Encore Clean Energy (ECLN) 8-K Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

Encore Clean Energy, Inc.
Consolidated Balance Sheets (unaudited)
(expressed in United States Dollars)

September 30, 2004 and December 31, 2003

		September 30,			December 31,
		2004			2003
		(Unaudited)			(Audited)
		(restated)			(restated)
Assets
Current assets:
Cash	$	77		$	335
Accounts receivable		72,516			110,613
Prepaid expenses		19,298			8,336
		91,891			119,284
Property and equipment, less accumulated depreciation		66,739			82,986
Technology and other intangible assets		2,322,167			2,133,340
	$	2,480,797		$	2,335,610
Liabilities and Stockholders’ Deficit
Current liabilities:
Bank indebtedness	$	-		$	82,447
Accounts payable and accrued liabilities		1,801,619			1,664,907
Notes payable – current portion		530,000			350,000
Loan payable – current portion		360,997			-
Lease obligation - current portion		-			4,967
		2,692,616			2,102,321
Due to related parties		985,912			901,647
Total liabilities		3,678,528			3,003,968
Stockholders’ deficit:
Common stock		12,807			12,618
Additional paid-in capital		6,103,768			5,802,498
Deficit		(6,973,756	)		(6,152,058	)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment		(340,550	)		(331,416	)
Total stockholders’ deficit		(1,197,731	)		(668,358	)
	$	2,480,797		$	2,335,610

See accompanying notes to unaudited financial statements

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Encore Clean Energy, Inc.
Consolidated Statements of Operations and Deficit (unaudited)
(expressed in United States Dollars)

Nine months ended September 30, 2004 and September 30, 2003

		Three Months Ended						Nine Months Ended
		September 30,			September 30,			September 30,			September 30,
		2004			2003			2004			2003
		(restated)						(restated)
Revenue	$	561,613		$	713,428		$	2,006,849		$	2,274,050
Cost of revenue		(370,976	)		(589,503	)		(1,392,572	)		(1,705,998	)
Gross profit		190,637			123,925			614,277			568,052
Operating expenses:
Depreciation		7,194			5,843			22,608			17,267
Salaries and fringe benefits		170,767			87,894			520,754			410,376
Legal and accounting		22,407			-			112,021			19,116
Consulting fees and
computer services		106,070			70,076			380,929			186,224
Phones and utilities		5,806			1,576			17,661			11,044
Rent		26,659			14,947			92,558			63,716
Advertising and promotion		3,114			4,320			9,848			16,636
Other selling, general
and administrative		23,176			10,440			55,490			48,405
		365,193			195,096			1,211,869			772,784
Loss from operations		(174,556	)		(71,171	)		(597,592	)		(204,732	)
Other income (expenses):
Interest expense		(77,116	)		(20,594	)		(224,106	)		(60,328	)
Net loss		(251,672	)		(91,765	)		(821,698	)		(265,060	)
Deficit, beginning of period		(6,722,084	)		(5,412,190	)		(6,152,058	)		(5,238,895	)
Deficit, end of period	$	(6,973,756	)	$	(5,503,955	)	$	(6,973,756	)	$	(5,503,955	)
Net loss per common share,
basic and diluted		($0.02	)		($0.18	)		($0.06	)		($0.51	)
Weighted average common
shares outstanding, basic
and diluted		12,840,528			519,751			12,840,528			519,751

See accompanying notes to the unaudited financial statements

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Encore Clean Energy, Inc.
Consolidated Statements of Cash Flows (unaudited)
(expressed in United States Dollars)

September 30, 2004 and September 30, 2003

		Nine Months Ended
		September 30,			September 30,
		2004			2003
		(restated)
Cash provided by (used in):
Operations:
Net loss	$	(821,698	)	$	(265,060	)
Items not involving cash:
Depreciation		22,608			17,267
Stock-based compensation		112,632			-
Changes in operating assets and liabilities:
Change in accounts receivable		38,097			165,701
Change in prepaid expenses		(10,962	)		(7,923	)
Change in accounts payable and accrued liabilities		136,712			274,063
Change in unearned revenue		-			(259,369	)
Change in accrued salaries		-			(3,209	)
Net cash used in operating activities		(522,611	)		(78,530	)
Cash flows used in investing activities:
Purchase of property and equipment		(6,361	)		(8,485	)
Net cash used in investing activities		(6,361	)		(8,485	)
Cash flows from financing activities:
Proceeds from loans payable		360,997			-
Repayment of lease obligation		(4,967	)		(3,625	)
Proceeds from (repayment of) bank indebtedness		(82,447	)		81,711
Proceeds from (repayment of) advances from related parties		84,265			-
Proceeds from (repayment of) notes payable		180,000			(22,205	)
Issue of share capital		-			6,193
Net cash provided by financing activities		537,848			62,074
Effect of exchange rate on cash		(9,134	)		(19,403	)
Increase (decrease) in cash		(258	)		(44,344	)
Cash, beginning of period		335			50,537
Cash, end of period	$	77		$	6,193
Supplementary information:
Interest paid		6,425			12,494

See accompanying notes to the unaudited financial statements.

