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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F
[ x ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, for the fiscal year ended:
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, for the transition period
from ___________ to __________.
COMMISSION FILE NO: _________________
BALATON POWER, INC.
(Exact name of registrant as specific in its charter)
Province of British Columbia, Canada
(Jurisdiction of incorporation or organization)
1311 Howe Street
Second Floor
Vancouver, British Columbia
Canada V6Z 2P3
(Address of principal executive offices.) (Postal Code)
Registrant's area code and telephone number: (604) 691-1783
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of each class: Common Stock
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
Title of each class: None
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period
covered by the annual report - 21,004,194
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
[ ] YES [ ] NO
Indicate by check mark which financial statement item the registrant
has elected to follow:
[ x ] ITEM 17 [ ] ITEM 18
(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
[ ] YES [ ] NO
INDEX BEGINS ON PAGE
INTRODUCTION
As used herein, except as the context otherwise requires, the
term "Company" refers to Balaton Power Inc., a corporation organized
under the laws of Province of British Columbia.
The Company publishes its financial statements expressed in
United States dollars. In this document, references to "US dollars"
or "US$" are to the currency of the United States of America.
The Company's fiscal year ends on December 31 of each year.
References in this document to a particular year are to the fiscal
year unless otherwise indicated.
In the future, the Company will produce annual reports
containing audited consolidated financial statements and an opinion
thereon by the Company's independent public accountants. The
financial statements contained in this registration statement have
been audited in accordance with United States Generally Accepted
Accounting Principles ("US GAAP").
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Balaton Power Inc. (the "Company"), was incorporated under the
laws of the Province of British Columbia on June 25, 1986. The
Company is in the start-up stage and has initiated limited
operations. The Company's primary business purpose is the
construction, installation and sale of "low impact" run-of-the-river
hydro electric production systems (the "System") which incorporate a
patent pending fish protective water inlet device (the "Pisces"); the
manufacture and sale of the Pisces; the sale of the Balaton Remote
Integrated Monitoring and Control System (the "BRIMAC"); and, the
sale of electricity resulting from the operation of the System at
Company owned sites. The System is designed to produce
"green"/renewable electricity. A green system is one which generates
electricity from non-carbon based fuels and does not adversely impact
the flows of rivers or aquatic life and is considered "low impact" on
the environment.
As of the date hereof, the Company has not constructed,
installed or sold any Systems, Pisces or BRIMACs and does not
generate or distribute any electricity to anyone. There is no
assurance that the Company's plans to construct, install or sell any
Systems, Pisces or BRIMACs to anyone will occur or that the Company
will ever generate and sell electricity to anyone.
Protection of Aquatic Life
Hydro electric facilities are required to operate under
guidelines and approval of the Federal Energy Regulatory Commission
("FERC"). Section 18 of the FERC licensing procedure requires that
the facility has provided a safe environment for fish in accordance
with a "fish prescription" that will prevent, reduce and/or eliminate
the entrainment and/or impringement of fish at the water intakes of
hydroelectric production facilities. The focus of the foregoing
regulation is upon the entrapment and/or entrainment of fish through
the facilities intake system. The Company believes that the Pisces
will greatly prevent, reduce and/or eliminate the entrainment and/or
impingement of fish in the intake system and therefore would be in
compliance with Section 18 of FERC.
Construction and Acquisition of Systems
The Company intends to install its initial System in the state
of Idaho. The initial site has not been determined, however, sites
are being reviewed and application procedures for licensing eight
sites have been initiated by the Company.
The Company has entered into a letter of intent with Vernon
Ravenscroft to acquire an existing low impact hydroelectric
production facility located near Bliss, Idaho. The facility
generated 3.3 mWh of power in 1999 and the electricity is sold under
a long term Power Purchase Agreement ("PPA") with Idaho Power
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Company. The Company intends to enter into a definitive agreement to
acquire a working interest in the facility in the first quarter of
2001. There is no assurance, however, that the Company will ever
acquire a working interest in the facility.
The Company intends to use the facility for ongoing research and
development, as a demonstration system, and to generate revenue for
the Company.
Patent
Rodney Smith, one of directors and Colin Hall, an individual,
have transferred all of their right, title and interest in the Pisces
design and its derivatives to Balaton Power Corporation S.A. ("BSA").
BSA has achieved "patent pending" status of its application filed
with the United States Patent and Trademark Office (Case Docket No.
SMTT 321) and is patent-protected in 104 countries around the world
for a float mounted intake system which will be marketed under the
name of "Pisces." The Pisces is a mechanical device designed to
steer fish stocks around the water intake to prevent, reduce and/or
eliminate their impingement and/or entrainment at irrigation,
industrial use and hydroelectric production facility water intakes.
Model testing of Pisces was conducted in the spring of 2000 at the
Northwest Hydraulic Consultants' laboratory in North Vancouver,
British Columbia, Canada.
BSA has entered into a licensing agreement with the Company
whereby the Company has the right to manufacture and sell the System,
the Pisces and the BRIMAC and to implement the System at Company
owned hydroelectric power production sites in the United States and
Canada. In consideration of the license, the Company is obligated to
make the payment of $150,000 to BSA, (of which $50,000 has been
advanced) as advance payment of royalties of five percent (5%) of
gross revenues.
Deregulation of the Electric Utility Industry
The Energy Policy Act of 1992 proved that businesses other than
traditional electric utilities could generate electricity and sell it
at wholesale prices.
On April 24, 1996, the Federal Regulatory Commission (FERC)
issued Order 888 which provided for the non-discriminatory open
access transmission services by investor-owned utilities.
With few exceptions, utilities accepted the changes and complied
with the new requirements. Virtually all transmission-owned
utilities have filed tariffs that state the rates, terms and
conditions for comparable service to third party users of their
transmission systems.
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Current Regulation
Wholesale competition in the electricity utility sector is the
focus on the federal level, while retail competition rests with the
states. On the federal level, the reliability of wholesale (bulk
power) grid is of most concern. Presently, the national grid
consists of loosely aligned regional operations. Each regional
market is structured and administered somewhat differently with
little coordination between regions. Therefore, when one regional
market encounters price or supply difficulty, it usually must resolve
its own problem. The benefits of deregulation will not be realized
until more efficient and reliable interstate markets are developed
creating a seamless wholesale interstate market. The effort has been
delayed pending a determination if FERC or state utility commissions
will regulate United States electricity transmission.
States are being allowed to establish their own rules for open
competition at the retail level. As of October 23, 2000, twenty-
three states and the District of Columbia have enacted legislation
implementing retail choice. In twenty other states, deregulation at
the retail level is being investigated by state commissions or
legislative bodies.
Market for Electricity
The market for electricity production and transmission in the
United States is deregulated. The overall market is mature.
