9, 2008 the Court issued an order under the case
concerning the liability of Steatite to release the production premises. On
January 11, 2008 the Department of the State Executive Service of the area
opened an executive prosecution in pursuance of the order of the Court
.Presently all of production premises are completely released. Regarding the
case of the demolishing old building the Steatite submitted the case appeal
against the decision of the Court dated November 23, 2007 to the Lviv Court
of
Appeal (Court of Appeal). On February 12, the Court of Appeal ordered to dismiss
the appeal upon Steatite’s request. Old building does not currently prevent
UkCyl from constructing the UkCyl’s facility or commencing operations. . In
these lawsuits the Court and the court of Appeal ordered Steatite to pay the
UkCyl’s legal expenses incurred in connection with these actions
.
On
January 3, 2008 the Steatite filed lawsuit with the Court against UkCyl
concerning recognition of invalidity of certain clauses and appendix of the
Agreement in the issues related to the land. On February 5,2008 the case was
closed due to the complainant’s failure to appear at the Court session.
Between January
1, 2008 and March 12, 2008, we raised an aggregate of $255,000 by selling to
purchasers an aggregate of 340,000 units of the Company’s securities, each
unit consisting of one share of common stock and one warrant, designated Class
2007-J Warrant. Each Class 2007-J Warrant entitles the holder thereof to
purchase one share of common stock at a purchase price of $1.50 until February
28, 2011. The purchase price paid to the Company for each unit was $0.75. The
units were offered and sold pursuant to a placement held under Regulation S
promulgated under the Securities Act of 1933, as amended.
The
purchasers represented to us that such purchasers were not United States persons
(as defined in Regulation S) and were not acquiring the shares for the account
or benefit of a United States person. The purchasers further represented that
at
the time of the origination of contact concerning the subscription for the
units
and the date of the execution and delivery of the
subscription
agreement for such units, such purchasers were outside of the United States.
We
did not make any offers in the United States, and there were no selling efforts
in the United States. There were no underwriters or broker-dealers involved
in
the private placement and no underwriting discounts. Commissions in cash, in
the
amount of $12,750 are to be paid on the said fund raising and additional 17,000
shares of our common stock are to be issued as commission.
On
March
5, 2008 our Board of Directors approved the nomination of Mr. Eliezer Sandberg
as Active Chairman of the Board. The authorized compensation provides, among
others, for the issuance of warrants as follows:
|
a.
|
50,000
(Fifty Thousand) warrants with exercise price of $0.36 vesting on
June 30,
2008, exercisable until June 30,
2011
|
|
b.
|
50,000
(Fifty Thousand) warrants with exercise price of $0.36 vesting on
April
30, 2009, exercisable until March 31,
2012
|
|
c.
|
50,000
(Fifty Thousand) warrants with exercise price of $0.36 vesting on
April
30, 2010, exercisable until March 31,
2013
|
|
d.
|
120,000
(One Hundred Twenty Thousand) warrants with exercise price of $0.50
vesting on March 31, 2009, exercisable until March 31,
2012
|
|
e.
|
115,000
(One Hundred Fifteen Thousand) warrants with exercise price of $0.50
vesting on March 31, 2010, exercisable until March 31,
2013
|
|
f.
|
115,000
(One Hundred Fifteen Thousand) warrants with exercise price of $0.50
vesting on March 31, 2011, exercisable until March 31,
2014
|
In
addition, the compensation plan allow for additional compensation, in part
depending on the fulfillment of certain conditions addressing funds, as
described in the Form 8-K filed by us on March 10, 2008, incorporated herein
by
reference.
On
March
17, 2008 our Board of Directors has approved terms for cooperation with
Confidence Petroleum India Limited, for activities in Asia and Europe, as
described in the Form 8-K filed on the same day and incorporated herewith by
reference.