SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended October 31, 2012
For the transaction period from________to_______
Commission File Number: 000-52653
Registrant’s telephone number, including area code
Securities registered pursuant to section 12 (b) of the Act: None
Securities registered pursuant to section 12 (g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. o Yes x No
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 past 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 o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 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 o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K x
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 definition of “large accelerated filer”, “accelerated filer” and “small reporting company” Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
The aggregate market value of the 87,648,600 shares of voting and non-voting common equity held by non-affiliates of the registrant as of April 30, 2012 was approximately $5,127,443 based upon the closing price of $0.0585 per share reported for such date on the Over-the-Counter Bulletin Board maintained by FINRA. Shares of common stock held by each officer and director and by each person who is known to own 10% of more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates of the Company. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE: None.
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some discussions in this Annual Report on Form 10-K contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties and relate to future events or future financial performance. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this Form 10-K. Forward-looking statements are often identified by words such as “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project,” “plans,” “seek” and similar expressions or words which, by their nature, refer to future events. In some cases, you can also identify forward-looking statements by terminology such as “may,” “will,” “should,” “plans,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.
These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” below 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. In addition, you are directed to factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section as well as those discussed elsewhere in this Form 10-K.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity 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. However, readers should carefully review the risk factors set forth in other reports or documents the Company files from time to time with the Securities and Exchange Commission (the “SEC”), particularly the Company’s Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
As used in this Annual Report on Form 10-K, “we,” “us,” and “our” refer to Cleantech Transit, Inc., which is also sometimes referred to as the “Company,” unless the context otherwise requires. In addition, references to “dollars” and “$” are to United States dollars.
ITEM 1: BUSINESS
History and Organization
We were incorporated under the laws of the State of Nevada on June 28, 2006 under the name Patterson Brooke Resources Inc. to identify and acquire a mineral property that held the potential to contain gold and/or silver mineralization. In early 2010, due to the global economic crisis, a challenging environment for raising capital and the lack of suitable drill targets discovered on the Alice Claim, we decided to shift our business focus to begin to explore opportunities in the development and production of hybrid, electric, alternative fuel and diesel heavy duty transit buses, luxury motor coaches and tour buses. In furtherance of that, on April 7, 2010, we amended our Articles of Incorporation to change our corporate name to Cleantech Transit, Inc.
Summary of Significant Events
In October, 2006, we purchased the Alice Claim, situated in NWT, Canada, for $1,000 from Mr. Max Braden, an independent unrelated prospector of Yellowknife, NWT to explore for minerals.
On October 31, 2006, we closed a private placement pursuant to Regulation S of the Securities Act of 1933, whereby 538,000 common shares were sold at the price of $0.05 per share to raise $26,900.
On February 14, 2008, we conducted a 25 to 1 forward stock split of all of our issued and outstanding shares.
On March 10, 2010, we entered into a Letter of Intent with Greentech Holdings LLC (“Greentech”) outlining the terms of a contemplated definitive agreement for the purchase of certain assets in the clean technology urban mass transit sector from Greentech in exchange for 32,000,000 shares of our common stock. In mid-2010, we decided not to pursue a transaction with Greentech.
On October 13, 2010, we conducted a 3 to 1 forward stock split by way of stock dividend. In accordance with the forward stock split, we issued a dividend of two shares of common stock of the Company for each share of common stock issued and outstanding as of the record date of October 13, 2010 (the “Stock Dividend”). The payment date for the Stock Dividend was October 13, 2010.
On July 11, 2011, the Company formed Cleantech Energy, Inc. as a wholly owned subsidiary. There has been no activity in this entity.
On July 25, 2011, the Company formed Cleantech Exploration Corp. as a wholly owned subsidiary. There has been no activity in this entity.
On July 14, 2011, the Company amended its articles of incorporation increasing its authorized capital stock to 610,000,000 consisting to 600,000,000 shares of common stock with a par value of $0.001 per shares and 10,000,000 shares of preferred stock with a par value of $0.001.
On August 23, 2011, the Company designated 5,000,000 of the 10,000,000 preferred shares as Series A Convertible preferred. These share have a conversion right of 10 shares of common for each share of preferred, a voting right as a class, and liquidation preference valuation of $0.50 per share.
On August 19, 2011, the Company entered into an agreement with Phoenix Biomass Energy, Inc. whereas the Company obtained a 40% interest in Ortigalita Power Company, LLC. from Phoenix Biomass for $360,000. The Company is accounting for this investment under the equity method. Ortigalita is building a plant to produce electricity from waste and by products. The Company has paid $335,000 in cash and has executed a no interest demand note for $25,000.The closing date of this purchase was October 31, 2011.
As the Company paid less than the relative fair value of the net assets received, it has recorded a gain on bargain purchase in the amount of $110,362.
On July 31, 2012, the Company impaired the investment in the Ortigalita Power Company reducing the value of the investment to zero.
We are now considered a development stage company with minimal day-to-day operations as we seek out potential business opportunities. We have no revenues, have achieved losses since inception, and currently have limited operations.
Our Board of Directors is analyzing strategic alternatives available to our Company to continue as a going concern. Such alternatives included raising additional debt or equity financing or consummating a merger or acquisition with a partner that may involve a change in our business plan. The board is considering many viable strategic alternatives that are in the best interests of our shareholders. Such strategic alternatives include a merger, acquisition, share exchange, asset purchase, or similar transaction in which our present management may no longer be in control of our Company and our business operations would be replaced by that of our transaction partner. The Company will continue to pursue the area of alternative energy and renewable energy.
The Company has no employees.
The Company has made a single investment in an alternative energy plant. The Company continues to look for opportunities in the same field as opportunities arise and the funds for investment are available.
Capital Equipment and Expenditures
During the year ended October 31, 2012, the Company did not acquire any material capital equipment.