As a means of quantitative comparison the following general
industry based electricity prices occurred in certain developed
countries during this period in accordance with information supplied
by the Energy Information Administration
Country Average Price per/KWH in US$
USA $0.067
Canada $0.060
United Kingdom $0.050
Philippines $0.075
Brazil $0.130
Japan $0.190
Lack of government incentives available in the United States
Power shortages and brownouts are predicted in the United
States. In spite of this, energy conservation has not gained wide
acceptance and has had little impact on significantly reducing energy
consumption. This situation can be attributed mainly to inadequate
energy conservation campaigns and a lack of incentives for promoting
efficient energy use.
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Design and Construction of the Hydro Electric Power Production
Systems
A System will consist of a water intake, penstock, turbine,
generator and power station. Water is diverted from the river or
stream into a channel. Water is then gathered by the Pisces, directed
to and through the penstock to the turbine. The turbines generate
electricity which is transmitted to the power station where
transformers convert the electricity to the proper current and is
then transmitted to the buyers of electricity. After the water
passes through the turbines, it is returned to the river or stream
through the channel.
The Systems will be designed by the Company and will be unique,
or "site specific" to the location of installation. Installation of
Systems will be accomplished through independent construction
contractors. At the present time the Company has not entered into
any agreements with anyone to construct any Systems. The Company
believes that there are a number of contractors capable of
constructing the Systems.
Management and Employees
The Company is a development stage company and currently has two
employees other than its Officers and Directors. The Company intends
to hire additional employees as needed. The Company intends to
require all of its officers, directors and other key employees to
enter into non-competition agreements with terms of eighteen months
to three years after termination of employment with the Company.
There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary know-how
or technology or adequate remedies in case of breach.
Company's Offices
The Company's executive offices are located at 1311 Howe Street,
Second Floor, Vancouver, British Columbia, Canada V6Z 2P3 and its
telephone number is (604) 691-1783. The Company also maintains
offices at 109 Holiday Court, Suite B-1, Franklin Tennessee 37064 and
its telephone number in Franklin is (615) 599-5757 and at 2727 S.
Merrimac Place, Boise, Idaho 83709 and its telephone number in Boise
is (208) 562-1527.
Risk Factors Associated with the Company
1. Company with No History of Earnings. The Company has no
operating history and is subject to all of the risks inherent in a
developing business enterprise including lack of cash flow and
service acceptance.
2. Development and Market Acceptance of Services. The
Company's success and growth will depend upon the Company's ability
to construct hydro-electric facilities.
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3. Liquidity; Need for Additional Financing. The Company
believes that it does not have the cash it needs for at least the
next twelve months based upon its internally prepared budget.
Further, the Company's cash requirements are not easily predictable
and there is a possibility that its budget estimates will prove to be
inaccurate. If the Company is unable to generate a positive cash
flow, it will be required to curtail operations substantially and
seek additional capital. There is no assurance that the Company will
be able to obtain additional capital if required, or if capital is
available, to obtain it on terms favorable to the Company. The
Company may suffer from a lack of liquidity in the future which could
impair its short-term marketing and sales efforts and adversely
affect its results of operations.
4. Patents. The Company has obtained a license to manufacture
and sell Pisces. There is no assurance, however, that third parties
may not infringe on the patents. In order to protect the patent
rights, the Company or the patent owners may have to file lawsuits
and obtain injunctions. If the Company does that, it will have to
spend large sums of money for attorney's fees in order to obtain the
injunctions. Even if the Company or patent holders obtain the
injunctions, there is no assurance that those infringing on the
patents will comply with the injunctions. Further, the Company or
patent holders may not have adequate funds available to prosecute
actions to protect the patents, in which case those infringing on the
patents could continue to do so in the future.
5. Competition. Most of the Company's competitors have
substantially greater financial, technical and marketing resources
than the Company. In addition, the Company's services compete
indirectly with all other forms of energy delivery.
6. Reliance Upon Directors and Officers. The Company is
wholly dependent, at the present, upon the personal efforts and
abilities of its Officers and Directors, who exercise control over
the day to day affairs of the Company.
7. Issuance of Additional Shares. The Company is authorized to
issue 700,000,000 common shares. 21,004,194 common shares are
currently issued and outstanding and 678,995,806 or 97% of the common
shares are unissued. The Board of Directors has the power to issue
such shares. Although the Company presently has no commitments or
contracts to issue any additional shares to other persons. The
Company may in the future attempt to issue shares to acquire
products, equipment or properties, or for other corporate purposes.
Any additional issuance by the Company, from its authorized but
unissued shares, would have the effect of diluting the interest of
existing shareholders.
8. Indemnification of Officers and Directors for Securities
Liabilities. The laws of the Province of British Columbia provide
that the Company could indemnify any Director, Officer, agent and/or
employee as to those liabilities and on those terms and conditions as
are specified in the British Columbia Company Act. Further, the
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Company may purchase and maintain insurance on behalf of any such
persons whether or not the corporation would have the power to
indemnify such person against the liability insured against. The
foregoing could result in substantial expenditures by the Company and
prevent any recovery from such Officers, Directors, agents and
employees for losses incurred by the Company as a result of their
actions. Further, the Company has been advised that in the opinion
of the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
9. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's common stock.
Shareholders may be further diluted in their percentage ownership of
the Company in the event additional shares are issued by the Company
in the future. Cumulative voting in the election of Directors is not
provided for. Accordingly, the holders of a majority of the shares
of common stock, present in person or by proxy, will be able to elect
all of the Company's Board of Directors.
10. No Dividends Anticipated. At the present time the Company
does not anticipate paying dividends, cash or otherwise, on its
Common Stock in the foreseeable future. Future dividends will depend
on earnings, if any, of the Company, its financial requirements and
other factors.
ITEM 2. DESCRIPTION OF PROPERTY.
Currently the Company does not own any property. The Company's
offices are located at 1311 Howe Street, Second Floor, Viva Tower,
Vancouver, British Columbia, Canada V6Z 2P3. The Company's telephone
number in Vancouver is (604) 691-1784. The Company leases its office
space in Vancouver pursuant to the terms of a written lease
agreement. The term of the lease is one year with monthly rental
payments of CDN$1,000.00 per month. The Company also leases office
space at 109 Holiday Court, Suite B-1, Franklin, Tennessee 37064.
The Company's telephone number in Franklin is (615) 599-5757. The
Company leases its office space in Franklin pursuant to the terms of
a written lease agreement. The term of the lease is one year with
monthly rental payments of $1,150.00 per month. The Company also
maintains an office at 2727 S. Merrimac Place, Boise, Idaho 83709.
The office is located in the home of Rodney Smith, one of the
Company's directors on a rent free basis. The telephone number of
the Boise, Idaho office is (208) 562-1527.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and to its
knowledge, no action, suit or proceedings against it has been
threatened by any person.
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ITEM 4. CONTROL OF REGISTRANT.
Principal Shareholders
The Company's is controlled by BSA by virtue of their ownership
of 12,500,000 shares of common stock. There are no agreements in
place which could result in a change of control of the Company.
The following table sets forth the common share ownership of
each person known by the Company to be the beneficial owner of five
percent or more of the Company's common shares, each director
individually and all officers and directors of the Company as a
group. Each person has sole voting and investment power with respect
to the shares of common stock shown, and all ownership is of record
and beneficial.