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ENCORE CLEAN ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004

1.               The Company and Description of Business:

Encore Clean Energy, Inc. (“the Company”) was originally incorporated on May 12, 1995 under the laws of Florida. On May 13, 2002, we changed our state of jurisdiction to Delaware. On December 1, 2003 we merged with our wholly-owned subsidiary, Cryotherm, under the laws of Delaware and changed our name to Encore Clean Energy, Inc.

Encore Clean Energy, Inc. is currently engaged in the following business:

(a)	The business of creating and commercializing products that generate electricity without burning fossil fuels; and
(b)	The provision of “permission-based” e-mail marketing and integrated advertising strategies services through our wholly owned subsidiaries Ignite Communications Inc. and Forge Marketing Inc.

2.              Liquidity and Future Operations:

The Company incurred a net loss in the third quarter ending September 30, 2004 and has sustained negative cash flows from operations since its inception. At September 30, 2004, the Company has negative working capital of $2,600,725. The Company's ability to meet its obligations in the ordinary course of business is dependent upon its ability to increase profitable operations or to obtain additional funding through public or private equity financing, collaborative or other arrangements with corporate sources, or other sources. Management is seeking to increase revenues through continued marketing of its services; however additional funding will be required.

Management is working to obtain sufficient working capital from external sources in order to continue operations. There is however no assurance that the aforementioned events, including the receipt of additional funding, will occur and be successful.

3.              Basis of Presentation:

The unaudited consolidated financial statements of the Company at September 30, 2004 and for the nine month period then ended include the accounts of the Company and its wholly-owned subsidiaries and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in these interim statements under the rules and regulations of the Securities and Exchange Commission ("SEC"). Accounting policies used in fiscal 2004 are consistent with those used in fiscal 2003. The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2004. These interim financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2003 and the notes thereto.

4.               Foreign Currency:

The functional currency of the operations of the Company's wholly-owned Canadian operating subsidiaries is the Canadian dollar. Assets and liabilities measured in Canadian dollars are translated into United States dollars using exchange rates in effect at the balance sheets date with revenue and expense transactions translated using average exchange rates prevailing during the period. Exchange gains and losses arising on this translation are excluded from the determination of income and reported as foreign currency translation adjustment (which is included in the comprehensive income (loss)) in stockholders' equity.

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ENCORE CLEAN ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004

5.               Net Income (Loss) Per Share:

The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the provisions of SFAS No. 128 and SAB No. 98, basic income (loss) per share is computed using the weighted average number of common stock outstanding during the periods. Diluted income (loss) per share is computed using the weighted average number of common and potentially dilutive common stock outstanding during the period. Basic and diluted net income (loss) per share are the same as any exercise of options or warrants would be anti-dilutive.

6.               Loan Payable:

In April 2004 the Company secured debt financing in the aggregate amount of $360,997 from HSBC Bank Canada, in the form of a $38,835 line of credit (Canadian dollar denominated line of credit of Cdn $50,000) and a $322,162 working capital loan (Canadian dollar denominated loan of Cdn $450,000). The loan financing is denominated in Canadian dollars, secured by a general security agreement, and interest is charged at HSBC’s prime rate of interest plus 1.50% .

7.               Comprehensive Income (Loss):

Effective January 1, 1999, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income" SFAS No. 130 which establishes standards for reporting comprehensive income (loss) and its components in financial statements. Other comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. Comprehensive loss for each of the periods presented is as follows:

	Three Months Ended September 30, 2004	Three Months Ended September 30, 2003	Nine Months Ended September 30, 2004	Nine Months Ended September 30, 2003
Net loss	$(251,672)	$(91,765)	$(821,698)	$(265,060)
Other comprehensive (income) /  loss:  Foreign currency translation  adjustment	35,955	(5,986)	9,134	257,925
Comprehensive loss	$(287,627)	$85,779	$(830,832)	$(522,985)

8.               Correction of Financial Statements:

During 2004, a contract originally effective in 2003 was recorded as a correction to the 2003 financial statements which resulted in the restatement of an increase in notes payable and a correlated increase in consulting expenses in the amount of $140,000 for the year ended December 31, 2003. Total stockholders’ deficit and net loss were restated from $(528,358) and $(773,163) to $(668,358) and $(913,163) respectively for the year ended December 21, 2003. Net loss per common share, basic and diluted was restated from $(0.22) to $(0.26) . As a result of this correction, the September 30, 2004 financial statements have been restated with an increase in notes payable and a correlated increase in consulting expenses in the amount of $180,000. Total stockholders’ deficit and net loss were restated from $(877,731) and $(641,698) to $(1,197,731) and $(821,698) respectively for the quarter ended September 30, 2004. Net loss per common share, basic and diluted was restated from $(0.05) to $(0.06) .

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