Financial Statements
GIRASOLAR, INC.
UNAUDITED INTERIM FINANCIAL STATEMENTS
March 31, 2007
GiraSolar, Inc.
Consolidated Balance Sheets
(Unaudited) | ||
March 31, | December 31, | |
2007 | 2006 | |
ASSETS | ||
CURRENT ASSETS | ||
Cash | $ 1,654,665 | $ 861,574 |
Notes receivable | - | - |
Accounts receivable, net | 827,734 | 4,720,686 |
Inventory | 570,087 | 738,879 |
Prepayments | 3,809,604 | 409,107 |
Investments, held for resale | 2,536 | 2,502 |
TOTAL CURRENT ASSETS | 6,864,626 | 6,732,748 |
Furniture and vehicles, net | 29,338 | 24,249 |
Goodwill | 3,334,625 | 3,334,625 |
Customer list, net | 2,208,613 | 2,329,810 |
Due from related parties | 528,606 | 426,854 |
Tax refunds receivable | 144,494 | 63,414 |
Other receivables | 30,685 | 29,423 |
6,276,361 | 6,208,375 | |
TOTAL ASSETS | $ 13,140,987 | $ 12,941,123 |
Girasolar, Inc.
Consolidated Balance Sheets (continued)
(Unaudited) | ||
March 31, | December 31, | |
2007 | 2006 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
CURRENT LIABILITIES | ||
Notes payable | 1,472,062 | 1,422,298 |
Current derivative liability | 110,994 | 82,817 |
Accounts payable | 356,142 | 390,085 |
Customer prepayments | 6,371,408 | 5,816,336 |
Other accruals | 654,886 | 675,555 |
Accrued interest | 343,613 | 299,273 |
Provision for warranty claims | 294,106 | 290,214 |
Due to related party | 4,050 | 4,024 |
TOTAL CURRENT LIABILITIES | 9,607,261 | 8,980,602 |
MINORITY INTEREST | - | 20,868 |
COMMITMENTS AND CONTINGENCIES | - | - |
STOCKHOLDERS' EQUITY(DEFICIT) | ||
Preferred stock, $0.001 par value, 5,000,000 | ||
shares authorized, 1,000,000 Class A shares | ||
issued and outstanding | 1,000 | 1,000 |
Common stock, $0.01 par value, 1,000,000,000 | ||
shares authorized, 35,598,700 shares issued | ||
and outstanding at March 31, 2007 and | ||
December 31, 2006 | 355,987 | 355,987 |
Subordinated loan | 128,679 | 128,679 |
Additional paid-in capital | 7,303,120 | 7,303,120 |
Accumulated deficit | (4,203,123) | (3,784,577) |
Other comprehensive income(loss) | (51,937) | (64,556) |
TOTAL STOCKHOLDERS' EQUITY(DEFICIT) | 3,533,726 | 3,939,653 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 13,140,987 | $ 12,941,123 |
The accompanying notes are an integral part of these financial statements.