Name and address Number of Percent
of owner Shares Position of Class
Balaton Power S.A. 12,500,000 Shareholder 59.51%
1311 Howe St.
2nd Floor
Vancouver, B.C.
Canada
Rodney E. Smith 0 President, 0.00%
4851 McLure Ave. Chief Executive
Richmond, B.C. Officer &
Canada Director
A. Roy MacRae 0 Secretary, 0.00%
948 Anderson Cresent Treasurer,
W. Vancouver, B.C. Chief Financial
Canada Officer &
Director
Thomas R. Saunders 0 Director 0.00%
6875 Rockford Pl.
Delta, B.C.
Canada
Martina Fischer Kaessner 0 Director 0.00%
Vista Pointe No. 201
222 W 4th Street
N. Vancouver, B.C.
Canada
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ITEM 5. NATURE OF TRADING MARKET.
No market exists for the Company's securities and there is no
assurance that a regular trading market will develop, or if
developed, that it will be sustainable. A shareholder in all
likelihood, therefore, will be unable to resell the securities
referred to herein should he or she desire to do so. Furthermore, it
is unlikely that a lending institution will accept the Company's
securities as pledged collateral for loans unless a regular trading
market develops.
There are no plans, proposals, arrangements or understandings
with any person with regard to the development of a trading market in
any of the Company's securities. On January 4, 1999, the NASD
amended its rules regarding listing of securities for trading on the
Bulletin Board which it operates. Effective January 4, 1999,
securities of corporations will not be listed for trading on the
Bulletin Board unless the corporation files reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Accordingly, the Company's common stock will not be listed for
trading on the Bulletin Board until such time as this registration
statement is declared effective by operation of law and the Company
has satisfied all outstanding comments issued by the Securities and
Exchange Commission.
As of January 8, 2001, the Company had 201 holders of record of
its common shares. Currently, there are 48 U.S. shareholders of the
Company's common shares.
The Company has not paid any dividends since it is inception and
does not anticipate paying any dividends on its Ordinary Shares in
the foreseeable future.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS.
There are no exchange controls or other limitations which effect
security holders other than the shares of common stock issued to
Balaton Power Corporation, S.A. are "restricted securities" as that
term is defined in Reg. 144 of the Securities Act of 1933 (the "Act")
and may only be resold in compliance with Reg. 144 of the Act.
In general, under Reg. 144, an affiliate of the Company
(officers, directors, and owners of more than ten percent (10%) of
the outstanding shares of Common Stock are affiliates of the Company)
may sell in ordinary market transactions through a broker or with a
market maker, within any three (3) month period a number of shares
which does not exceed the greater of one percent (1%) of the number
of outstanding shares of Common Stock or the average of the weekly
trading volume of the Common Stock during the four calendar weeks
prior to such sale. Sales under Reg. 144 require the filing of Form
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144 with the Securities and Exchange Commission. If the shares of
Common Stock have been held for more than two (2) years by a person
who is not an affiliate, there is no limitation on the manner of sale
or the volume of shares that may be sold and no Form 144 is required.
Sales under Reg. 144 may have a depressive effect on the market price
of the Company's Common Stock.
ITEM 7. TAXATION.
The following discussion summarizes certain US federal and
Canadian tax consequences of the ownership of Shares by a person ("US
Portfolio Stockholder") that: (i) is a citizen or resident of the US,
a US corporation or that otherwise will be subject to US federal
income tax on a net income basis in respect of the Shares; (ii) is
not deemed a resident of Canada for exchange control purposes by the
Central Bank of Canada; (iii) has not, within the preceding five
years, beneficially owned 10% of the issued capital or voting stock
in the Company; and, (iv) has not used the Shares in carrying on a
trade or business, wholly or partly through a permanent establishment
in Canada.
The statements regarding US and Canadian tax laws set forth
herein are based on those laws as in force on the date of this
document that may affect the tax consequence described herein (some
of which may have retroactive effect). This summary is not
exhaustive of all possible tax consideration and investors are
advised to satisfy themselves as to the overall tax consequences,
including specifically the consequences under US, state, local and
other laws, of the acquisition, ownership and disposition of Shares
by consulting their own tax advisers.
Taxation of Gains on Sale
A US Portfolio Stockholder is not subject to Canadian income tax
on the sale of its common shares in the Company.
Passive Foreign Investment Company Status
A foreign corporation is classified as a passive foreign
investment company (a "PFIC") in any taxable year in which, after
taking into account the income and assets of certain subsidiaries
pursuant to the applicable US Internal Revenue Code "look-through"
rules, either (i) at least 75% of its gross income is passive income,
or (ii) at least 50% of the average value of its assets is
attributable to assets that produce passive income from cash holdings
and profits from the sale of marketable securities, even if derived
from an active business.
If the Company were a PFIC during any year in which a US
Portfolio Stockholder owned Shares, that US Portfolio Stockholder
would be subject to additional taxes on any gain realized from the
sale or any other disposition of the Shares, or any excess
distribution received from the Company.
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A US Portfolio Stockholder will have an excess distribution to
the extent that distributions on Shares during a taxable year
exceeded 125% of the average amount received during the three
preceding taxable years (or, if shorter, the US Portfolio
Stockholders' holding period for the Shares). To compute the tax on
gain or on an excess distribution, (i) the excess distribution or the
gain is allocated ratably over the US Portfolio Stockholder's holding
period for the Shares, (ii) the amount allocated to the current
taxable year at the highest applicable marginal rate in effect for
each year and an interest charge is imposed to recover the deemed
benefit from the deferred payment of the tax attributable to each
year.
If the Company is a PFIC, US persons that own an interest in
another entity that owns shares in the Company may be treated as
indirect holders of their proportionate share of that entity's
Shares, and may be taxed on their proportional share of any gain or
excess distribution from that entity attributable to the entity's in
the Company. A US person that owns an interest in the entity that is
an actual holder of Shares will be treated as an indirect holder if
(i) the actual holder is itself a PFIC, (ii) the actual holder is a
foreign corporation other than a PFIC in which the US person who owns
an interest in the actual holder owns (directly or indirectly) at
least 50% in value of the actual holder's shares, or (iii) the actual
holder is a partnership, trust or estate in which the US Portfolio
Stockholder is a partner or beneficiary. An indirect holder must
take into income its portion of any excess distribution received by
the actual holder or any gain recognized by the actual holder on the
Shares. An indirect holder also must treat an appropriate portion of
its gain on the sale or disproportion of its interest in the actual
holder as gain on the sale of the Shares. If the Company were a
PFIC, a US Portfolio Stockholder of Shares would generally be subject
to similar rules with respect to distribution by, and dispositions of
the shares of, any direct or indirect subsidiaries of the Company
that were PFICs.