We are responsible for filing various forms with the United States Securities and Exchange Commission (the “SEC”) such as Form 10-K and Form 10-Q. Shareholders may read and copy any material filed by us with the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, DC, 20549. The shareholders may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information which we have filed electronically with the SEC which shareholders may access by going to the SEC website, using the following address: http://www.sec.gov.
Our principal executive office is located at: 11226 Pentland Downs Road, Las Vegas, NV 89141. Our telephone number at that address is (702) 448-1543.
ITEM 1A: RISK FACTORS
An investment in our securities involves an exceptionally high degree of risk and is extremely speculative. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.
If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.
Risks Related to Financing Our Business
We will need to obtain additional financing to fully implement our business plan. If we do not obtain such financing, we may have to reduce or cease our activities and investors could lose their entire investment.
There is no assurance that we will operate profitably or generate positive cash flow in the future. We will require additional financing in order to implement the various stages of our business plan. We will also require additional financing to sustain our business operations if we are not successful in receiving revenues at the levels that we anticipate. We may not be able to obtain financing on commercially reasonable terms or terms that are acceptable to us when it is required. Because of the worldwide economic downturn or because of other reasons, we may not be able to raise any additional funds that we require on favorable terms, if any. The failure to obtain necessary financing may impair our ability to manufacture our products and continue in business. If we do not obtain such financing, our business could fail and investors could lose their entire investment.
Our ability to generate positive cash flow is uncertain.
To develop and expand our business, we will need to make significant up-front investments in our manufacturing capacity and incur research and development, sales and marketing and general and administrative expenses. In addition, our growth will require a significant investment in working capital. Our business will require significant amounts of working capital to meet our production requirements and support our growth. Therefore, even after the proceeds from any potential offering, we will need to raise additional capital from investors to meet our production requirements and achieve our expected growth.
We cannot provide any assurance that we will be able to raise the debt and equity necessary to meet these requirements. Obtaining capital will be challenging, due to the current environment in the financial markets and current world instability. If adequate funds are not available or are not available on acceptable terms when required, we may be required to significantly curtail our operations and may not be able to fund our current production requirements — let alone fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance our products, or respond to competitive pressures. Any failure to obtain such additional financing could have a material adverse effect on our business, results of operations and financial condition.
We may be unable to raise additional capital to pursue our commercialization plans and may be forced to delay product development, reduce our sales and marketing efforts or forego attractive business opportunities.
If we are successful in raising financing proceeds, we believe this will permit us to complete the development of a limited number of product prototypes that can be evaluated by potential customers, and to pay for certain other operating costs. However, even if we are successful in raising such proceeds, we will need to raise additional funds in order to implement our intended operating plan. If we are unable to raise additional capital or are unable to do so on acceptable terms, we may be prevented from conducting all or a portion of our planned operations. In particular, the development or expansion of our business could be delayed or aborted if we are unable to fund our activities. In addition, we may be forced to reduce our sales and marketing efforts or forego attractive business opportunities. If we fail to execute our strategy to achieve and maintain profitability in the future, we may fail to meet expectations of investors, and the price of our common shares may decline, which would adversely affect our ability to raise additional capital.
Our stockholders may suffer significant dilution if we raise additional capital.
If we raise additional capital, we expect it will be necessary for us to issue additional equity or convertible debt securities. If we issue equity or convertible debt securities, the price at which we offer such securities may not bear any relationship to our value, the net tangible book value per share may decrease, the percentage ownership of our current stockholders would be diluted, and any equity securities we may issue in such offering or upon conversion of convertible debt securities issued in such offering, may have rights, preferences or privileges with respect to liquidation, dividends, redemption, voting and other matters that are senior to or more advantageous than our common stock.
We are a new company with limited operating history. We have no track record to determine if our planned business will be financially viable or successful.
We have only recently commenced operations of the business described herein, and we have not yet manufactured or sold any buses or vehicles to customers. Until we are actually in the marketplace for a demonstrable period of time, it is impossible to determine if our business strategies will be viable or successful. Although the bus and motor coach industries are not new, the market for eco-friendly buses and motor coaches is relatively new. The viability of our business will, to some extent, rely both upon the demand for eco-friendly, novel buses and motor coaches by both public transit agencies and authorities and by private customers. It is impossible to give any assurance of our future viability or success in generating revenues or profits.
Because we may never have net income from our operations, our business may fail and then investors may lose all of their investment in our company.
We have no history of revenues and profitability from operations. There can be no assurance that we will ever operate profitably. The success of our company is significantly dependent on uncertain events, including development of successful commercial prototypes of products, successful testing of those prototypes by third parties, establishing satisfactory manufacturing arrangements and processes, and obtaining orders from customers for our products. If our business plan is not successful and we are not able to operate profitably, then our stock may become worthless and investors may lose all of their investment in our company.
Before receiving revenues from sales to customers of our products, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses. If we are unable to generate significant revenues from sales of our products, we will not be able to earn profits or continue operations. We can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our company.
Our limited operating history makes it difficult to evaluate our future prospects and results of operations.
We recently commenced operations and have a limited operating history. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving industries, and by companies engaged in overseas operations. Some of these risks and uncertainties relate to our ability to:
If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.
If we obtain debt financing, we will face risks associated with financing our operations.
If we obtain debt financing, we will be subject to the normal risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, and the risk that we will not be able to renew, repay, or refinance our debt when it matures or that the terms of any renewal or refinancing will not be as favorable as the existing terms of that debt. If we enter into secured lending facilities and are unable to pay our obligations to our secured lenders, they could proceed against any or all of the collateral securing our indebtedness to them.
If we fail to implement our business strategy, our financial performance and our growth could be materially and adversely affected.
Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Our business strategy envisions several initiatives, including driving revenue growth and enhancing operating results by generating customer demand for and acceptance of our innovative buses and vehicles, establishing successful sales, marketing and distribution networks and reducing operating costs through efficient manufacturing arrangements. We may not be able to implement our business strategy successfully or achieve the anticipated benefits of our business plan. If we are unable to do so, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all. Implementation of our business strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions or increased operating costs or expenses. In addition, to the extent we have misjudged the nature and extent of industry trends or our competition; we may have difficulty in achieving our strategic objectives. Any failure to implement our business strategy successfully may adversely affect our business, financial condition and results of operations. In addition, we may decide to alter or discontinue certain aspects of our business strategy at any time.
The continuation or worsening of current recessionary economic conditions could have a material adverse effect on our profitability and financial condition.
We are in the midst of a significant global recession. Current conditions are causing significant global economic uncertainty, thus subjecting us to significant planning risk with respect to our business and potential pricing pressure on our products. We cannot predict when the recession will end or what our prospects will be once the recession has ended and markets resume to more normal conditions. In addition, the recession may last longer and/or be more severe than we currently anticipate. The continuation of current economic conditions for an extended period of time or the worsening of such conditions could have a material adverse effect on our business.
Risks Related to Our Business and Industry
The success of our business depends in part upon factors beyond the control of our company. We may never become commercially viable and we may be forced to cease operations.
The commercial feasibility of our business and intended business is dependent upon many factors beyond our control, including customer demand for our products, governmental decisions relating to public transit and alternate energy policies, actions by our competitors, and environmental regulation. These factors cannot be accurately predicted, and any one or a combination of these factors may result in our company not receiving an adequate return on invested capital. These factors may have material and negative effects on our financial performance and our ability to continue operations.
We will depend on our suppliers, some of which are limited sources of supply, and the loss of these suppliers could materially and adversely affect our business, results of operations and financial condition.
Our design and development activities will rely on significant use of commercially available components. We intend to obtain some of our critical components from limited sources and generally will not maintain significant inventories or generally have long-term or exclusive supply contracts with our vendors. If any of the commercially available components we will use fails to perform as expected, or if our rights to use, modify and resell these components are restricted, we would have to find replacement components and may not be able to do so on terms that are acceptable to us or at all, and that could result in added expenses, schedule or delivery delays, customer dissatisfaction and damages being assessed against us, any of which could have a material adverse effect on our business, results of operations and financial condition.
We may experience delays in receiving products from vendors from time to time due to lack of availability, quality control, manufacturing problems, shortages of materials or components, or product design difficulties. We may experience delays in the future, and replacement products may not be available when needed, or at all, or at commercially reasonable rates or prices. If we were to change some of our vendors, we would have to perform additional testing procedures on the product supplied by the new vendors and might have to reconfigure our products to integrate any new components, which could delay the availability of, or make unavailable, our products. Furthermore, our costs could increase significantly if we need to change vendors. If we do not receive timely deliveries of quality products, or if there are significant increases in the prices of these products, our business, financial condition and results of operations could be affected adversely.
Changes in tax policies and governmental incentives may reduce or eliminate the economic benefits that make our products attractive to customers.
In some jurisdictions, such as the United States, governments provide tax benefits and incentives to customers for clean-air vehicles, including tax credits, rebates and reductions in applicable tax rates. Any reduction in, or elimination of, these tax benefits or incentives may have an adverse effect on our business, financial condition and results of operations.
We may be subject to lengthy sales cycles.
Particularly with respect to sales to government entities, we may be subject to lengthy sale cycles that may last months or years. These lengthy and challenging sales cycles may mean that it could take longer before our sales and marketing efforts result in revenue, if at all, and may have adverse effects on our operating results, financial condition, cash flows and stock price.
Our business may become substantially dependent on contracts that are awarded through competitive bidding processes.
We may sell a significant portion of our products pursuant to contracts that are subject to competitive bidding, including contracts with municipal and other local transit authorities. Competition for, and negotiation and award of, contracts in the United States and foreign markets present varied risks, including, but not limited to:
If we are unable to win contracts awarded through the competitive bidding process, we may not be able to operate in the market for products and services that are provided under those contracts for a number of years. If we are unable to consistently win new contract awards over any extended period, or if we fail to anticipate all of the costs and resources that will be required to secure and perform such contract awards, our growth strategy and our business, financial condition and results of operations could be materially and adversely affected.
Some of our future contracts may be fixed-price contracts, which could subject us to losses if we are not able to perform within the fixed prices that we have negotiated for our contracts.
Some of our contracts that we expect to enter into in the future with customers may be fixed-price contracts. Fixed-price contracts enable us to benefit from cost savings. While we may have provisions in multi-year contracts allowing certain price adjustments based upon, among other things, the consumer price index and certain extraordinary cost events, we anticipate that we will be required to carry the burden of covering our costs in excess of the negotiated fixed prices, as adjusted. If our initial estimates are incorrect, we could lose substantial sums on these contracts. In addition, some of our future contracts may have provisions relating to audit rights and certain other conditions, which if we fail to meet the terms specified in those contracts, then we may not realize their full benefits. Our financial condition and results of operations depend on our ability to maximize our earnings from our contracts. Lower earnings caused by increased costs, particularly those in excess of the fixed prices of the contracts, and cost control problems would have a material adverse effect on our financial condition and results of operations.
Our insurance coverage may be inadequate to cover all significant risk exposures.
We will be exposed to liabilities that are unique to the products we will provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to maintain performance bonds or letters of credit required by our contracts or obtain performance bond and letters of credit required for new contracts.
In the United States, many municipalities and local authorities require suppliers to obtain performance bonds from surety companies or letters of credit to ensure that suppliers will perform under purchase agreements. There is no guarantee that we will be able to access the performance bond market in the future. There can be no assurance that our customers will not require additional performance security in the future or that either letters of credit or performance bonds will continue to be available to us as security for performance of our contracts or, if available, on favorable terms (including cost) to us. If the amount of performance security we are required to provide significantly increases or if adequate performance security is not available or if the terms or costs of such security are too onerous, we may lose existing contracts and may not be able to bid on many new contracts, which could result in a material adverse effect on our business, financial condition and results of operations.