GiraSolar, Inc. | |||||||
Consolidated Statements of Operations | |||||||
(Unaudited) | |||||||
Three months ended March 31, | |||||||
2007 | 2006 | ||||||
REVENUE | $ | 4,876,855 | $ | 4,399,538 | |||
| |||||||
COST OF REVENUE | 4,620,284 | 4,152,740 | |||||
GROSS PROFIT | 256,571 | 246,798 | |||||
EXPENSES: | |||||||
Selling, general and administrative | 682,096 | 225,285 | |||||
TOTAL EXPENSES | 682,096 | 225,285 | |||||
INCOME (LOSS) FROM OPERATIONS | (425,525) | 21,513 | |||||
OTHER INCOME (EXPENSE): | |||||||
Interest income | - | 68 | |||||
Loss on derivative liability | (28,177) | - | |||||
Interest expense | (49,702) | (38,158) | |||||
TOTAL OTHER INCOME (EXPENSE) | (77,879) | (38,090) | |||||
LOSS BEFORE PROVISION FOR | |||||||
INCOME TAXES | (503,404) | (16,577) | |||||
PROVISION FOR INCOME TAXES | (63,990) | 25,475 | |||||
LOSS BEFORE MINORITY INTEREST | (439,414) | (42,052) | |||||
MINORITY INTEREST | (93,924) | (32,886) | |||||
NET LOSS | $ | (345,490) | $ | (74,938) | |||
BASIC AND DILUTED LOSS PER | |||||||
COMMON SHARE | $ | (0.01) | $ | (0.02) | |||
WEIGHTED AVERAGE NUMBER OF | |||||||
COMMON SHARES OUTSTANDING - | |||||||
BASIC AND DILUTED | 35,598,700 | 6,404,036 | |||||
Note 1 – Organization and Significant Accounting Policies
Organization and Line of Business
GiraSolar, Inc. is broad based solar energy company with business activities in several segments of the solar value chain ranging from silicon raw material supply to system integration. GiraSolar Inc. was established after Legend Investment Corp. acquired a majority of the Dutch GiraSolar BV group in February 2006 and consequently changed its name to GiraSolar Inc. and abandoned all its previous business activities not related to solar energy. GiraSolar BV- the majority owned subsidiary of GiraSolar Inc. which is operating in the field of solar energy and related products - was established in 2003 in Deventer, the Netherlands by W.M. Koornstra, H.J.M. Keijzer and K.H.J.M. Dirven, three seasoned solar energy entrepreneurs with a track record dating back to 1993 for W.M. Koornstra, involving on-grid and off-grid solar and R&D activities. GiraSolar BV operates two fully owned subsidiaries in the Netherlands (DutchSolar BV and GiraMundo BV) and a 51% owned subsidiary in Turkey (GiraSolar Turkey Ltd. Ste.) and a fully owned sales support office in Spain.
These financial statements include the Company and its subsidiary – GiraSolar, B.V. The primary activities of GiraSolar, B.V. consist of the production of solar energy equipment; the sale of solar energy applications and equipment; and consultancy of solutions in the field of solar energy applications and equipment.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company incurred a net loss for the three months ended March 31, 2007 of $345,490 and at March 31, 2007, had an accumulated stockholders’ equity of $3,533,726 and a working capital deficit of $2,742,635. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of GiraSolar, B.V. and its two wholly owned subsidiaries and one 51% owned subsidiary, of which the Company has the ability to exercise control and direct operations. All material intercompany balances and transactions have been eliminated on consolidation.
Revenue Recognition
Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. The Company recognizes revenue when the significant risks and rewards of ownership have been transferred to the customer pursuant to applicable laws and regulations, including factors such as when there has been evidence of a sales arrangement, the performance has occurred, or service have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured.
Revenues from the sale of solar energy equipment are recognized upon delivery.
Revenues from services are recognized in proportion to the services rendered.
Government operating grants are included in the statement of operations in the year to which the subsidized expenses are charged, in which the loss of income is incurred, or in which the operating loss has occurred.
Stock Based Compensation
SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. The statement also permits companies to elect to continue using the current intrinsic value accounting method specified in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for stock-based compensation. The Company has elected to use the intrinsic value based method and has disclosed the pro forma effect of using the fair value based method to account for its stock-based compensation issued to employees. For options granted to employees where the exercise price is less than the fair value of the stock at the date of grant, the Company recognizes an expense in accordance with APB 25. For non-employee stock based compensation the Company recognizes an expense in accordance with SFAS No. 123 and values the equity securities based on the fair value of the security on the date of grant. For stock-based awards the value is based on the market value for the stock on the date of grant and if the stock has restrictions as to transferability a discount is provided for lack of tradability. Stock option awards are valued using the Black-Scholes option-pricing model.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and cash equivalents, other current assets, accounts payable, accrued interest and due to related party, the carrying amounts approximate fair value due to their short maturities.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with a maturity of three months or less, plus all certificates of deposit.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents and accounts receivables. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $100,000 insurance limit. The Company extends credit based on an evaluation of the customer’s financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Furniture and Vehicles, net
Acquisitions of furniture and vehicles are recorded at cost. Improvements and replacements of furniture and vehicles are capitalized. Maintenance and repairs that do not improve or extend the lives of furniture and vehicles are charged to expense as incurred. When furniture and vehicles are retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the statements of operations. Depreciation is computed using the straight-line method based on the estimated useful life of each class of depreciable assets as follows:
Furniture and fixtures
5 -10 years
Vehicles
3 - 5 years
Impairment of Long-Lived Assets
SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. SFAS No. 144 broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 also establishes a “primary-asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. The Company has no impairment issues to disclose.
Accrued Product Warranties
The Company’s product warranty accrual reflects management’s estimate of probable liability as a percentage of product sales. Management establishes product warranty accruals based on historical experience and currently available information. The provision was established for the year ended December 31, 2005 is based on 1.75% of the sales of GiraMundo B.V. and DutchSolar B.V. The provision is short-term in nature. Management has determined that no additional accrual was required for the three months ended March 31, 2007.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Earnings (Loss) Per Share
The Company reports earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of options and warrants to purchase common shares would have an anti-dilutive effect. The Company had no potential common shares equivalents as of March 31, 2007 and 2006.
All common stock shares are presented to reflect a five for 2 forward stock split approved by the Board of Directors on April 12, 2006. All share and per share information has been retroactively restated to reflect this stock split.
Comprehensive Loss
SFAS No. 130, “Reporting Comprehensive Loss,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Total comprehensive loss consists of the net income for the respective periods, the foreign currency translation adjustments, and the unrealized loss on available for sale securities.
Recently Issued Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”. FIN 48 provides guidance for the recognition, measurement, classification and disclosure of the financial statement effects of a position taken or expected to be taken in a tax return (“tax position”). The financial statement effects of a tax position must be recognized when there is a likelihood of more than 50 percent that based on the technical merits, the position will be sustained upon examination and resolution of the related appeals or litigation processes, if any. A tax position that meets the recognition threshold must be measured initially and subsequently as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority. The interpretation is effective for fiscal years beginning after December 15, 2006. The Company does not expect its adoption of FIN 48 to have a material impact on its consolidated financial portion, results of operations or cash flows.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, or the Company’s fiscal year ending September 30, 2009. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial position, results of operations or cash flow.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The effective date to initially recognize the funded status and to provide the required disclosures is for fiscal years ending after December 15, 2006, or the Company’s fiscal year ending September 30, 2007. The requirement to measure plan assets and benefit obligations is effective for fiscal years ending after December 15, 2008, or the Company’s fiscal year
ending September 30, 2009. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial position, results of operations or cash flows.
In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” and is effective for fiscal years beginning after November 15, 2007. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company is currently assessing the impact the adoption of this pronouncement will have on the financial statements.
Foreign Currency Translation
GiraSolar, B.V. maintains its books and records in Euros, the currency of the Netherlands. The Euro is the Company’s functional currency, as the Company’s business activities are located in the Netherlands and dominated in Euros. Assets, and liabilities are translated into United States Dollars have been made at the rate of $1.3374 (US$), the exchange rate prevailing at March 31, 2007. Revenue and expenses are translated into United States Dollars at the rate of $1.31093, the average exchange rate during the three months ended March 31, 2007. No representation is made that the Euro amount could have been, or could be converted into US$ at that rate or at any other rate. Foreign currency translation gains or losses are recorded as other comprehensive income in the stockholders’ equity section of the balance sheet.
Note 2 – Inventories
Inventories of raw materials, consumables, and finished goods are valued at the lower of cost or market, on a first-in, first-out basis. The market value is determined by individual assessment of the inventories.
Inventory consists of the following at March 31, 2007:
Finished goods
$ 570,087
Note 3 – Accounts Receivable and Allowance For Doubtful Accounts
Trade accounts receivable are presented net of an allowance for doubtful accounts. The Company estimates the allowance based on an analysis of specific customers, taking into consideration the age of accounts and an assessment of the customer’s ability to pay. The Company has determined based upon these considerations that no allowance for doubtful accounts is required at March 31, 2007.
Note 4 – Furniture and Vehicles
Property and equipment consists of the following at March 31, 2007:
Furniture and fixtures
$ 27,692
Vehicles
9,471
37,163
Less – Accumulated depreciation
(7,825)
$ 29,338
Note 5 – Notes Payable (Including Related Party)
Notes payable consist of the following at March 31, 2007:
Notes payable to a Company officer bearing interest upon default at
21% per annum. These notes are unsecured and were due on demand,
and are in default at December 31, 2006 and 2005. These notes were
issued for past due compensation for 2002, 2003, and 2004 salary
convertible at .02 per share
$466,665
Notes payable to a former employee of the Company. Notes bear
interest upon default at 21% per annum. These notes are unsecured
and are due on demand, and are in default at December 31, 2006
and 2005. These notes were issued for past due compensation
$127,500
Notes payable to a Company officer, currently non-interest bearing,
bears interest only upon default at 21% per annum, unsecured and
due on demand. Convertible into common stock at $.02 per share.
This note was issued for 2005 salary past due compensation.
$250,000
Notes payable to a Company officer, currently non-interest bearing,
bears interest only upon default at 21% per annum, unsecured and
due on demand. Convertible into common stock at $.35 per share.
This note was issued for 2006 salary past due compensation.
$175,000
Notes payable to a Company officer, currently non-interest bearing,
bears interest only upon default at 21% per annum, unsecured and due
on demand. Convertible into common stock at $.35 per share.
This note was issued for 2007 salary past due compensation.
$50,000
Notes payable to a Company officer, currently non-interest bearing,
bears interest only upon default at 21% per annum, unsecured and due
on demand. Convertible into common stock at $.02 per share.
This note was issued for expenses advanced to fund operations
$303,362
Notes payable to a Company officer, currently bears interest at 8%,
upon default bears interest at 21%, per annum unsecured and due on
demand. Convertible into common stock at $.10 per share.
This note was issued for expenses advanced.
$66,985
Notes payable to a Company officer, currently bears interest at 8%,
upon default bears interest at 21% per annum, unsecured and due on
demand. Convertible into common stock at $.10 per share. This note
was issued for legal fees advanced.
$29,000
Notes payable to an individual, non-interest bearing, unsecured
and due on demand.
$3,550
Total
$1,472,062
Other related parties have made a private loan to the Company. The loan is subordinated to all existing and future liabilities of the Company. The loan includes interest at 5% annually. The loan is not yet formalized, and therefore there is no interest accrual at March 31, 2007. The amount of this loan is $128,679. This subordinated loan is included in the stockholders’ equity section of the balance sheet.
Note 6 – Related Party Transactions
A total of $57,844 is due from three companies that are controlled by a related Company.
These advances are non-interest bearing and the Company can demand payment at any time.
A total of $470,722 is due from seven companies that are related to GiraSolar, B.V.
These advances are non-interest bearing,
Notes payable to related Parties consist of the following at March 31, 2007:
Notes payable to a Company officer bearing interest upon
default at 21% per annum. These notes are unsecured
and were due on demand, and are in default at December 31, 2006
and 2005. These notes were issued for past due compensation for
2002, 2003, and 2004 salary convertible at .02 per share
$466,665
Notes payable to a Company officer, currently non-interest
bearing, bears interest upon default at 21% per annum, unsecured and
due on demand. Convertible into common stock at $.02 per share.
This note was issued for 2005 salary past due compensation.
$250,000
Notes payable to a Company officer, currently non-interest
bearing, bears interest upon default at 21% per annum,
unsecured and due on demand. Convertible into common
stock at $.35 per share. This note was issued for
2006 salary past due compensation.
$175,000
Notes payable to a Company officer, currently non-interest
bearing, bears interest upon default at 21% per annum,
unsecured and due on demand. Convertible into common
stock at $.35 per share. This note was issued for
2007 salary past due compensation.
$50,000
Notes payable to a Company officer, currently non-interest
bearing, bears interest upon default at 21% per annum, unsecured
and due on demand. Convertible into common stock at $.02 per
share. This note was issued for expenses advanced
$303,362
Notes payable to a Company officer, currently bears interest
at 8%, bears interest upon default at 21% per annum,
unsecured and due on demand. Convertible into common
stock at $.10 per share. This note was issued for
expenses advanced.
$66,985
Notes payable to a Company officer, currently
non-interest bearing, bears interest upon default
at 21% per annum, unsecured and due on demand.
Convertible into common stock at $.10 per share
This note was issued for legal fees advanced.
$29,000
Total
$1,341,012
Note 7 – Common Stock Transactions
All share and per share data has been adjusted to reflect our recapitalization in which each two share of common stock outstanding were converted into five shares of common stock.
During the first quarter, 2005, the Company issued 587,500 common shares for cash totaling $15,925.
During the second quarter, 2005, the Company issued 1,475,000 common shares for services rendered totaling $65,300.
During the first quarter, 2006, the Company issued 5,000,000 common shares to purchase 51% of the outstanding shares of GiraSolar, B.V. The shares were valued at market and totaled $580,000.
During the first quarter, 2006, the Company issued 8,905,000 common shares for services rendered totaling $826,000.
During the first quarter, 2006, the Company issued 937,500 common shares to retire approximately $50,000 of debt.
During the second quarter, 2006, the Company issued 940,000 common shares for services rendered totaling $158,200.
During the third quarter, 2006, the Company issued 120,000 common shares for services rendered totaling $33,600.
During the fourth quarter, 2006, the Company issued an additional 7,500,000 common shares to complete the purchase of 51% of the outstanding shares of GiraSolar, B.V. The shares were valued at market and totaled $5,250,000.
During the fourth quarter, 2006, the Company issued 500,000 common shares for services rendered totaling $350,000.
There were no common stock transactions for the three months ended March 31, 2007
Note 8 – Notes Receivable
On April 6, 2005 the Company entered into an agreement with a Michigan limited liability corporation to advance funds totaling $500,000 in exchange for a demand promissory note bearing interest at the rate of 6% per annum. As of December 31, 2006, the Company has only advanced $10,000 on the agreement. The Company had deemed that this note receivable was uncollectible, and had recorded the balance as a bad debt at December 31, 2006
On June 24, 2005 the Company advanced $10,000 to an information technology company for a period of 120 days. The Company had deemed that this note receivable was uncollectible, and had recorded the balance as a bad debt at December 31, 2006
Note 9 – Investments
On September 12, 2005 the Company entered into an agreement to invest a total of $400,000 in a combination of stock and cash into a company owning interests in various oil and gas wells situated in Texas. The investment is to be made over a 60 day period from the date of the signing of the agreement. The Company as result of the investment will be entitled to receive 30% of the future revenues derived from the properties. Up to December 31, 2006, the Company had advanced $30,000. At December 31, 2006, the Company had written-off this investment to operations in the amount of $30,000.
On June 24, 2005 the Company invested $10,000 in QRS/HandMade Recordings Inc. The agreement calls for a total commitment of $1,000,000 for all of the issued capital stock in HandMade, of which $300,000 is to be funded by June 10, 2005. The Company is presently in default of its obligations under this agreement. At December 31, 2006, the Company had written-off this investment to operations in the amount of $10,000.
The Company has adopted SFAS 130 as required by the Financial Accounting Standards Board. SFAS 130 requires that securities that are available for sale be presented at market value on the balance sheet date. Unrealized gains and losses are recognized as a separate component of stockholders’ equity. The specific identification method is used in calculating realized gains and losses. SFAS 130 also requires a statement of comprehensive income which adjusts net income for the unrealized activity. At December 31, 2006 the fair market value of common equity securities with a cost of $111,753 was $2,502 and at March 31, 200 7the fair market value of such securities was $2,536. The unrealized loss of $109,251 at December 31, 2006 was included as a component of other comprehensive income.
Note 10 – Contingent liabilities
The Company is not aware of any material contingent liabilities involving the Company.
Note 11 – Income taxes
Income taxes are accounted for in accordance with SFAS 109, Accounting for Income Taxes, using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Dutch income taxes have been recorded on the net income of the consolidating entities which are not a fiscal unity for the Dutch income tax. In addition, an income tax refund receivable has been recorded for one of the consolidating Dutch entities, which has a net operating loss. The receivable is recorded as another asset since it will not be received until that Company has taxable income.
Substantially all of the undistributed earnings of foreign subsidiaries are considered permanently invested and, accordingly, no federal income taxes thereon have been provided. Should those earnings be distributed, foreign tax credits would reduce the federal income tax that would be payable. Availability of credits is subject to limitations; accordingly, it is not practicable to estimate the amount of the ultimate deferred tax liability, if any, on accumulated earnings.
Note 12 – Acquisitions
On February 21, 2006, the Company completed the acquisition of 51% of the capital stock of GiraSolar, B.V., a Netherlands corporation, in exchange for a private placement transaction of five million shares of the Company’s restricted common stock (as adjusted for the five for two forward stock split), with an additional 7,500,000 shares issued on October 12, 2006.
The fair market value of the Company’s common stock on February 21, 2006 and October 12, 2006, was used to determine the purchase price of $5,830,000. The purchase price was allocated to tangible and intangible assets and liabilities at the date of acquisition as follows:
Current assets | $1,068,935 |
Property and equipment | 6,978 |
Other assets | 217,843 |
Customer list | 2,423,936 |
Goodwill | 3,334,625 |
Total assets | $7,025,317 |
Less – Total liabilities | 1,222,317 |
$5,830,000 |
The acquisition was accounted for as a purchase transaction, and accordingly, the assets and liabilities of GiraSolar, B.V. were recorded at their estimated fair values at the date of acquisition.
Intangible assets consisting of the customer list will be amortized on a straight-line basis over the estimated useful life of six years. The fair value of the customer list was based on the estimated discounted net cash flows after income taxes over the estimated life of the customer list. Amortization of the customer list included in selling, general and administrative expenses for the three months ended March 31, 2007 totaled $121,197. Amortization expense related to the customer list of GiraSolar, B.V. for the each of the years ending December 31, 2007, through 2011, is estimated to be $403,989, and for the year ending December 31, 2012 is estimated to be $309,865.
Goodwill represents the excess of the cost of the GiraSolar, B.V. acquisition over the fair value of the related net assets at February 21, 2006. Under SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is subject to annual impairment testing or more frequent testing if an event occurs or circumstances change that would more likely than not reduce the carrying value of the 51% ownership in GiraSolar, B.V. below its fair value. The impairment testing involves determining the fair market value of the 51% ownership of the issued capital stock of GiraSolar, B.V. Based upon this assessment, the Company has determined that there has been no required adjustment to the carrying value of the goodwill associated with the acquisition of GiraSolar, B.V. any future impairment of goodwill could have a material impact on the Company’s financial position and its results of operations.
The results of operations for the three months ended March 31, 2006 include the results of GiraSolar, B.V. from its acquisition date of February 21, 2006.
Note 13 – Segment Information
The Company adopted SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information”, in respect of its operating segments. The Company’s reportable segment is production, sale and consultancy in the field of solar energy applications and equipment.
The segment is managed separately because it requires different technology and marketing strategies. The Company evaluates performance based on the operating earnings of the business unit. The accounting policies of the segment are the same as those described in the summary of significant accounting policies. The segment assets include cash, accounts receivable, inventory, and other receivables. There were no significant intercompany transactions during any of the reported periods. In determining operating income by reportable segment, general corporate expenses and other income and expense items of a non-operating nature are not considered, as such items are not allocated to the Company’s segments. Segment information for the three months period ended March 31, 2007 is as follows:
Note 14 – Concentrations
The Company sells its solar products and services to customers in Europe, South East Asia, Canada, the United States and other countries. For the three months period ended March 31, 2007 our revenues were derived approximately as follows:
Europe
79.80%
South-East Asia
16.50%
Others