The Internal Revenue Code provides each US stockholder in an
PFIC with an election whereby the additional US tax burden imposed on
gain on sale of PFIC stock and receipt of excess distributions from a
PFIC, as described above, can be avoided. This election generally
requires that the PFIC stockholder include in its income, its pro-
rata share of the PFIC's distributed and undistributed income, as
computed under US tax accounting principles, on an current basis. In
certain cases, a further election is available to an electing PFIC
stockholder to defer the tax payable with respect to the
stockholder's pro-rata share of the PFIC's undistributed income,
although in this case interest applies on the deferred tax. Thus,
even if the first or both of these elections are made, a US
stockholder of a PFIC loses the tax benefit, which is available with
respect to investment in a non-PFIC corporation, of deferring and
converting to capital gain the investor's personal US tax liability
with respect to the Company's undistributed income. These elections
also generally require that the PFIC annually provide the electing
PFIC shareholder, for inspecting by the Internal Revenue Service, an
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analysis of the PFIC's income computed under US tax accounting
principals. The Company does not intend to furnish any US Portfolio
Stockholder with the information that it would need in order to avoid
the PFIC tax treatment described by electing to include its share of
the Company's income on a current basis. There, these election will
not be available to the Company's US Portfolio Stockholders.
There are other adverse US tax rules associated with holding
Shares in a company that has been a PFIC during any part of a US
Portfolio Stockholders holding period. These include a denial of a
step-up in a tax basis on the death of a US individual stockholder,
and burdensome reporting requirements.
If the Company ceases to be a PFIC, a US Portfolio Stockholder
may avoid the contained application of the tax treatment described
above by electing to be treated as if it sold its Shares on the last
day of the last taxable year in which the Company was a PFIC. Any
gain is recognized and subjected to tax under the rules described
above. Loss is not recognized. The US Portfolio Stockholder's basis
in the Shares is increased by the amount of gain recognized on the
deemed sale. This election is not available to a US Portfolio
Stockholder that previously elected to include its share of the
Company's income on a current basis. The US Congress recently has
considered legislation that would alter the PFIC rules substantially.
Prospective investors should consult their own tax advisors as to the
potential application of the PFIC rules, as well as, the impact of
any proposed legislation that could affect them.
The Company has generated sufficient income and assets during
1999 and 2000 not to be deemed a PFIC.
Taxation of Dividends.
The Company does not expect to pay cash dividends for the
foreseeable future, but, rather, to retain earnings to finance
expansion of the business. Should the Company begin paying
dividends, however, the Company's dividends to its US Portfolio
Stockholders would be exempt from Canadian tax. The overall
limitation on non-US taxes eligible for US credit is calculated
separately with respect to specific classes, or "baskets" of income.
For this purpose, dividends distributed by the Company will generally
constitute "passive income" or, in the case of certain US Portfolio
Stockholder, "financial service income." The US tax credits
allowable with respect to each income basket cannot exceed the US
federal income tax payable with respect to such income. The
consequences of the separate limitation calculation will depend on
the nature and sources of each US Portfolio Stockholder's income and
the deductions allocable thereto.
Distributions on the Shares will constitute dividends for US
Federal income tax purposes to the extent paid out of current or
accumulated earnings and profits of the Company, as determined for US
federal income tax purposes. If the Company pays a dividend, such
dividend would likely be paid in U.S. dollars. The amount of
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dividend income for a US Portfolio Stockholder will be the US dollar
value of the dividend income for a US Portfolio Stockholder will be
the US dollar value of the dividend payment on the date of receipt,
even if the dividend is not converted into US dollars. Dividends
paid by the Company will not be eligible for the "inter-corporate
dividends received" deduction allowed to US corporations.
Estate and Gift Tax
Canada does not impose any estate, inheritance or gift taxes.
Therefore, no Canadian estate tax, inheritance tax or gift tax will
be imposed on the death or upon a lifetime gift by, a US Portfolio
Stockholder.
ITEM 8. SELECTED FINANCIAL DATA.
Selected Consolidated Financial Data
The selected historical data presented below has been derived
from the financial statements of the Company, which financial
statements have been examined by Ron Shumka, Chartered Accountants
for the Company and are included elsewhere herein for the nine months
ended September 30th, 2000 and the years ended December 31, 1999,
1998, 1997, and by Robert Jamison, Chartered Accountants for the
years ended December 31, 1996 and 1995.
The financial statements are presented in U.S. dollars and have
been prepared in accordance with generally accepted accounting
principles in the United States ("US GAAP").
The following table summarized certain financial information and
should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The
Company has not declared a dividend during the nine months ended
September 30, 2000 or the years ended December 31, 1999, 1998, 1997,
1996 or 1995. There were no fluctuations in revenues and net income
(loss) between the periods stated in the table below since the
Company was inoperative. Please refer to Item 9. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations. For the reasons set forth herein
the information shown below may not be indicative of the Company's
future results of operation.
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Statement of Loss and Accumulate Deficit Data:
FINANCIAL INFORMATION PER US GAAP
December 31 Sept. 30
1995 1996 1997 1998 1999 2000
(Audited)
Total revenue Nil Nil Nil Nil Nil Nil
Interest
expense $ 1,581 $ 915 $ 4,753 $ 9,934 $ 31,362 Nil
Net income
(loss) $(174,057) $(144,285) $ (26,874) $ (36,317) $(67,271) $(223,085)
Total assets $ 23,647 $ 316 $ 162 $ 521 $ 810 $ 592,022
Net working
capital
(deficit) $ (56,643) $(103,868) $(130,687) $(166,309) $(16,309) $ 479,960
Shareholders'
equity $ (46,115) $(103,651) $(130,525) $(166,842) $(16,255) $ 558,358
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company has inadequate cash to maintain operations during the next
twelve months. In order to meet its cash requirements the Company will have
to raise additional capital through the sale of securities or loans. As of
the date hereof, the Company has not made sales of additional securities and
there is no assurance that it will be able to raise additional capital
through the sale of securities in the future. Further, the Company has not
initiated any negotiations for loans to the Company and there is no assurance
that the Company will be able to raise additional capital in the future
through loans. In the event that the Company is unable to raise additional
capital, it may have to suspend or cease operations.
The Company does not intend to conduct any research or development of
its services during the next twelve months other than as described herein.
See "Business."
The Company does not intend to purchase a plant or significant
equipment, however, the Company does intend to acquire a working interest in
the Ravenscroft project in Bliss, Idaho. See "Item 1. Business."
The Company will hire additional employees on an as needed basis,
however, the Company does not expect any significant changes in the number of
employees.
The Company expects to earn revenues in the fourth quarter of 2001.
There is no assurance, however, that the Company will earn said revenues as
planned.
Reconciliation to US GAAP
The Company's financial statements have been prepared in compliance with
International Accounting Standards ("IAS").
16
Inflationary and Other Economic Pressures
The Company is not currently generating revenues from the sale of
Systems or from the sale of electricity. Future revenues in this segment are
governed primarily by U.S. electricity prices. No immediate effect in
respect to inflation and changes on prices is realized. However inflationary
pressures effect the Company's operation and development expenditure which is
primarily incurred in U.S. dollars. The directors estimation of inflation is
considered in regards to the general state of the world economy of the United
States in particular. This exposure to inflationary pressure is dependent on
the price of electricity in a regulated and unregulated market. At this
stage the Company is unable to quantify the mix of inflationary pressures
that will effect the price of electricity.