Our ability to compete effectively will depend, in part, on our ability to protect our proprietary technologies, product and system designs and manufacturing processes. While we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be completely successful in doing so. We intend to rely on a combination of patents, trademarks, trade secrets, know-how, and policies and procedures related to confidentiality to protect our intellectual property.
Confidentiality agreements to which we are or may become a party may be breached, in which case we may not have adequate remedies. Our trade secrets may become publicly available without breach of such agreements or may be independently developed by competitors. Our inability to maintain the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have.
Some of our intellectual property is not covered by any patents or patent applications. Moreover, in the case of patents that may issue, there can be no assurance that the claims allowed are, or will be, sufficiently broad to protect our technology or processes. Patents that we may hold may be also challenged or invalidated. Similarly, even if U.S. federal or foreign trademark registrations are granted to us, our trademark rights may be challenged. Our competitors or others may adopt trademarks similar to ours, thereby impeding our ability to maintain our brand identity and possibly leading to customer confusion.
Asserting, defending and maintaining our intellectual property rights could be difficult and costly, and failure to do so may diminish our ability to compete effectively and may harm our operating results. We may need to pursue legal action to enforce our intellectual property rights, to protect our trademarks, trade secrets, domain names and other intellectual property rights and to determine the validity and scope of the proprietary rights of others. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others and the enforcement of intellectual property rights may be difficult. We cannot assure you that the outcome of any litigation will be in our favor. Intellectual property litigation may be costly and may divert management attention, as well as expend our other resources away from our business. If third parties prepare and file applications for trademarks used or registered by us, we may oppose those applications and be required to participate in proceedings to determine the priority of rights to the trademark.
Similarly, competitors may have filed applications for patents, may have received patents and may obtain additional patents and proprietary rights relating to products or technology that block or compete with patents that we may obtain. We may have to participate in interference proceedings to determine the priority of invention and the right to a patent for the technology. Litigation and interference proceedings, even if they are successful, are expensive to pursue and time consuming, and could require the expenditure of a substantial amount of our financial resources.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could seriously harm our business.
Our future performance is highly dependent upon the continued services of key engineering personnel and managers. Our future business depends upon our ability to attract and retain qualified engineering, manufacturing, marketing, sales and management personnel for our operations. We may also have to compete with the other companies in our industry in the recruitment and retention of qualified managerial and technical employees. Competition for personnel is intense, and confidentiality and covenant-not-to-compete agreements may restrict our ability to hire individuals employed by other companies. Therefore, we may not be successful in attracting or retaining qualified personnel. Our failure to attract and retain qualified personnel could seriously harm our business, results of operations and financial condition. Furthermore, we may not be able to accurately forecast our needs for additional personnel, which could adversely affect our ability to grow.
Our operations could be adversely affected by interruptions of production that are beyond our control.
Our business, financial condition and results of operations may be adversely affected by certain events that we cannot anticipate or that are beyond our control, such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics, breakdowns or impairments of our information system or communication network, or other natural disasters and national emergencies that could curtail production and cause delayed deliveries and canceled orders. Even if our facilities are not directly affected by such events, we could be affected by interruptions at our manufacturers or suppliers. Such manufacturers or suppliers may be less likely than our own facilities to be able to quickly recover from such events and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. In addition, global supply disruptions, such as those caused by political or other dislocations, could lead to shortages of raw materials used in our buses or components. The inability to acquire critical components on commercially reasonable terms, or at all, could delay and increase the cost of manufacturing our buses and result in an adverse effect on our profitability.
If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent financial fraud. As a result, current and potential stockholders could lose confidence in our financial reporting.
We are subject to the risk that sometime in the future, our independent registered public accounting firm could communicate to the board of directors that we have deficiencies in our internal control structure that they consider to be “significant deficiencies”. A “significant deficiency” is defined as a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is more than a remote likelihood that a material misstatement of the entity’s financial statements will not be prevented or detected by the entity’s internal controls.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed. We are required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” or “SOX”), which requires our management to annually assess the effectiveness of our internal control over financial reporting.
We currently are not an “accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. As of October 31, 2012, the management of the Company assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Management concluded, during the year ended October 31, 2012, that it’s internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Management realized there were deficiencies in the design or operation of our internal control that adversely affected our internal controls which management considers to be material weaknesses. A material weakness in the effectiveness of our internal controls over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.
Our intended business, operations and accounting are expected to be substantially more complex than they have been in the past. It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current.
If we are unable to maintain the adequacy of our internal controls, as those standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and cause investors to lose confidence in our reported financial information, either of which could adversely affect the value of our common stock.
As a public company, we will incur significant increased operating costs and our management will be required to devote substantial time to new compliance initiatives.
Our management has only limited experience operating the Company as a public company. To operate effectively, we will be required to continue to implement changes in certain aspects of our business and develop, manage and train management level and other employees to comply with on-going public company requirements. Failure to take such actions, or delay in the implementation thereof, could have a material adverse effect on our business, financial condition and results of operations.
The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, imposes various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Our independent registered public accounting firm has issued its audit opinion on our consolidated financial statements appearing in this annual report on Form 10-K, including an explanatory paragraph as to an uncertainty with the respect to the Company’s ability to continue as a going concern.
The report of Madsen & Associates CPA’s, Inc., our independent registered public accounting firm, with respect to our consolidated financial statements and the related notes for the fiscal year ended October 31, 2012, indicates that there was substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty.
Because our officers and directors have other outside business activities and may not be in a position to devote a majority of their time to our future activities, we might cease to operate.
Our officers and directors will only be devoting a portion of their time to our operations. As a consequence of the limited devotion of time to the affairs of the Company expected from management, our business may suffer. For example, because our officers and directors have other outside business activities and may not be in a position to devote a majority of their time to our future business activities, the Company might not succeed and hence cease to operate.
Risks Related to Ownership of Our Common Stock
An extremely limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets. Any trading in our shares may have a significant effect on our stock prices.