Government Policies
The Company has considered the issue of political risk in the United
States in which the Company will be constructing Systems and selling
electricity and will continue to do so as a matter of normal business
practice. The Company expects the initial project will be located in the
United States and there has been a long established energy industry, with no
history of expropriation.
Activities conducted by residents and non-residents in the United States
and the flow of investment into the country and the return of capital out of
the country are subject to regulation. All of these controls and regulations
are subject to change from time to time. Some of the interests of the
Company are subject to the laws of Canada. These factors, in addition to the
usual risks and the economic and political stability of the host country, the
United States, must all be taken into account in relation to the Company's
operations.
These policies or factors do not effect investments by United States
Nationals in Company's common stock.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
Officers and Directors
The officers and directors of the Company are as follows:
Name Age Position
Rodney E. Smith 55 President, Chief Executive Officer and
Director
A. Roy MacRae 57 Secretary, Treasurer, Chief
Financial Officer and Director
Thomas R. Saunders 44 Director
Martina Kaessner Fischer 45 Director
17
All directors hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. The Company's
officers are elected by the Board of Directors at the annual meeting after
each annual meeting of the Company's shareholders and hold office until their
death, or until they resign or have been removed from office.
Rodney E. Smith, President, Chief Executive Officer and a member of the Board
of Directors.
Since August 2000, Mr. Smith has been President, Chief Executive Officer
and a member of the Board of Directors of the Company. For the last five
years, Mr. Smith has been engaged in the business of a business/management
consultant. Since October 1998, Mr. Smith has been a director of Balaton
Power Corporation S.A., the parent corporation of the Company. From March
1997 to October 1997, Mr. Smith was publisher/creator of STOX Magazine. From
September 1999 to September 2000, Mr. Smith was a director of Alchemy
Ventures Ltd., a Canadian corporation engaged in the business of kaolin clay
mining.
A. Roy MacRae - Secretary, Treasurer, Chief Financial Officer and Member of
the Board of Directors.
Since September 2000, Mr. MacRae has been Secretary, Treasurer, Chief
Financial Officer and a member of the Board of Directors of the Company.
From September 1969 to December 1999, Mr. MacRae was employed by Empire
Stevedoring Co., Ltd. His duties included Systems Analyst, Accountant,
Comptroller, Vice President of Finance and Administration, Senior Vice
President, President of the Trucking Division, a Director, and President and
Chief Executive Officer of Empire's successor, Empire International
Stevedores Ltd. From December 1999 to September 2000, Mr. MacRae was
retired. Mr. MacRae is a Chartered Accountant.
Thomas R. Saunders - Member of the Board of Directors
Since October 1997, Mr. Saunders has been a member of the Board of
Directors. Since June 1995, Mr. Saunders has been a director of Gilmour
McKay Roberts Consulting Ltd., Vancouver, British Columbia which is engaged
in the business of providing management consulting services relating to
analyzing business enterprises for investor clients.
Martina Kaessner Fischer - Member of the Board of Directors
Since August 2000, Ms. Fischer has been a member of the Board of
Directors. For the past five years, Ms. Fischer has been a consultant for
engineering and plastic technology.
18
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
Summary Compensation.
The following table sets forth the compensation paid by the Company from
inception through September 30, 1999, for each officer and director of the
Company. This information includes the dollar value of base salaries, bonus
awards and number of stock options granted, and certain other compensation,
if any.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Securities
Names Other Under Restricted Other
Executive Annual Options/ Shares or Annual
Officer and Compen- SARs[1] Restricted LTIP[2] Compen-
Principal Year Salary Bonus sation Granted Share Payouts sation
Position Ended (US$) (US$) (US$) (#) Units (US$) (US$) (US$)
Rodney E. 2000 0 0 0 0 0 0 0
Smith 1999 0 0 0 0 0 0 0
President 1998 0 0 0 0 0 0 0
A Roy. 2000 0 0 0 0 0 0 0
MacRae 1999 0 0 0 0 0 0 0
Secretary 1998 0 0 0 0 0 0 0
The Company anticipates paying the following salaries in 2001, subject
to the Company beginning profitable operations and generating sufficient
revenues to pay the same:
Rodney E. Smith President 2001 $50,000
A. Roy MacRae Secretary & Treasurer 2001 $50,000
The Company has not adopted any stock option plans, retirement, pension,
or profit sharing plans for the benefit of the Company's officers and
directors other than as described herein.
Stock Option Plans and Long-Term Incentive Plan Awards.
The Company does not have any stock option plans or long-term incentive
plans that provide compensation intended to serve as incentive for
performance.
Compensation of Directors.
Directors do not receive any compensation for serving as members of the
Board of Directors. The Board has not implemented a plan to award options
to any Directors. There are no contractual arrangements with any member of
the Board of Directors.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
None.
19
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
The Company issued 12,500,000 shares of its common stock to its parent
corporation, Balaton Power, S.A. ("BSA") in consideration of BSA issuing a
license to the Company to manufacture and sell the System, the Pisces and the
BRIMAC and to implement the System at Company owned hydroelectric power
production sites in the United States and Canada. As further consideration,
the Company is obligated to make the payment of $150,000 to BSA, (of which
$50,000 has been advanced) as advance payment of royalties of five percent
(5%) of gross revenues.
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
Common Shares
The authorized Common Shares of the Company consists of 100,000,000
Common Shares. All shares have equal voting rights and are not assessable.
Voting rights are not cumulative and, therefore, the holders of more than 50%
of the Common Shares could, if they chose to do so, elect all of the
directors of the Company.
Upon liquidation, dissolution or winding up of the Company, the assets
of the Company, after the payment of liabilities, will be distributed pro
rata to the holders of the Common Shares. The holders of the Common Shares
do not have preemptive rights to subscribe for any securities of the Company
and have no right to require the Company to redeem or purchase their shares.
The Common Shares presently outstanding are fully paid and nonassessable.
Dividends
Holders of the Common Shares are entitled to share equally in dividends
when, as and if declared by the Board of Directors of the Company, out of
funds legally available therefore. No dividend has been paid on the Common
Shares since inception, and none is contemplated in the foreseeable future.
Transfer Agent
Computershare Investor Services
510 Burrard Street
Suite 408
Vancouver, British Columbia
Canada V6C 3B9
Telephone: (604) 661-9400
20
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
See Item 19.
ITEM 18. FINANCIAL STATEMENTS.
Not applicable. Consolidated financial statements are provided under
Item 17.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
A. Financial Statements of Registrant.
The following financial statements, together with the reports of the
Company's independent accountants, are filed as part of this Registration
Statement.
Auditor's Report F-1
Balance Sheet F-3
Statement of Loss and Deficit F-4
Statements of Changes in Cash Flows F-5
Notes to Financial Statements F-6
21
AUDITOR'S REPORT
To the Directors of:
Balaton Power Inc.
(formerly Kirkstone Ventures Ltd.)