Our common stock is listed for quotation on the OTCBB under the symbol “CLNO.OB. Any trading price of our common stock on the OTC Bulletin Board may not be an accurate indicator of the trading price of our common stock. Any trading in our shares could have a significant effect on our stock price. If a public market for our common stock does not develop, then investors may not be able to resell the shares of our common stock that they have purchased and may lose all of their investment. No assurance can be given that an active market will develop or that a shareholder will ever be able to liquidate its shares of common stock without considerable delay, if at all. Many brokerage firms may not be willing to effect transactions in the securities. Even if a purchaser finds a broker willing to effect a transaction in these securities, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price and liquidity of our common stock.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.
As that term is defined in SEC Rule 3a51-1, our stock is categorized as a penny stock, which generally defines “penny stock” to be any equity security that has a market price (as defined) less than US$5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, including Rule 15g-9, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. 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 stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities and reduces the number of potential investors. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
You should be aware that, according to SEC Release No. 34-29093, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include: (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the future volatility of our share price.
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“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, 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 stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain all earnings for our operations.
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
Our Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to our company and stockholders for damages for breach of fiduciary duty as a director or officer to the extent provided by Nevada law. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and stockholders.
ITEM 1B: UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments outstanding at the present time.
ITEM 2: PROPERTIES
We currently maintain our registered offices at 11226 Pentland Downs Road, Las Vegas, NV 89141.
ITEM 3: LEGAL PROCEEDINGS
To the best of management’s knowledge, there are no material legal proceedings pending against the Company.
ITEM 4: MINE SAFETY INFORMATION
ITEM 5: MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
Market for Registrant’s Common Equity
Our common stock has been listed on the Over-the-Counter Bulletin Board (“OTCBB”) maintained by the Financial Industry Regulatory Authority under the Symbol “CLNO,” since March 15, 2010. Prior to that time, there was no public market for our common stock. The table below lists the high and low closing prices per share of our common stock since our stock was first traded, as quoted on the OTCBB.
Trading in our common stock has been sporadic and the quotations set forth above are not necessarily indicative of actual market conditions. All prices reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not necessarily reflect actual transactions.
Approximate Number of Holders of Common Stock
As of February 13, 2013, there were 34 shareholders of record of our common stock. Such number does not include any shareholders holding shares in nominee or “street name.”
Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors. We do not anticipate paying any dividends in the foreseeable future.
Securities Authorized For Issuance under Equity Compensation Plans
Recent Sales of Unregistered Securities
The information set forth below describes our issuance of securities without registration under the Securities Act of 1933, as amended, during the year ended October 31, 2012, that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K:
ITEM 6: SELECTED FINANCIAL INFORMATION
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information contained in our financial statements and the notes thereto, which form an integral part of the financial statements, which are attached hereto. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and are stated in United States dollars.
Our Form 10-K includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words such as: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-K. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
The Company incorporated under the laws of the State of Nevada on June 28, 2006 under the name Patterson Brooke Resources Inc. to identify and acquire a mineral property that held the potential to contain gold and/or silver mineralization. In early 2010, due to the global economic crisis, a challenging environment for raising capital and the lack of suitable drill targets discovered on the Alice Claim, we decided to shift our business focus to begin to explore opportunities in the development and production of hybrid, electric, alternative fuel and diesel heavy duty transit buses, luxury motor coaches and tour buses. In furtherance of that, on April 7, 2010, we amended our Articles of Incorporation to change our corporate name to Cleantech Transit, Inc.
In August 2011, the Company acquired a 40% interest in Ortigalita Power Systems, LLC a waste power generating project in California. The plant is near completion.
On July 31, 2012, the Company impaired the investment in the Ortigalita plant and reduced the value to zero on the balance sheet.
Summary of Significant Accounting Policies
The preparation of financial statements in conformity with United States generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Our significant accounting policies are discussed below.
We recognize income and expenses based on the accrual method of accounting.
We have not yet adopted a policy regarding payment of dividends.
The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to be reversed. An allowance against deferred tax assets is recorded, when it is more likely than not, that such tax benefits will not be realized.
Statement of Cash Flows
For the purposes of the statement of cash flows, we consider all highly liquid investments with a maturity of three months or less to be cash equivalents.
Basic and Diluted Net Income (loss) Per Share
Basic net incomes (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common and common equivalent shares outstanding as if shares had been issued on the exercise of any common share rights unless the exercise becomes antidilutive and then the basic and diluted per share amounts are the same.
Revenue is recognized on the sale and transfer of goods or completion of service.
Advertising and Market Development
The Company expenses advertising and market development costs as incurred.
Financial and Concentrations Risk
The Company does not have any concentration or related financial credit risk.
At the report date environmental requirements related to the mineral claim acquired are unknown and therefore an estimate of any future cost cannot be made.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles accepted in the United States of America. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.
Impairment of Long-lived Assets
The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 360-10-35-17 if events or circumstances indicate that their carrying amounts might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using rules of ASC 930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts payable, and convertible notes payable approximate fair values because of the immediate or short-term maturity of these financial instruments.
Certain prior period amounts have been reclassified to conform to current period presentation.
Recent Accounting Pronouncements
The Company does not expect the adoption of any recent accounting pronouncements to have a material impact on the Company’s financial statements.
Financial Condition as of October 31, 2012
The Company has current assets of $13,547 as of October 31, 2012. Total current liabilities reported of $105,598 consisted of $57.353 in accounts payable and accrued expense and $43,245 in notes payable and advances to the Company.
Stockholders’ deficit is $92,051 at October 31, 2012 compared to a stockholder’s equity of $727,605 as of October 31, 2011.
Results of Operations
The following discussion of the financial condition, results of operations, cash flows and changes in our financial position should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended October 31, 2012 annexed hereto.
Comparison of Fiscal Years Ended October 31, 2012 and October 31, 2011
General and administrative expenses for the year ended October 31, 2012 were $1,006,370 from $910,895 for the year ended October 31, 2011, due largely to an increase in management fees of $894,782 and legal and accounting of $99,635 in the year ended October 31, 2012. The Company recorded a loss on the impairment of the investment of $360,000 related to its investment of a 40% interest in a waste energy entity. The Company also recorded a loss on conversion of debt to equity of $15,300 related to debt converted to Series A Preferred Shares, on October 31, 2011.
Interest for the period ended October 31, 2012 was $16,521 compared to $21,692 in the same period in 2011. Net loss was $1,493,254 for the period ended October 31, 2012 compared to $837,525 for the same period in 2011.
Period from inception, June 28, 2006, to October 31, 2012
As of October 31, 2012, we have an accumulated deficit of $2,611,767. Deficit accumulated during the pre-exploration stage was $219,677 and accumulated during the development stage was $2,392,090.
As a development stage company, we currently have limited operations, principally directed at potential acquisition targets and revenue-generating opportunities.
Liquidity and Capital Resources
As of October 31, 2012, the Company had cash of $947 as a current asset, a decrease from $16,085 cash for the period ending October 31, 2011. The Company currently has no revenue from operations and has not generated any revenue from operations since inception. Since inception and prior to the year ended October 31, 2012, the Company has been funded by private placement of shares and debt and advances. During the year ended October 31, 2012, the Company funded its operations from advances of $23,245 and common stock issued for services. We plan to continue further financings, however, we do not currently have any arrangements for financing and we can provide no assurance to investors we will be able to find such financing. There can be no assurance that additional financing will be available to us, or on terms that are acceptable. Consequently, we may not be able to proceed with our intended business plans and our business will then likely fail.
For the year ended October 31, 2012, cash used in operating activities was $38,182 compared to cash used of $382,154 in the same period in 2011. The large decrease in 2012 was due to accounts payable increase and impairment of investments of $360,000 in 2012 over 2011.
Cash used in investing activities was zero in the period ended October 31, 2012 compared to $335,000 in the same period in 2011. Cash used in investing in 2011was for the investment in a 40% interest in the waste energy entity.
Cash provided by financing activities was $23,044 for the period ended October 31, 2012 compared to $733,239 in the same period in 2011. The financing activity in 2011 consisted of preferred stock subscriptions of $590,000 and notes payable of $143,239.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
On May 23, 2011, the Company entered into a one year management agreement with Crown Equity Holdings, Inc. under which the Company is managed by officers and directors from Crown. The Company issued 5,000,000 shares of common stock with a value of $1,050,000 as consideration for Crown’s services.
On April 1, 2012, the Company entered into a one year management agreement with Crown Equity Holdings, Inc. under which the Company is managed by officers and directors from Crown. Under the terms of the agreement the Company pays Crown $22,000 per month in either cash or the equal value of stock at the last day of the quarter. As of October 31, 2012 the Company issued 55,000,000 shares at $0.0012 per share with a value of $66,000 for the quarter ended October 31, 2012.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements attached to this Form 10-K for the year ended October 31, 2012 have been examined by our independent accountants, Madsen & Associates CPA’s Inc.
ITEM 9: CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer along with our Chief Financial Officer, of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e) and 15a-15(e)) as of October 31, 2012 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer along with our Principal Financial Officer concluded that our disclosure controls and procedures are not effective as of October 31, 2012 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
Management’s Report on Internal Control Over Financial Reporting
In performing the above-referenced assessment, our management identified the following material weaknesses:
● We do not have a written internal control procedurals manual which outlines the duties and reporting requirements of the officers. This lack of a written internal control procedurals manual does not meet the requirements of the SEC or good internal control policies.
● There are no effective controls instituted over financial disclosure and the reporting processes.
Our present management feels the weaknesses identified above, being the latter three, have not had any material effect on our financial results. Our present management will have to address the lack of independent members on the Audit Committee and identify an “expert” for the Audit Committee to advise other members as to correct accounting and reporting procedures.
We will endeavor to correct the above noted weaknesses in internal control once we have adequate funds to do so. Appointing independent members and using the services of an expert on the Audit Committee will greatly improve the overall performance of the Audit Committee. With the addition of other Board Members and staff, the segregation of duties issue will be addressed and will no longer be a concern to management. Having a written policy manual outlining the duties of each of our officers and staff will facilitate better internal control procedures.
Our present management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the three months ended October 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9 B: OTHER INFORMATION
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the present directors and executive officers of the Company. Note that there are no other persons who have been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer.
The changes in the officers and directors are set forth below:
In July, 2011 Mr. Roger Nelson resigned as Chief Executive Officer, Interim Chief Financial Officer and Director. In July, 2011, Kenneth Bosket was elected Chief Executive Officer and a director; Montse Zaman was elected Secretary, Treasurer and a director and Lowell Holden was elected Chief Financial Officer and a director.
The principal executive officers and directors of the Company are as follows:
The Board of Directors is comprised of only one class. All directors serve for a term of one year and until their successors are elected at the Company’s Annual Shareholders’ Meeting and are qualified, subject to removal by the Company’s shareholders. Each executive officer serves, at the pleasure of the Board of Directors, for a term of one year and until his successor is elected at a meeting of the Board of Directors and is qualified.
Our Board of Directors believes that all members of the Board and all executive officers encompass a range of talent, skill, and experience sufficient to provide sound and prudent guidance with respect to our operations and interests. The information below with respect to our directors and executive officers includes each individual’s experience, qualifications, attributes, and skills that led our Board of Directors to the conclusion that he or she should serve as a director and/or executive officer.
Business Experience: The following is a brief account of the business experience for the past five years of the directors and executive officers, indicating their principal occupations and employment during that period, and the names and principal businesses of the organizations in which such occupations and employment were carried out.