I have audited the balance sheet of Balaton Power Inc. (formerly
Kirkstone Ventures Ltd.) as at December 31, 1996 and 1995 and the
statements of loss and deficit and changes in cash flow for the years then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the annual financial presentation.
In my opinion, these financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1996 and 1995 and the results of its operations and changes in its cash
flow for the years then ended in accordance with generally accepted
accounting principles. As required by the Company Act - British Columbia,
I report that in my opinion, these principles have been applied on a basis
consistent with that of the proceeding year.
/s/ Robert Jamieson
ROBERT JAMIESON
CHARTERED ACCOUNTANT
Vancouver, B.C.
June 30, 1997
F-1
22
To the Directors of:
Balaton Power Inc.
(formerly Kirkstone Ventures Ltd.)
I have audited the balance sheet of Balaton Power Inc. (formerly
Kirkstone Ventures Ltd.) as at September 30, 2000 and as at December 31,
1999, 1998 and 1997 and the statements of loss and deficit and changes in
cash flow for the period or years then ended. These financial statements
are the responsibility of the Company's management. My responsibility is
to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the annual financial presentation.
In my opinion, these financial statements present fairly, in all
material respects, the financial position of the Company as at September
30, 2000 and as at December 31, 1999, 1998 and 1997 and the results of its
operations and changes in its cash flow for the years then ended in
accordance with generally accepted accounting principles. As required by
the Company Act - British Columbia, I report that in my opinion, these
principles have been applied on a basis consistent with that of the
proceeding year.
/s/ Ron Sumka
RON SUMKA
CHARTERED ACCOUNTANT
Vancouver, B.C.
December 14, 2000
F-2
23
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
BALANCE SHEET
ASSETS
As at
September As at December 31,
30, 2000 1999 1998
CURRENT
Cash $ 509,839 $ 63 $ 413
Accounts receivable (Note 3) 3,177 693 -
Prepaid rent 608 - -
----------- ----------- ----------
513,624 756 413
CAPITAL ASSETS (Note 4) 27,400 - -
LICENCE AGREEMENT (Note 5) 50,000 - -
DEPOSIT (Note 6) 984 - -
INCORPORATION COSTS 14 54 108
----------- ----------- ----------
$ 592,022 $ 810 $ 521
=========== =========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued
liabilities $ 31,638 $ 11,799 $ 96,357
Payable to related parties
(Note 7) 2,026 5,266 71,006
----------- ----------- ----------
33,664 17,065 167,363
----------- ----------- ----------
SHARE CAPITAL AND DEFICIT
SHARE CAPITAL (Note 8) 2,676,701 1,881,709 1,663,851
CONTRIBUTED SURPLUS 2,706 - -
DEFICIT (2,121,049) (1,897,964) (1,830,693)
----------- ----------- ----------
558,358 (16,255) (166,842)
----------- ----------- ----------
$ 592,022 $ 810 $ 521
=========== =========== ==========
HYDRO-ELECTRIC FACILITY (Note 9)
COMMITMENTS (Note 10)
CONTINGENT LIABILITY (Note 11)
SUBSEQUENT EVENT (Note 12)
APPROVED ON BEHALF OF THE BOARD:
A. ROY MACRAE Director
RODNEY E. SMITH Director
See accompanying notes to financial statements.
F-3
24
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
STATEMENTS OF LOSS AND DEFICIT
For the nine month period For the years ended
ended September 30, December 31
2000 1999 1999 1998
ADMINISTRATIVE EXPENSES
Amortization $ 679 $ 41 $ 54 $ 54
Audit and
accounting 16,890 552 1,161 7,122
Bank charges
and interest 322 31,123 31,362 9,934
Consulting
fees 17,317 - - -
Legal 27,078 567 3,789 5,042
Management fees 11,919 15,053 20,190 20,228
Miscellaneous (77) - - 806
Office, printing
and stationery 22,469 371 (168) 639
Office secretarial - - - -
Public relations
and promotion - - - -
Rent 3,709 - - -
Transfer agent and
filing fees 8,976 3,735 4,994 4,489
Telephone 1,567 - - -
Travel 2,848 - - -
Wages and
benefits 66,091 - - -
---------- ---------- ----------- -----------
179,788 51,442 61,382 48,314
---------- ---------- ----------- -----------
OTHER EXPENSE (INCOME)
Mineral properties
abandoned - - - -
Interest income (1,589) - - -
Accounts payable
written-off
(Note 11) - (3,147) (3,147) -
Foreign exchange
translation
(gain) loss 44,886 7,597 9,036 (11,997)
---------- ---------- ----------- -----------
43,297 4,450 5,889 (11,997)
---------- ---------- ----------- -----------
LOSS FOR
THE PERIOD 223,085 55,892 67,271 36,317
DEFICIT,
BEGINNING OF
PERIOD 1,897,964 1,830,693 1,830,693 1,794,376
---------- ---------- ----------- -----------
DEFICIT,
END OF PERIOD $2,121,049 $1,886,585 $1,897,964 $1,830,693
========== ========== ========== ==========
Loss per common
share-basic 1.2 1.5 22.1 1.1
========== ========== ========== ==========
See accompanying notes to financial statements.
F-4a
25
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
STATEMENTS OF LOSS AND DEFICIT
For the years ended December 31
1997 1996 1995
ADMINISTRATIVE EXPENSES
Amortization $ 54 $ 1,142 $ 172
Audit & accounting 6,775 10,639 14,670
Bank charges and
interest 4,753 915 1,581
Consulting fees - 6,688 -
Legal 275 23,821 38,119
Management fees 18,058 24,201 21,887
Miscellaneous (289) 1,756 6
Office, printing
and stationery 754 17,115 26,118
Office secretarial - 1,776 10,144
Public relations and
promotion - 13,648 20,423
Rent 3,251 6,380 13,460
Transfer agent and
filing fees 4,869 4,463 8,548
Telephone 325 6,462 5,440
Travel - 15,224 13,546
Wages and benefits - - -
---------- ---------- ----------
38,825 134,230 174,114
---------- ---------- ----------
OTHER EXPENSE (INCOME)
Mineral properties
abandoned 1 11,201 -
Interest income - (183) (467)
Accounts payable
written-off
(Note 11) (6,564) - -
Foreign exchange
translation
(gain) loss (5,388) (963) 410
---------- ---------- ----------
(11,951) 10,055 (57)
---------- ---------- ----------
LOSS FOR THE PERIOD 26,874 144,285 174,057
DEFICIT, BEGINNING OF
PERIOD 1,767,502 1,623,217 1,449,160
---------- ---------- ----------
DEFICIT, END OF PERIOD $1,794,376 $1,767,502 $1,623,217
========== ========== ==========
Loss per common
share - basic 0.9 4.9 10.1
========== ========== ==========
See accompanying notes to financial statements.
F-4b
26
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
STATEMENTS OF CHANGES IN CASH FLOW
For the nine month period For the years ended
ended September 30, December 31
2000 1999 1999 1998
OPERATING ACTIVITIES
Loss for the period $ (223,085) $ (55,892) $ (67,271) $ (36,317)
Items not involving
cash:
Amortization 679 41 54 54
Mineral property
abandoned - - - -
Foreign currency
translation 44,886 7,597 9,036 (11,997)
---------- --------- --------- ---------
(177,520) (48,254) (58,181) (48,260)
Changes in non-cash
working capital (31,379) 47,996 57,831 48,673
---------- --------- --------- ---------
(208,899) (258) (350) 413
---------- --------- --------- ---------
INVESTING ACTIVITIES
Deposit (984) - - -
Licence agreement (50,000) - - -
Capital asset
acquisitions (28,039) - - -
Capital asset dis-
posal proceeds - - - -
Exploration costs - - - -
Reclamation bonds - - - -
---------- --------- --------- ---------
(79,023) - - -
---------- --------- --------- ---------
FINANCING ACTIVITIES
Subscription
received - - - -
Shares issued
for cash 797,698 - - -
---------- --------- --------- ---------
797,698 - - -
---------- --------- --------- ---------
CHANGE IN CASH 509,776 (258) (350) 413
CASH, BEGINNING OF
PERIOD 63 413 413 -
---------- --------- --------- ---------
CASH, END OF PERIOD $ 509,839 $ 155 $ 63 $ 413
========== ========= ========= =========
See accompanying notes to financial statements.
F-5a
27
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
STATEMENTS OF CHANGES IN CASH FLOW
For the years ended December 31
1997 1996 1995
OPERATING ACTIVITIES
Loss for the period $ (26,874) $ (144,285) $ (174,057)
Items not involving
cash:
Amortization 54 1,142 172
Mineral property
abandoned 1 11,201 -
Foreign currency
translation (5,388) (963) 410
--------- ---------- ----------
(32,207) (132,905) (173,475)
Changes in non-cash
working capital 32,128 36,158 35,730
--------- ---------- ----------
(79) (96,747) (137,745)
--------- ---------- ----------
INVESTING ACTIVITIES
Deposit - - -
Licence agreement - - -
Capital asset
acquisitions - (8,293) (947)
Capital asset dis-
posal proceeds - 8,946 -
Exploration costs - (5,593) -
Reclamation bonds - 2,909 (105)
--------- ---------- ----------
- (2,031) (1,052)
--------- ---------- ----------
FINANCING ACTIVITIES
Subscription received - 34,490 -
Shares issued for
cash - 52,259 140,828
--------- ---------- ----------
- 86,749 140,828
--------- ---------- ----------
CHANGE IN CASH (79) (12,029) 2,031
CASH, BEGINNING OF
PERIOD 79 12,108 10,077
--------- ---------- ----------
CASH, END OF PERIOD $ - $ 79 $ 12,108
========= ========== ==========
See accompanying notes to financial statements.
F-5b
28
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
NOTES TO FINANCIAL STATEMENTS
1. CHANGE OF NAME
During the period, pursuant to the approval of the shareholders, the
Company changed its name to Balaton Power Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Values
The amounts shown for the Licence Agreement represent costs or
the agreed upon value of shares issued to date and do not necessarily
reflect present or future values. The recoverability of the amounts
shown is dependent upon the confirmation of the Company's technology, the
ability of the Company to obtain the necessary financing to successfully
complete its development and upon future profitable production and sale.
(b) Currency
Unless otherwise disclosed all figures are recorded in U.S. funds.
(c) Accounting Principles
These financial statements have been prepared in accordance with
generally accepted accounting principles applicable to Canadian
companies.
(d) Amortization
The Company amortizes its incorporation costs on a 10 year
straight line basis and amortizes its office and mobile equipment at
the following rates and bases:
Computer and Software - 30% declining balance
Mobile equipment - 30% declining balance
Office equipment - 20% declining balance
(e) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may
recognize the Year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000, and,
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure which could affect
an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-6
29
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
(f) Measurement Uncertainty
The amounts recorded for amortization of incorporation costs are
based on estimates of useful life remaining in the assets. By their
nature, these estimates are subject to measurement uncertainty and the
impact on the financial statements of future periods could be material.
(g) Financial Instruments
The financial instruments of the Company consist mainly of
cash, advances receivable, commodity tax recoverable and accounts payable
and accrued liabilities. Except where otherwise disclosed, as at the
year end there are no significant differences between the carrying values
of these amounts and their estimated market value.
(h) Comparative Figures
Disclosure of certain comparative figures may have been amended
to conform with the financial statement presentation adopted in the
current year.
(i) Foreign Currency Translation
The Company uses the temporal method to translate transactions
and balances denominated in foreign currencies. Under the method,
monetary items are translated at the rate of exchange in effect at the
balance sheet date and non-monetary items are translated at historical
exchange rates. Revenue and expense items are translated at the average
exchange rate for the period except for amortization which is translated
using the same rates as the related assets. Gains and losses on
translation are recorded in the statement of income except for exchange
gains and losses on long term monetary items which are deferred and
amortized over the remaining life of the monetary item.
3. ACCOUNTS RECEIVABLE
September December 31,
30, 2000 1999 1998
Advances receivable $ 141 $ - $ -
Commodity tax recoverable 3,036 693 -
------- ----- -----
$ 3,177 $ 693 $ -
======= ===== =====
F-7
30
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
NOTES TO FINANCIAL STATEMENTS
4. CAPITAL ASSETS
Capital assets are recorded at cost less accumulated amortization.
September December 31,
30, 2000 1999 1998
Computer equipment $ 3,267 $ - $ -
Mobile equipment 17,258 - -
Office equipment 7,310 - -
Software 204 - -
-------- ----- -----
28,039 - -
Less: accumulated
amortization (639) - -
-------- ----- -----
$ 27,400 $ - $ -
======== ===== =====
5. LICENCE AGREEMENT
During the period, the Company was subject to an exempt take-over
bid pursuant to the rules of the Securities Act - British Columbia
wherein Balaton Power Corporation S.A. ("Balaton") of Nassau, Bahamas
purchased 12,500,000 shares in the capital of the Company comprising
62.69 percent of the share capital at the time of the purchase.
The Company has entered into a licence agreement with Balaton
to manufacture, market, sell/lease and otherwise commercialize Balaton's
proprietary technology and related confidential data throughout Canada
and the United States for a period of 20 years. The licence has a
continuing option to renew for a further 20 years at the expiration of
each 20 year period. The Company paid a U.S. $50,000 advance royalty
payment and will pay a royalty of 5% as calculated pursuant to the
agreement and a further $100,000 U.S. once the Company has raised a
further $4,000,000 U.S. in financing.
6. DEPOSIT
The deposit represents the security deposit for the Company's
premises in Franklin, Tennessee amounting to $1,000 U.S.
7. RELATED PARTIES
(a) Amounts due to related parties are without interest or fixed terms
of repayment, but are due on demand;
(b) During the period, the Company, pursuant to the terms of various
employment, management and service agreements and the Licence
Agreement, paid or made provision in the accounts for the payment of
the following amounts to its parent Company, its directors and
officers and private companies associated by common directors.
F-8
31
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
NOTES TO FINANCIAL STATEMENTS
7. RELATED PARTIES (continued)
September December 31,
30, 2000 1999 1998
Management fees $ 11,919 $ 20,191 $ 20,228
Licence agreement (Note 5) 50,000 - -
Consulting fees 17,317 - -
-------- -------- --------
$ 79,236 $ 20,191 $ 20,228
======== ======== ========
(c) During 1999, the Company settled $368,304 Canadian funds ($252,348
U.S.) of indebtedness through a subscription for 6,138,402 shares at
a price of $0.06 Cdn. ($0.04 U.S.) per share to directors and
officers. These debts had been settled by the related party concerned
or had been otherwise assigned to the related party by the creditor
for settlement. The shares were subscribed for immediately prior to
the year ended December 31, 1999 and were issued to the subscribers
during the period ended July 31, 2000.
8. SHARE CAPITAL
Authorized: 700,000,000 common shares without par value
Issued and fully paid:
Shares Amount
Balance - December 31, 1994 6,951,655 $1,360,321
Consolidation (1:5) (5,561,324) -
Issued for cash 1,000,000 140,828
Issued on debt conversion 423,701 75,953
---------- ----------
Balance - December 31, 1995 2,814,032 1,577,102
Issued for cash 239,032 52,259
Subscription received 250,000 34,490
---------- ----------
Balance - December 31, 1996,
1997 and 1998 3,303,064 1,663,851
Subscription - retired to debt (250,000) (34,490)
Consolidation (1:10) (2,747,757) -
Subscription received -
debt retirement 6,138,402 252,348
---------- ----------
Balance - December 31, 1999 6,443,709 1,881,709
Stock split (2.1:1) 13,531,763 -
Escrow cancellation (34,875) (2,706)
Issued for cash 1,063,597 797,698
---------- ----------
Balance - September 30, 2000 21,004,194 $2,676,701
========== ==========
F-9
32
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
NOTES TO FINANCIAL STATEMENTS
8. SHARE CAPITAL (continued)
During the period, the Company:
(a) received shareholder approval to split its share capital on a 3.1:1
basis with the issue of 2.1 new shares for every share held on the
record date;
(b) received shareholder approval to increase the authorized share capital
to seven hundred million (700,000,000) common shares;
(c) cancelled 34,875 post split escrow shares pursuant to the agreement
for the issue of these shares;
(d) issued 1,063,597 units pursuant to a private placement at a price of
$0.75 ($1.10 Cdn.) per unit with each unit comprising one share and
one two year non-transferable share purchase warrant exercisable at a
price of $1.10 ($1.47 Cdn.) per share. The Company paid finder's fees
of $39,885 ($58,655 Cdn.) for the private placement.
9. HYDRO-ELECTRIC FACILITY
During the period, the Company entered into an Agreement in Principle (the
"Agreement") with Mr. Vernon Ravenscroft ("Ravenscroft") of Bliss, Idaho to
acquire a one-third interest in Ravenscroft's hydro-electric power
production facility and power purchase agreement with Idaho Power Company
subject to:
(i) 60 monthly payments of $8,500 U.S. per month commencing September
1, 2000.
(ii) Purchase $325,000 U.S. of equipment for the facility's fourth
line by paying $275,000 U.S. on or before August 31, 2000 and
issuing 100,000 shares in the capital of the Company subject to
regulatory approval.
(iii) Incurring the cost of installation of the fourth line.
(iv) Ravenscroft securing bank financing of net less than $350,000
U.S. on or before August 31, 2000.
(v) The parties will share the costs of operation on a pro-rata
basis, but the Company will be responsible for 100% of the costs
of the fourth line.
(vi) Engage Ravenscroft as a consultant to assess additional hydro-
electric sites.
F-10
33
BALATON POWER INC.
(formerly Kirkstone Ventures Ltd.)
NOTES TO FINANCIAL STATEMENTS
9. HYDRO-ELECTRIC FACILITY (continued)
The Company maintains an option to purchase 100% of the facility on or
before the expiry of 60 months from September 1, 2000 for an additional
$250,000 U.S. provided that the stated monthly payments totalling $510,000
U.S. have been made. In the event the Company chooses not to exercise the
right of first refusal Ravenscroft will repurchase the facility by
returning 50,000 shares (Note 9(ii)) to the Company.
Both the Company and Ravenscroft have extended the completion
of the Agreement and are working in cooperation to arrange suitable
financing to complete the agreement. All terms of the agreement have been
extended by mutual agreement of the Company and Ravenscroft until the
financing has been arranged.
10. COMMITMENTS
The Company is committed to the lease of its Franklin, Tennessee
premises until August, 2001 at the rate of $1,150 U.S. per month. The
Company is also committed to the lease of its premises at $608 ($900
Cdn.) per month until August, 2001.
11. CONTINGENT LIABILITY
During 1999, the Company wrote-off $3,147 ($4,676 Cdn.) in old
accounts payable or accounts where the time for commencing legal action
had expired or where the creditor could no longer be located. The
Company is contingently liable for the amounts written-off.
12. SUBSEQUENT EVENT
Subsequent to the period end, the Company acquired, for $1,500
($2,250 Cdn.) consideration, all the issued and outstanding shares of
Balaton Power USA Inc. a company registered in Idaho which will provide
the Company's services in the United States.
F-11
34
B. Exhibits.
3.1 Articles of Incorporation
3.2 Amendments to Articles of Incorporation
3.3 Amendments to Articles of Incorporation
3.4 Amendments to Articles of Incorporation
3.5 Amendments to Articles of Incorporation
4.1 Share Certificate - Common Stock
10.1 Assignment of Pisces technology and patent
All other schedules and exhibits are omitted, as the required information
is not applicable or is not present in amount sufficient to require
submission of the schedule or because the information required is included
in the financial statements and notes hereto.
35
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements
for filing on Form 20-F and has duly caused to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated this 22nd day of January 2001.
BALATON POWER, INC.
BY: /s/ Rodney E. Smith
Rodney E. Smith, President
BY: /s/ A. Roy MacRae
A. Roy MacRae, Chief Financial Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Rodney E. Smith, as true and lawful
attorney-in-fact and agent, with full power of substitution, for his and in
his name, place and stead, in any and all capacities, to sign any and all
amendment (including post-effective amendments) to this registration
statement, and to file the same, therewith, with the Securities and
Exchange Commission, and to make any and all state securities law or blue
sky filings, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying the confirming
all that said attorney-in-fact and agent, or any substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 20-F Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Rodney E. Smith President and a member January 22, 2001
Rodney E. Smith of the Board of Directors
/s/ A. Roy MacRae Secretary, Treasurer, January 22, 2001
A. Roy MacRae Chief Financial Officer
and a member of the
Board of Directors
/s/ Thomas R. Saunders Member of the Board January 22, 2001
Thomas R. Saunders of Directors
/s/ Martina Kaessner Fischer
Martina Kaessner Member of the Board January 22, 2001
Fischer of Directors