KENNETH BOSKET. Kenneth Bosket is a director of the Company. Mr. Bosket has been CEO and a director of the Company since July, 2011. Mr. Bosket retired in 2004 after 30 years with Sprint (Telecommunication Division). Mr. Bosket is co-founder of JaHMa, a music company in Las Vegas, Nevada and a former Board Member and President of Bridge Counseling Associates, a mental health and substance abuse service company. His experience includes implementing appropriate procedures for positioning his organization's goals with successful teaming relationships, marketing and over 30 years of extensive customer service, as well as managing various departments, and being a western division facilitator working directly for a President of Sprint. Mr. Bosket has received numerous awards, such as the Pinnacle Award for his exceptional service with his former employer combined with his community service involvements. Mr. Bosket earned a Masters of Business Administration from the University of Phoenix and a Bachelor's of Business Administration from National University. Mr. Bosket brings to the Company extensive experience in managing employees as well as extensive marketing experience which have been invaluable in helping the Company move forward with its business plan. Mr. Bosket is also an officer and director of Crown Equity Holdings, Inc., a position he has held since June, 2008. Crown Equity trades under the symbol “CRWE.OB.”
MONTSE ZAMAN. Montse Zaman is the secretary and treasurer and a director for the Company since July, 2011. She worked for Zaman & Company, a private business consulting firm, as an administrative assistant from 2003 until the end of 2008 when she joined the Company. Ms. Zaman has extensive organizational experience and is involved in handling the day-to-day administrative operations of the Company. Ms. Zaman has an extensive background in journalism and has a degree in Communications from Instituto Superior De Ciencia Y Technologia A.C. in Mexico. Mrs. Zaman possesses strong administrative credentials which have proven invaluable in handling the daily operations of the Company and reporting and working directly with the Company’s CFO in ensuring that all financial transactions are accurately and properly reported. Mrs. Zaman is also an officer and director of Crown Equity Holdings, Inc., a position she has held since February, 2008. Crown Equity trades under the symbol “CRWE.OB”
LOWELL HOLDEN. Lowell Holden is CFO and Chief Accounting Officer of the Company as well as a director since July, 2011. Since 1983, Mr. Holden has owned and operating his own consulting firm, LS Enterprises, Inc., which provides business consulting, accounting and other services to businesses. Mr. Holden has a broad range of business experience including managing, securing financing, structuring of transactions, and is experienced and knowledgeable in managing relationships with customers, financing institutions and stockholders. Mr. Holden also has a background in assisting companies in fulfilling their financial auditing and SEC reporting requirements. Mr. Lowell Holden has a Bachelor's of Science degree from Iowa State University. Mr. Holden is also an officer and director of Crown Equity Holdings, Inc., a position he has held since January 2010. Crown Equity trades under the symbol “CRWE.OB”
There are no family relationships among our directors and executive officers.
Involvement in Certain Legal Proceedings
No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Board Committees and Audit Committee Financial Expert
We do not currently have a standing audit, nominating or compensation committee of the Board of Directors, or any committee performing similar functions. As of the date of this Form 10-K, no member of our Board of Directors qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
As of October 31, 2012, we did not affect any material changes to the procedures by which our shareholders may recommend nominees to our Board of Directors. We have not established formal procedures by which security holders may recommend nominees to the Company’s Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended October 31, 2012, our officers, directors and greater than 10% percent beneficial owners complied with all applicable filing requirements.
Code of Ethics
On October 31, 2006, the Board of Directors adopted a Code of Business Conduct and Ethics to ensure that potential conflicts of interest are avoided or declared to the Company and its shareholders and to comply with the requirements of the Sarbanes Oxley Act of 2002. Our Code of Business Conduct and Ethics embodies our commitment to such ethical principles and sets forth the responsibilities of the Company and its officers and directors to its shareholders, employees, customers, lenders and other stakeholders. Our Code of Business Conduct and Ethics addresses general business ethical principles and other relevant issues. A copy of our Code of Business Conduct and Ethics can be found on our Registration Statement on Form SB-2 filed with the SEC on January 4, 2007.
ITEM 11. EXECUTIVE COMPENSATION
Our Board of Directors is responsible for establishing and administering the Company’s executive and director compensation. Executive compensation for the years ended October 31, 2012 and 2011 is set forth in the following summary:
DIRECTORS & OFFICERS COMPENSATION
(1) In July, 2011 Mr. Roger Nelson resigned as Chief Executive Officer, Interim Chief Financial Officer and Director
Outstanding Equity Awards at Fiscal 2011 Year-End
None of our named executive officers or directors had any outstanding equity awards as of the fiscal year ended October 31, 2012.
Bonuses and Deferred Compensation
Compensation Pursuant to Plans
Termination of Employment
There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Compensation Summary set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company, or any change in control of the Company, or a change in the person’s responsibilities following a change in control of the Company.
The Company does not have a separate Compensation Committee. Instead, the Company’s Board of Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for other officers, administers the Company’s stock option plans and other benefit plans, and considers other matters.
Risk Management Considerations
We believe that our compensation policies and practices for our employees, including our executive officers, do not create risks that are reasonably likely to have a material adverse effect on our Company.
Nevada Revised Statutes 78.037 provides that Articles of Incorporation can contain provisions which eliminate or limit the personal liability of our officers and directors and even stockholders for damages for breach of fiduciary duty, but a corporation cannot eliminate or limit a director’s or officer’s liability for acts or failure to act which are based on intentional misconduct, fraud, or a willful violation of law. Our Articles of Incorporation provides that a director or officer is not personally liable to us or our shareholders for damages for any breach of fiduciary duty as a director or officer, except for liability for (i) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) the payment of distribution in violation of Nevada Revised Statures, 78.300.
Additionally, our By-laws provide that we will indemnify our officers and directors to the fullest extent permitted by the Nevada Revised Statutes, provided the officer or director acts in good faith and in a manner which he or she reasonably believes to be in or not opposed to our best interest, and with respect to any criminal matter, had no reasonable cause to believe that his or her conduct was unlawful. Our By-laws also provide that, to the fullest extent permitted by Section 78.751 of the Nevada Revised Statutes, we will pay the expenses of our officers and directors incurred in defending a civil or criminal action, suit or proceeding, as they are incurred and in advance of the final disposition of the matter, upon receipt of an undertaking acceptable to the Board of Directors for the repayment of such advances if it is ultimately determined by a court of competent jurisdiction that the officer or director is not entitled to be indemnified.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934 or the Rules and Regulations of the Securities and Exchange Commission thereunder may be permitted under said indemnification provisions of the law, or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, any such indemnification is against public policy and is, therefore, unenforceable.
The following table sets forth, as of February 13, 2012, the total number of shares owned beneficially by each of our directors, officers and key employees, individually and as a group, and the present owners of 5% or more of our total outstanding shares. The shareholder listed below has direct ownership of his/her shares and possesses sole voting and dispositive power with respect to the shares.
(1) Denotes officer or director.
Description of Securities
As of February 13, 2013 our authorized capital consists of 600,000,000 shares of common stock, par value $0.001 per share, of which 260,876,826 shares are issued and outstanding and 10,000,000 shares of preferred stock with a par value of $0.001 of which 1,280,000 were outstanding. 5,000,000 of the 10,000,000 preferred shares are designated as Series A Convertible Preferred. The Series A preferred shares have a conversion right of 10 shares of common for each share of preferred, a voting right as a class, and liquidation preference valuation of $0.50 per share.
The holders of our common stock are entitled to receive dividends as may be declared by our Board of Directors; are entitled to share ratably in all of our assets available for distribution upon winding up of the affairs our Company; and are entitled to one non-cumulative vote per share on all matters on which shareholders may vote at all meetings of the shareholders.
The shareholders are not entitled to preference as to dividends or interest; preemptive rights to purchase in new issues of shares; preference upon liquidation; or any other special rights or preferences.
The holders of our shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of Directors, can elect all of the Directors to be elected, if they so choose. In such event, the holders of the remaining shares will not be able to elect any of our Directors.
As of the date of this Form 10-K, we have not paid any cash dividends to stockholders. The declaration of any future cash dividends will be at the discretion of our Director and will depend on our earnings, if any, capital requirements and financial position, general economic conditions and other pertinent conditions. It is our present intention not to pay any cash dividends in the near future.
We have engaged the services of Empire Stock Transfer Inc., 1859 Whitney Mesa Drive, Henderson, Nevada, USA, 89014, to act as transfer and registrar.
Related Party Transactions
On May 23, 2011, the Company entered into a one year management consultant agreement with Crown Equity Holdings, Inc. whereas Crown provided the Management and directors for the Company. Both the Company and Crown have some common officers and directors. In exchange for its services, the Company issued 5,000,000 shares of its common stock to Crown Equity Holdings in restricted form under an exemption from registration.
On April 1, 2012, the Company entered into a one year management agreement with Crown Equity Holdings, Inc. under which the Company is managed by officers and directors from Crown. Under the terms of the agreement the Company pays Crown $22,000 per month in either cash or the equal value of stock at the last day of the quarter.
On July 1, 2012, the Company issued Crown Equity Holdings 5,280,000 shares of common stock with a value of $66,000 for payment of the quarter ended July 31, 2012 management fee per the contract.
On July 20, 2012, the Company issued Crown equity Holdings 45,673,152 shares of common stock with a value of $237,500 for the value lost on the 5,000,000 shares issued in 2011.
As of October 31, 2012, the Company issued 55,000,000 shares at $0.0012 per share with a value of $66,000 for the quarter ended October 31, 2012.
Other than the foregoing, there were no material transactions, or series of similar transactions, since the Company’s inception and during its current fiscal period, or any currently proposed transactions, or series of similar transactions, to which the Company was or is to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by the Company to own of record or beneficially more than 5% of any class of the Company’s common stock, or any member of the immediate family of any of the foregoing persons, has an interest.
Review, Approval or Ratification of Transactions with Related Persons
Although we have adopted a Code of Ethics, we still rely on our Board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our Board reviews a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate family. Transactions are presented to our Board for approval before they are entered into or, if this is not possible, for ratification after the transaction has occurred. If our Board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any. Our Board approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company.
As of the date of this Form 10-K, none of our directors can be considered “independent directors” due to our directors’ roles as both officers and directors of the Company. We evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc., The NASDAQ National Market, and the Securities and Exchange Commission.
Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows the fees paid or accrued by us for the audit and other services provided by Madsen & Associates CPA’s, Inc. for the fiscal periods shown.
Audit fees consist of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by the above auditors in connection with statutory and regulatory fillings or engagements
In the absence of a formal audit committee, the full Board of Directors pre-approves all audit and non-audit services to be performed by the independent registered public accounting firm in accordance with the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. The Board of Directors pre-approved 100% of the audit, audit-related and tax services performed by the independent registered public accounting firm for the fiscal year ended October 31, 2012.
ITEM 15: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
The following exhibits are included as part of this report by reference:
The following financial statements are included in this report:
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 13, 2013.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Cleantech Transit, Inc.
(a Development Stage Company)
We have audited the accompanying consolidated balance sheets of Cleantech Transit, Inc. (a Development Stage Company) (the Company) as of October 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the years in the two-year period ended October 31, 2012, and for the period from June 28, 2006 (date of inception) to October 31, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cleantech Transit, Inc. (a Development Stage Company) as of October 31, 2012 and 2011 and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2012, and for the period from June 28, 2006 (date of inception) to October 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has accumulated operating losses since inception and has limited business operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are described in the Notes to the financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
February 11, 2013
CLEANTECH TRANSIT, INC.
(Development Stage Company)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
CLEANTECH TRANSIT, INC.
(Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements.
CLEANTECH TRANSIT, INC.
(Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
From June 28, 2006 (inception) to October 31, 2012
The accompanying notes are an integral part of these financial statements.
CLEANTECH TRANSIT, INC.
(Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS