13

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of Splinex Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Splinex Technologies, Inc. (a Development Stage Company) as of March 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ deficiency in assets and cash flows for the years then ended and for the period from October 28, 2003 (inception) through March 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Splinex Technologies, Inc. as of March 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended and from October 28, 2003 (inception) through March 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has experienced recurring losses in the development stage. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Daszkal Bolton LLP

Boca Raton, Florida

January 2, 2008

 

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SPLINEX TECHNOLOGY INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

		March 31, 2006			March 31, 2007
ASSETS
Current assets
Cash		$	9,458		$	251
Prepaid expenses and other			39,189			5,132
Total current assets			48,647			5,383
Property and equipment, net			7,340			-
Accounting software license			20,192			-
Other assets			9,881			-
Total assets		$	86,060		$	5,383
LIABILITIES AND STOCKHOLDERS' DEFICIENCY IN ASSETS
Current liabilities
Demand note payable and accrued interest due to related party - Ener1 Group			435,540			776,476
Note payable and accrued interest due to related party - Bzinfin			2,677,707			2,805,207
Accounts payable			563,006			557,120
Accrued expenses			683,093			500,927
Due to related parties			138,262			138,262
Total liabilities			4,497,608			4,777,992
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY IN ASSETS
Preferred stock ($.001 par value, 150,000,000 shares authorized and no shares issued and outstanding			-			-
Common stock ($.001 par value, 300,000,000 shares authorized and 100,670,270 and 100,757,770 shares issued and outstanding)			100,758			100,758
Treasury stock, at cost; 0 and 250,000 shares, respectively			(62,500	)		(62,500	)
Paid in capital			1,109,712			1,109,712
Deficit accumulated during the development stage			(5,559,518	)		(5,920,579	)
Total stockholders' deficiency in assets			(4,411,548	)		(4,772,609	)
Total liabilities and stockholders' deficiency in assets		$	86,060		$	5,383

See accompanying notes to consolidated financial statements.

 

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SPLINEX TECHNOLOGY INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

								Cumulative
								From Inception
								(October 28,
		Year			Year			2003)
		Ended			Ended			Through
		March 31, 2006			March 31, 2007			March 31, 2007
Net sales		$	1,971		$	1,793		$	3,813
Operating Expenses
Sales and marketing			196,018			-			561,296
General and administrative			1,280,311			371,217			3,557,435
Research and development			661,994			-			1,984,516
Total operating expenses			2,138,323			371,217			6,103,246
Costs of merger and registration			-			-			512,321
Total expenses			2,138,323			371,217			6,615,567
Loss from operations			(2,136,352	)		(369,424	)		(6,611,754	)
Other income (expense)
Other income from settlements			-			167,244			167,244
Interest expense, net			(126,977	)		(158,881	)		(298,916	)
Total other income and expense			(126,977	)		8,363			(131,672	)
Loss before income taxes			(2,263,329	)		(361,061	)		(6,743,426	)
Income taxes			-			-			-
Net loss		$	(2,263,329	)	$	(361,061	)	$	(6,743,426	)
Net loss per basic and fully diluted share		$	(0.02	)	$	(0.00	)
Weighted average shares outstanding			100,582,154			100,757,770

See accompanying notes to consolidated financial statements.

 

16

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SPLINEX TECHNOLOGY INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ DEFICIENCY IN ASSETS

																				Deficit
																				Accumulated			Total
																	Additional			During the			Stockholders'
		Preferred Stock						Common Stock						Treasury			Paid in			Development			Deficiency
		Shares			Amount			Shares			Amount			Stock			Capital			Stage			in Assets
Balance at March 31, 2005			-			-			100,670,270		$	100,670		$	-		$	1,101,049		$	(3,296,189	)		(2,094,470	)
Acquisition of treasury stock			-			-			-			-			(62,500	)		-			-			(62,500	)
Stock options exercised			-			-			87,500			88			-			8,663			-			8,751
Net loss			-			-			-			-			-			-			(2,263,329	)		(2,263,329	)
Balance at March 31, 2006			-			-			100,757,770			100,758			(62,500	)		1,109,712			(5,559,518	)		(4,411,548	)
Net loss			-			-			-			-			-			-			(361,061	)		(361,061	)
Balance at March 31, 2007			-		$	-			100,757,770		$	100,758		$	(62,500	)	$	1,109,712		$	(5,920,579	)	$	(4,772,609	)

See accompanying notes to consolidated financial statements.

 

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SPLINEX TECHNOLOGY INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

								Cumulative
								From Inception
								(October 28,
		Year			Year			2003)
		Ended			Ended			Through
		March 31, 2006			March 31, 2007			March 31, 2007
Cash flows from operating activities:
Net loss		$	(2,263,329	)	$	(361,061	)	$	(6,743,426	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			34,909			7,340			71,817
Executive compensation and other expenses paid with common stock			7,613			-			32,179
Non cash interest expense			126,007			158,004			292,251
Changes in operating assets and liabilities:									-
Prepaid expenses and other			(21,280	)		53,417			(5,133	)
Due to related parties			31,502			-			138,261
Deposits			-			9,881			-
Accounts payable			128,040			(5,884	)		557,123
Accrued expenses			407,771			(182,166	)		447,177
Total adjustments			714,562			40,592			1,533,675
Net cash used in operating activities			(1,548,767	)		(320,469	)		(5,209,751	)
Cash flows from investing activities:
Purchase of equipment			-			-			(79,429	)
Employee loans and advances, net			22,878			831			-
Net cash used in investing activities			22,878			831			(79,429	)
Cash flows from financing activities:
Note payable related party			1,279,000			310,431			3,289,431
Contributed capital from equity investors			-			-			2,000,000
Net cash provided by financing activities			1,279,000			310,431			5,289,431
Net increase (decrease) in cash			(246,889	)		(9,207	)		251
Cash at beginning of period			256,347			9,458			-
Cash at end of period		$	9,458		$	251		$	251
Supplemental Disclosure of Cash Flow Information Cash paid during the year for:
Interest		$	-		$	-		$	-
Income taxes		$	-		$	-		$	-
Non-cash investing and financing activities:
Common stock issued in merger		$	-		$	-		$	150,000
Costs of merger recorded as reduction in paid in capital		$	-		$	-		$	(150,000	)

See accompanying notes to consolidated financial statements.

 

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SPLINEX TECHNOLOGY INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Splinex Technology Inc. ( “Technology”) was organized under the laws of the State of Delaware as a wholly owned subsidiary of Splinex, LLC, a Florida limited liability company (the “Predecessor”), to conduct the business and operations of the Predecessor. Under an agreement effective April 1, 2004 (the “Contribution Agreement”), the Predecessor contributed substantially all of its assets, liabilities and operations to Technology. The financial statements include the accounts of Technology and the Predecessor (combined, the “Company”), and all material intercompany transactions have been eliminated. Certain items have been reclassified to the current year’s presentation. The Company began its development stage activity on October 28, 2003 (“Inception”).

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

Basis of Consolidation

 

The consolidated financial statements include the accounts of Splinex Technology Inc. and its wholly owned subsidiary, ANTAO Ltd., a limited liability company formed under the laws of Russia (“ANTAO”). All material intercompany accounts and transactions have been eliminated in consolidation.

Business Activity

In 2004, the Company began developing visualization software, and commenced selling the software in 2005. Due to lack of significant sales, the Company substantially reduced its workforce and overhead costs beginning in September 2005. The Company terminated its use of software development services previously provided to us by Splinex Outsourcing, Inc., a Russian outsourcing company; terminated or accepted resignations from our personnel, certain executives, and managers; and ceased marketing activities. From September 2005 through July 2007, Ener1 Group, Inc., a related party, began loaning the Company money to fund its operations. In July 2007, Ener1 Group, Inc. stopped funding the Company operations and the Company stopped paying its remaining executive employee. In August and September 2007, two of the three members of the board of directors resigned. The Company had no employees at March 31, 2007; however, a non-paid executive continues to perform duties as necessary.

As further described in the Subsequent Events note, in December 2007, a related party structured a transaction that provided funds to the Company to settle its existing debts at a discount to the face amount of the obligations, restructured certain notes payable in exchange for newly issued common shares of the Company, and gave Splinex LLC a substantial majority of the outstanding common shares (the “Splinex Restructuring”). The Company expects its controlling shareholders to direct Splinex to acquire one or more companies, although no definitive purchase agreements have yet been signed.

The Company has minimal sales and no sales contracts and is considered to be in the development stage as of March 31, 2007.

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 as of the balance sheet date and the reported amounts of expenses for the period presented. Actual results could differ from those estimates.

 

19

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Cash and Cash Equivalents

Cash and cash equivalents include highly liquid money market investments purchased with an original maturity of three months or less. At March 31, 2007, the Company had no cash equivalents. The Company maintains its cash in a bank deposit account, the balance of which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At March 31, 2007, the Company had no deposits in excess of FDIC insured limits.

Foreign Currency Transactions

All transactions of the Company are denominated in U.S. dollars. The Company paid Russian research, programming and administrative costs under a U.S. dollar denominated agreement. Consolidated general and administrative expenses include immaterial foreign exchange rate losses on Russian bank balances maintained by ANTAO. The Company has not engaged in foreign currency hedging activities.

Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation,” requires companies to record employee stock option compensation at fair value. The Company adopted SFAS 123R during the quarter ending March 31, 2005. No options were granted or exercised and 250,000 options expired during the year ended March 31, 2007. At March 31, 2007, the Company has 300,000 options outstanding under its plan, of which 187,500 options are vested, with an exercise price of $0.10 per share and with a remaining contractual term of 7 years.

Software Development Costs

The Company accounts for software development costs in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed.” Costs incurred to establish the technological feasibility of a computer software product are considered research and development costs and are expensed as incurred. When the technological feasibility of a software product has been established using the working model approach, development cost are capitalized. Capitalization of these costs ceases when the product is ready for production. The Company has expensed all software development costs since Inception.

Revenue Recognition

     

The Company’s revenues, net of sales returns and other allowances, are from the licensing of products. The Company recognizes revenues in accordance with Statement of Position or “SOP” 97-2, “Software Revenue Recognition,” as amended, SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,” and Staff Accounting Bulletin or “SAB” 104, “Revenue Recognition.” The Company will recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred, the vendor’s fee is fixed or determinable, vendor-specific objective evidence exists for all undelivered elements of the arrangement and collection is determined to be probable.

  

Fixed assets

The Company depreciates computer equipment and software over the useful lives of such assets, generally three years.

Earnings Per Share

Basic net earnings (loss) per common share are computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that would be issued upon exercise of common stock options. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

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Fair Value of Financial Instruments

The Company’s financial instruments consist mainly of cash, short-term payables and borrowings under the notes payable. The Company believes that the carrying amounts approximate fair value, due to their short-term maturities and current interest rates.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes indicate that the carrying amount of an asset or group of assets may not be recoverable. An impairment loss of $20,000 and $0 was recorded during the fiscal years ended March 31, 2007 and 2006, related to accounting software licenses no longer in use.

Other Income

Other income reflects gains from settlement for less than face value of various obligations due to vendors and former employees.

NOTE 2. GOING CONCERN CONSIDERATIONS

The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company is in the development stage and has had minimal revenues since Inception. Management recognizes that the Company must raise capital sufficient to fund business activities until such time as it can generate revenues and net cash flows in amounts necessary to enable it to continue in existence. The realization of assets and satisfaction of liabilities in the normal course of business is dependent upon the Company achieving these goals. Management’s plans include such alternatives as an acquisition or merger with a company.

The Company has been unable to generate any significant sales of the product due in part to a lack of funds for marketing and promotion. In addition, a value added reseller of its product was unable to generate significant sales of the product. In September 2005, the Company changed its business strategy and took certain actions to reduce its overhead costs. The Company terminated its use of software development services previously provided by Splinex Outsourcing, Inc., a Russian outsourcing company; terminated or accepted resignations from most of its personnel, executives, and managers; and ceased marketing activities. From September 2005 through July 2007, Ener1 Group, Inc., a related party, loaned the Company money to fund its operations. In July 2007, Ener1 Group, Inc. stopped funding the Company operations and stopped paying its remaining executive employee. In August and September 2007, two of the three members of the board of directors resigned. The Company had no employees at March 31, 2007; however, a non-paid executive continues to perform duties as necessary.

As described in Note 13 - Subsequent Events, in December 2007, a related party structured a transaction that provided funding to the Company to settle existing debts of the Company at a discount to the face amount of the obligations, restructured certain notes payable in exchange for newly issued common shares of the Company, and gave Splinex LLC substantial majority of the outstanding common shares (the “Splinex Restructuring”). The Company expects the Company’s controlling shareholders to direct the Company to acquire or merge with one or more companies, although no definitive purchase agreements have yet been signed.

The Company has engaged in discussions with several potential merger partners, but to date has been unable to reach agreement on terms for a merger primarily because the Company had been unable to reach a satisfactory settlement of certain severance and trade obligations. The Company has no formal agreements to merge with another company, and expects that Splinex LLC, the controlling shareholder, will direct Splinex to find an appropriate merger partner and complete a merger after completion of the Splinex Restructuring. If the Company did not complete the Splinex Restructuring, it is likely that the Company would discontinue operations and cease to do business.

In accordance with the funding provisions in the Predecessor’s operating agreement, certain members of the Predecessor contributed capital of $2,000,000 to the Predecessor. As of July 27, 2005, the Company had borrowed $2,500,000 under a $2,500,000 revolving loan agreement with Bzinfin, S. A., a company that is affiliated with the Company through common ownership (the “Bzinfin Loan”). The Company borrowed an additional $50,000 from Bzinfin during September 2005, and the loan agreement was amended to include the additional borrowing under the same terms and conditions. Loans under this agreement must be repaid two years from the date of the initial funding, which occurred on February 7, 2005. The Company received an extension of the due date of the Bzinfin Loan from February 7, 2007 until June 30, 2007. The loan is currently in default.

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The Company borrowed funds from a related party, Ener1 Group, Inc., to pay certain ongoing expenses while we pursue alternatives, which could include acquisitions of or joint ventures with companies that could benefit from our core technologies. The Company ceased receiving funding from Ener1 Group, Inc. effective July 2007. From October 2005 through March 31, 2007, the Company borrowed $739,431 from Ener1 Group, Inc., under a demand note that bears interest at an annual rate of 5% payable at maturity.

Management believes that actions presently being taken, as described herein, provide the opportunity for the Company to continue as a going concern; however, there is no assurance this will occur.

NOTE 3. SEGMENT INFORMATION

The Company’s sole reportable business segment is visual communication software products and services. The Company’s accounting policies for segments are the same as those described in the summary of significant accounting policies.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2006 and 2007:

		2006			2007
Office and computer equipment		$	40,225		$	4,000
Computer software			26,308			-
			66,533			4,000
Less accumulated depreciation			(59,193	)		(4,000	)
		$	7,340		$	-

Depreciation expense was $7,340 and $34,910 for the fiscal years ending March 31, 2007 and 2006, respectively. Computer equipment and software no longer in service were considered disposed at March 31, 2007.

.NOTE 5. ACCRUED EXPENSES

Accrued expenses represent expenses that are owed at the end of the period that either have not been billed by the provider or paid by the Company. Accrued expenses also include severance and other wage-related expenses due to former employees. At March 31, 2006 and 2007, accrued expenses consisted of the following:

		March 31, 2006			March 31, 2007
Accrued severance and termination obligations		$	561,111		$	467,416
Accrued Russian programming closing costs			43,000			-
Audit			40,000			24,000
Accrued vacation and wages			11,555			9,511
Miscellaneous			27,427			-
		$	683,093		$	500,927

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NOTE 6. STOCKHOLDERS’ EQUITY

The Company has the authority to issue 300,000,000 shares of common stock, par value of $0.001 per share. Each holder of common stock is entitled to one vote for each share held. The Company has the authority to issue 150,000,000 shares of preferred stock, par value $0.001 per share, which may be divided into series with the designations, powers, preferences, and relative rights and any qualifications, limitations or restrictions as determined by the Company’s board of directors.

During October 2005, a former employee forfeited 250,000 restricted shares of the Company's common stock. The Company has recorded the forfeited restricted stock as treasury stock at $62,500 based upon the closing price of the common stock on the date of forfeiture.

NOTE 7. STOCK OPTIONS AND STOCK GRANTS

In June 2004, the board of directors of the Company formally approved the 2004 Stock Option Plan (the “Plan”), which initially authorizes the issuance of grants to Company employees to purchase up to 5,000,000 shares of the Company’s common stock. After June 30, 2005, the Company may grant options under the Plan to purchase up to the lesser of an additional 5,000,000 shares of common stock, 5 percent of the outstanding shares of the Company common stock on such date, or an amount determined by the board of directors.

During the year ending March 31, 2006, 5,437,500 shares expired or were forfeited, and 87,500 shares were exercised. No options were granted during fiscal 2006. During the year ending March 31, 2007, 250,000 shares expired or were forfeited. No options were granted during fiscal 2007.

The following table summarizes the changes in stock options for the two years ending March 31, 2007.

Options		Number of Options			Weighted Average Price			Average Remaining Contractual Term			Intrinsic Value
Outstanding at March 31, 2005			6,325,000		$	0.24			9.8
Granted			-
Exercised			(87,500	)	$	0.10
Forfeited or expired			(5,437,500	)	$	0.23
Outstanding at March 31, 2006			800,000		$	0.10			8.8		$	-
Granted			-
Exercised			-
Forfeited or expired			(250,000	)	$	0.10			7.8
Outstanding at March 31, 2007			550,000		$	0.10			8.8		$	-
Vested or expected to vest at March 31, 2006			300,000		$	0.10			8.8		$	-
Exercisable at March 31, 2006			300,000		$	0.10			8.8		$	-
Vested or expected to vest at March 31, 2007			412,500		$	0.10			7.8		$	-
Exercisable at March 31, 2007			412,500		$	0.10			7.8		$	-

During the quarter ending March 31, 2005, the Company adopted the provisions of SFAS No. 123 for accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment transactions. No options were granted in fiscal 2006 or 2007.

During the year ended March 31, 2005, the Company granted 400,000 shares of restricted common stock to its chief executive officer; as of March 31, 2006, the restrictions as to the transferability of such shares had lapsed. The Company also granted 250,000 shares of restricted common stock to an executive that was subject to a lapsing right of forfeiture commencing in January 2006; the employee forfeited the 250,000 shares in October 2005 under a termination agreement.

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NOTE 8. LONG TERM DEBT DUE TO RELATED PARTY

Effective April 1, 2004, a company that is affiliated with the Company through common ownership, entered into a revolving loan agreement, the Bzinfin Loan, with the Company under which the Company borrowed $2,550,000 in aggregate principal through March 31, 2006. Loans under this agreement bear interest at an annual rate of 5% and must be repaid two years from the date of the initial funding, which occurred on February 7, 2005. The Company received an extension of the due date of the Bzinfin Loan from February 7, 2007 until June 30, 2007. The loan is in default as of July 1, 2007. No principle or interest payments have been made. Accrued interest at March 31, 2007 was $255,207.

At March 31, 2007, the Company had borrowed $739,431 from Ener1 Group under a demand note bearing annual interest of 5% to fund working capital needs. Accrued interest at March 31, 2007 was $37,045.

 

NOTE 9. INCOME TAXES

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts of assets and liabilities used for income tax purposes. At March 31, 2007 and 2006, the Company had cumulative federal net operating loss carry forwards (NOL) of approximately $5.4 million and $5.0 million, respectively. The Company has never filed Federal tax returns, and may be subject to certain fines and penalties. The NOL expires beginning in December 2025 Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of any of the Company's net operation loss and credit carry forwards may be limited if cumulative changes in ownership of more than 50% occur during any three year period.

The net provision (benefit) for income taxes consisted of the following at March 31, 2006 and 2007:

		2006			2007
Current Federal income taxes		$	-		$	-
Deferred income tax benefit			(850,000	)		(215,000	)
Change in valuation allowance			850,000			215,000
Total income tax provision		$	-		$	-

 

Significant components of the Company's deferred tax assets at March 31, 2006 and 2007 are as follows:

		2006			2007
Net operating loss carryforwards		$	1,635,000		$	1,930,000
Accrued compensation and other			260,000			180,000
			1,895,000			2,110,000
Valuation allowance for deferred tax assets			(1,895,000	)		(2,110,000	)
Net deferred tax asset		$	-		$	-

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A reconciliation between actual income taxes and amounts at March 31, 2006 and 2007 computed by applying the federal statutory rate of 34% to pre-tax loss is summarized as follows:

		2006			2007
U. S. Federal statutory rate on loss before income taxes			34.0	%		34.0	%
State income tax, net of federal tax benefit			3.6	%		3.6	%
Increase in valuation allowance			-37.6	%		-37.6	%
Total income tax provision			0.0	%		0.0	%

 

Operating losses of the Predecessor in the amount of $822,847 prior to the date of the Contribution Agreement were allocated to the Predecessor and are not available to the Company as net operating loss carryforwards. On a pro forma basis, had the Company been taxed as a C corporation for federal income tax purposes, the income tax benefit would have been $279,768 for the period ending March 31, 2004, which would have been fully offset by a valuation allowance.

NOTE 10. RELATED PARTY TRANSACTIONS

On January 1, 2004 and February 1, 2004, the Company entered into consulting agreements with two members of the Predecessor, one of whom is also director of the Company. The consulting agreements engage the members to provide consulting services including providing advice regarding equity restructuring, business planning, strategic planning, and international licensing in exchange for $100,000 per year, or a monthly fee to each consultant of $8,333. General and administrative expenses for the years ended March 31, 2007 and 2006 include consulting fees under these agreements of $150,000 and $200,000, respectively. Accounts payable includes $150,000 and $184,000 due to the related party consultants at March 31, 2007 and March 31, 2006, respectively. These consulting agreements were terminated effective December 31, 2006.

 

The Company shared personnel with Ener1, Inc. and Ener1 Group, Inc., entities affiliated with the Company by common ownership and through common control. Accordingly, amounts have been allocated to and from the Company for the services of personnel and other expenses. The Company incurred rent expense for its office space under a sublease with Ener1 Group, Inc. in the amounts of $11,575 and $62,263 for the years ended March 31, 2007 and 2006, respectively. No further rent expenses were incurred after December 31, 2006.

 

Related parties reimbursed the Company for the time spent by one of its employees for patent and research work; as a result, administrative wages and research and development wages are net of reimbursements of $0 and $17,160, for the years ended March 31, 2007 and 2006, respectively. General and administrative expenses included legal expenses payable to Ener1 Group, Inc. for the services of an Ener1 Group employee who serves as the Company’s general counsel in the amount of $0 and $9,200 for the years ended March 31, 2007 and 2006, respectively. Other administrative services were provided by personnel of Ener1, Inc. in the amount of $0 and $1,782 for the years ended March 31, 2007 and 2006.

During fiscal 2006, the Company worked with Russian-based scientists and programmers who were employed by Splinex Outsourcing LLC, a Russian company. During the year ending March 31, 2006, the Company paid $120,207 to Splinex Outsourcing LLC, of which $40,207 was paid through ANTAO and $80,000 was paid through Ener1 Group, Inc. In September 2005, the Company terminated the development work provided by Splinex Outsourcing.

Effective January 27, 2006, the Company’s President, Mr. Herlihy, began performing services for Ener1, Inc., including serving as its Chief Financial Officer from January 27, 2006 through October 16, 2006 and again as of November, 2007, in addition to his continuing role at Splinex. Splinex paid $60,000 and Ener1 paid $190,000 of Mr. Herlihy’s $250,000 annual salary through May 2007, at which time Splinex discontinued making salary payments to Mr. Herlihy. Mr. Herlihy dedicated substantially all of his time to Ener1 except for the time necessary to attend to the administrative and financial matters of Splinex.

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NOTE 11. ACQUISITION

On September 20, 2004, the sole stockholder of ANTAO, who is a member of Splinex, LLC, contributed the outstanding stock of ANTAO to the Company pursuant to his obligations under the Splinex, LLC operating agreement. ANTAO’s sole asset was cash of $2,509, which represents advances previously paid by the Company. This asset was offset by a liability of $2,509 for amounts due to Splinex Outsourcing LLC. The results of operations of ANTAO have been included in the consolidated results of operations of the Company from September 20, 2004. There was no financial activity in ANTAO during fiscal 2007.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Foreign subsidiary

The Company has outsourced computer programming to a company located in Ekaterinberg Russia. The Company may engage in outsourcing or other business operations in Russia again in the future. The Company’s operations in Russia are subject to significant risks not typically associated with companies in North America and Western Europe. These risks include, among others, political, economic and legal risks associated with doing business in Russia, limitations on foreign currency transactions, and risks associated with evolving Russian laws on issues including creditor rights and intellectual property. The Company’s ability to develop products and earn revenues may be adversely affected by changes in the political, economic, legal and social conditions in Russia, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, foreign currency transactions, and rates and methods of taxation, among other things.  

Lease Commitments

 

Effective April 1, 2004, the Company assumed the rights and obligations under a sublease agreement for its office facility that the Predecessor entered into in October 2003. The sublease agreement was to have expired on February 28, 2008. The Company terminated the lease on June 1, 2006, and a subtenant assumed the lease obligations to Ener 1 Group on June 1, 2006. The Company has no further office lease obligations.

 

NOTE 13. SUBSEQUENT EVENTS

In December 2007, a related party structured a transaction that provided funds to the Company to settle its existing debts at a discount to the face amount of the obligations, restructured certain notes payable which will be exchanged for newly issued common shares of the Company, and gave Splinex LLC substantial majority of the outstanding common shares (the “Splinex Restructuring”). The Company expects its controlling shareholders to direct Splinex to acquire one or more companies, although no definitive purchase agreements have yet been signed. The actions taken to restructure the company are described in the following paragraph.

In December 2007, Bzinfin agreed to loan Splinex LLC up to $500,000 to lend to the Company to be used to fund the settlement of certain financial obligations and the costs of audit and filing financial reports with the SEC. On or about December 17, 2007, under a Purchase Agreement, 1) certain holders, who had received shares in the Company as distributions from Splinex LLC, transferred their ownership of 35,162,334 shares of common stock of the Company to Splinex LLC for nominal consideration, and 2) Bzinfin and Ener1 Group assigned debt obligations to Splinex LLC in the amount of $2,805,207 and $845,864, respectively. Under a Purchase Agreement dated December 17, 2007, TGR Capital LLC, a Florida limited liability company (“TGR”) controlled by a related party, 1) acquired the membership interests in Splinex LLC, thereby giving TGR control over Splinex LLC, and 2) agreed to repay the Bzinfin loan of $500,000. Under an Exchange Agreement dated December 18, 2007, the Company agreed to issue 113,500,000 newly issued shares of the Company to Splinex LLC of which 8,500,000 shares will be issued to Bzinfin and 2,125,000 will be issued to Alexander Malovik in exchange for the Bzinfin and Ener1 Group notes. The shares will be issued upon the appointment of a new transfer agent for the Company, which is expected in January 2008. Splinex LLC owned 98,157,334 shares of the Company as of December 17, 2007 after the transfer and will own 201,032,334 shares after the completion of the Exchange Agreement. The Company had 100,757,769 shares outstanding at December 17, 2007 and will have 214,257,769 shares outstanding after the completion of the Exchange Agreement. On December 17, 2007, the Company agreed to revised payment terms related to a termination agreement with its former chief executive officer. The Company has terminated consulting agreements with Mike Zoi and Peter Novak, and the consultants have agreed to terminate all previous accrued consulting payment obligations. As of December 20, 2007, the Company has reached settlement agreements with substantially the majority of all remaining creditors.

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The following is a pro forma financial statement of the expected liabilities and stockholders’ equity assuming that the Splinex Restructuring is completed as described above:

		September 30,  2007			Pro Forma Balance Sheet December 31, 2007
ASSETS
Current assets
Cash		$	66		$	173,074
Total assets		$	66		$	173,074
LIABILITIES AND STOCKHOLDERS' EQUITY OR DEFICIENCY IN ASSETS
Current liabilities
Demand note payable and accrued interest due to related party - Ener1 Group			818,856			-
Note payable and accrued interest due to related party - Bzinfin			2,868,957			-
Accounts payable			557,122			-
Accrued expenses			511,171			-
Due to related parties			138,262			-
Total current liabilities			4,894,368			-
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY OR DEFICIENCY IN ASSETS
Preferred stock ($.001 par value, 150,000,000 shares authorized and no shares issued and outstanding			-
Common stock ($.001 par value, 300,000,000 shares authorized and 100,757,770 shares issued and outstanding; 214,257,769 shares issued and outstanding pro forma after the Exchange Agreement)			100,758			214,257
Treasury stock, at cost; 250,000 shares			(62,500	)		-
Paid in capital			1,109,712			5,247,259
Deficit accumulated during the development stage			(6,042,272	)		(5,288,442	)
Total stockholders' equity or deficiency in assets			(4,894,302	)		173,073
Total liabilities and stockholders' deficiency in assets		$	66		$	173,073

Assumptions:

The above Pro Forma Balance Sheet at December 31, 2007 assumes:

1)

the Exchange Agreement is closed and shares are issued to debt holders.

2)

Treasury Shares are delivered to a former executive on or before January 31, 2008.

3)

All creditor obligations have been settled and all current vendor liabilities are paid.

4)

Includes estimated operations through December 31, 2007.

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ITEM 8: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

ITEM 8A: Controls and Procedures

 

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As of March 31, 2007, we carried out an evaluation, under the supervision and with the participation of our management, consisting solely of our president who is also the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer concluded that our disclosure controls and procedures were effective and were operating at the reasonable assurance level. 

 

During fiscal year 2007, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 8B: Other Information

 

Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our intellectual property and operations. We are not currently a party to any such proceedings the outcome of which would have a material affect on our company.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

In July 2007, the Company received notification form the OTC Bulletin Board that its shares would no longer trade on the Bulletin Board because the Company had failed to file its Form 10KSB by the required due date.

 

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On August 10, 2007, Alexander Yarmolinsky, the financial expert and the sole member of the audit committee, resigned from the Board of Directors. On September 30, 2007, Curtis Wolfe resigned from the Board of Directors. No directors have been appointed to replace the resigned board members.

Changes in Control of Registrant.

On or about December 17, 2007, under a Purchase Agreement, 1) certain holders, who had received shares in the Company as distributions from Splinex LLC, transferred their ownership of 35,162,334 shares of common stock of the Company to Splinex LLC for nominal consideration, and 2) Bzinfin and Ener1 Group assigned debt obligations to Splinex LLC in the amount of $2,805,207 and $845,864, respectively. Under a Purchase Agreement dated December 17, 2007, TGR Capital LLC, a Florida limited liability company (“TGR”) controlled by Mike Zoi, a related party, 1) acquired the membership interests in Splinex LLC, thereby giving TGR control over Splinex LLC, and 2) agreed to repay the Bzinfin loan of $500,000. Under an Exchange Agreement dated December 18, 2007, the Company agreed to issue 113,500,000 newly issued shares of the Company to Splinex LLC of which 8,500,000 shares will be issued to Bzinfin and 2,125,000 will be issued to Alexander Malovik in exchange for the Bzinfin and Ener1 Group notes. The shares will be issued upon the appointment of a new transfer agent for the Company, which is expected in January 2008. The exchange of shares for the debt will occur after a qualified transfer agent has been retained. Splinex LLC owned 98,157,334 shares of the Company as of December 17, 2007 after the transfer and will own 201,032,334 shares after the completion of the Exchange Agreement. The Company had 100,757,769 shares outstanding at December 17, 2007 and will have 214,257,769 shares outstanding after the completion of the Exchange Agreement. On December 17, 2007, the Company agreed to revised payment terms related to a termination agreement with its former chief executive officer. Upon completion of the restructuring transactions above, TGR will elect a new board of directors and retain new financial and operating management.  

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Default Upon Senior Securities

Effective April 1, 2004, Bzinfin, S. A., a company that is affiliated with the Company through common ownership, entered into a revolving loan agreement with the Company under which the Company borrowed $2,550,000 in aggregate principal through September 30, 2005. Loans under this agreement bear interest at an annual rate of 5% and must be repaid two years from the date of the initial funding, which occurred on February 7, 2005. The Company received an extension of the due date of the Bzinfin Loan from February 7, 2007 until June 30, 2007. The loan is in default as of July 1, 2007. No principal or interest payments have been made. Accrued interest at September 30 2007 was $318,956.

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PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

 

Directors and executive officers 

 

The following table sets forth information regarding our directors and executive officers.

 

Name		Age		Position		Director or Officer Since
Dr. Peter Novak		55		Chairman and Director		2004
Gerard Herlihy		55		President and Chief Financial Officer		2004

 

Each of our directors will hold office until our next meeting of stockholders at which directors are elected or until his successor is duly elected and qualified.

 

Dr. Peter Novak has been a Director of our company since its founding in February 2004 and Chairman since September 2005. From February 2004 until September 1, 2004, Dr. Novak was our President. Since 2001, he has been the Chief Technology Officer and a Director of Ener1 Group and a Director of Ener1. Since 1991, Dr. Novak has worked with Mike Zoi, who is also a Director of Ener1, focusing on bringing advanced electronic technologies to market. In 1998, Dr. Novak worked with Mr. Zoi to form On Power Battery s.r.l. (subsequently renamed Ener1 s.r.l.). Dr. Novak is the “sole administrator,” a position equivalent to president, and sole director, for Ener1 s.r.l. which commenced development of a research, development and production facility for advanced lithium metal batteries in Italy in 1998. For the next three years, Dr. Novak worked with Mr. Zoi to manage the start-up business operations of Ener1 s.r.l. Dr. Novak was, during that period, and is now, primarily responsible for technology development. In that capacity, he performed and supervised research and development and developed numerous technologies for which patent applications are now in process at the United States Patent and Trademark office and elsewhere. In 2001, Dr. Novak and Mr. Zoi formed Ener1 Holdings, Inc., now named Ener1 Group. As Chief Technology Officer of Ener1 Group, Dr. Novak is responsible for all technology development, licensing and patent matters. Dr. Novak also assists in the management of the business affairs of Ener1 Group. Dr. Novak graduated from the Ural Polytechnic Institute, Physics and Technical Department, with specialization in experimental nuclear physics. Dr. Novak obtained his Ph.D. degree in physical chemistry from the Institute of Solid State Chemistry, Ural Branch Academy of Science, Russia.

 

Gerard Herlihy has been our Chief Financial Officer since June 2004 and our President since September 2005. In February 2006, Mr. Herlihy was appointed Chief Financial Officer of Ener1, Inc. in addition to his current responsibilities at Splinex. In the year prior to joining our company, Mr. Herlihy provided accounting, financing and acquisition advisory consulting services to public and private companies. From 2001 through 2003, he was also the founder and chief executive officer of Putt Trak Inc., a vision systems software development company for sports training devices. From 1996 to 2000, Mr. Herlihy was chief financial and administrative officer of Williams Controls, Inc., a publicly-held manufacturer of sensors and controls. Mr. Herlihy held previous positions directing turnarounds in public and private companies and in investment banking and public accounting. Mr. Herlihy has a Masters of Business Administration degree from the Harvard Business School and a Bachelor of Science degree from the University of Rhode Island and is a Certified Public Accountant (inactive status).

 

Board composition

 

As of December 1, 2007, our board of directors currently consists of one member. The number of directors may change from time to time, solely as determined by resolution adopted by a majority of the board of directors. Our bylaws require a minimum of one director and allow a maximum of nine directors.

 

Currently, there is no one serving on the board who is a “financial expert” under the Commission’s standards and is “independent” as defined under Rule 4200(a)(15) of the National Association of Securities Dealers’ (“NASD”) Listing Standards for NASDAQ-listed companies.

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Committees of the board of directors

 

In December 2004, our board of directors established a Nominating and Compensation Committee and an Audit Committee.  Currently, there are no members of these committees.

 

Audit Committee

 

Our audit committee’s main function is to oversee our accounting and financial reporting processes, internal systems of control, independent auditor relationships and the audits of our financial statements. This committee’s responsibilities include:

 

·

Selecting and hiring our independent auditors.

·

Evaluating the qualifications, independence and performance of our independent auditors.

·

Approving the audit and non-audit services to be performed by our independent auditors.

·

Reviewing the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies.

·

Overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters.

·

Reviewing with management and our auditors any earnings announcements and other public announcements regarding our results of operations.

·

Preparing the audit committee report we are required to include in filings with the Commission.

Currently, the board of directors is serving as the audit committee.

 

Code of Ethics

 

We have a Code of Ethics that applies to our officers and directors. The code provides written standards that are reasonably designed to deter wrongdoing and promote: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interests between personal and professional relationships; (2) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with or submit to the SEC or in other public communications we make; (3) compliance with applicable laws, rules and regulations; (4) prompt reporting of internal violations of the code; and (5) accountability for the adherence to the code.

 

Section 16(a) reporting

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of our outstanding common stock to file with the Securities and Exchange Commission reports regarding their ownership and changes in ownership of the common stock. Based solely upon a review of copies of forms furnished to our company or written representations from certain reporting persons, each of our officers and directors and holders of more than 10% of our common stock timely filed the statement of changes in beneficial ownership on Form 4 or the statement of beneficial ownership on Form 3 pursuant to Section 16(a) during fiscal 2007. No Forms 3 or 4 were required during fiscal 2007. One beneficial owner of more than five percent of the Company stock has not filed a Form 3 from fiscal 2006.

 

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Item 10. Executive Compensation

 

The following table sets forth all compensation awarded, earned or paid by us for services rendered in all capacities to us for fiscal 2007 to our Chief Executive Officer and President and our other executive officers who earn more than $100,000 in salary and bonus. We refer to these individuals as the “named executive officers.”

 

Summary Compensation Table 

 

Name and Principal Position		Year			Salary  ($)			Bonus  ($)			Stock  Awards  ($)			Option  Awards  ($)			All Other  Compen- sation ($)			Total ($)
Dr. Peter Novak, Chief Executive Officer			2007			-			-			-			-			-			-
Gerard Herlihy, President and Chief Financial Officer			2007			60,000			-			-			-			-		$	60,000

(1) Mr. Herlihy joined us on June 1, 2004. His base salary was $110,000 per year until September 1, 2005; $145,000 until January 31, 2006, and $60,000 effective February 1, 2006. Effective February 1, 2006, Splinex is paying $60,000 of Mr. Herlihy’s $250,000 annual salary as Chief Financial Officer of Ener1, and Ener1 is paying $190,000 of Mr. Herlihy’s salary. Effective July 2007, Mr. Herlihy is dedicating substantially all of his time to Ener1 except for the time necessary to attend to the administrative and financial matters of Splinex.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2007

 

Name		Number of  Securities  Underlying  Unexercised  Options (#)  Exercisable			Number of  Securities  Underlying  Unexercised  Options (#)  Unexercisable			Equity  Incentive Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options (#)			Option  Exercise  Price ($)			Option  Expiration  Date
Peter Novak			-			-			-			-
Gerard Herlihy			225,000			75,000			-		$	0.10			January 31, 2015

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2007 DIRECTOR COMPENSATION

Directors did not receive any compensation during fiscal 2007.

 

Employment Agreements

 

Employment letter with Gerard Herlihy

Mr. Herlihy agreed in an employment letter dated May 20, 2004 to serve as our Chief Financial Officer. He became our Chief Financial Officer in June, 2004. He is an “at will” employee. His base salary was $110,000 per year until September 1, 2005; $145,000 until January 31, 2006, and $60,000 effective February 1, 2006. Effective February 1, 2006, Mr. Herlihy was appointed to the position as Chief Financial Officer of Ener1 in addition to his continuing role at Splinex. Splinex paid $60,000 of Mr. Herlihy’s $250,000 annual salary as Chief Financial Officer of Ener1, and Ener1 paid $190,000 of Mr. Herlihy’s salary until May 2007. Effective May 2007, Mr. Herlihy is dedicating substantially all of his time to Ener1 except for the time necessary to attend to the administrative and financial matters of Splinex. In addition, we agreed to grant Mr. Herlihy an option to purchase 100,000 shares of our common stock. In January 2005, the board of directors increased this option to purchase to an option to purchase 300,000 shares of common stock at an exercise price of $.10 per share.

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Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The table below contains information as of December 18, 2007 about stockholders whom we believe are the beneficial owners of more than five percent (5%) of our outstanding common stock, as well as information regarding stock ownership by our directors and our Chief Executive Officer, our named executive officers, and our directors and named executive officer as a group. Except as described below, we know of no person that beneficially owns more than 5% of our outstanding common stock. As of December 18, 2007 there were 100,757,770 shares of common stock outstanding. Under an Exchange Agreement dated December 18, 2007, the Company agreed to issue 113,500,000 newly issued shares of the Company to Splinex LLC of which 8,500,000 shares will be issued to Bzinfin and 2,125,000 will be issued to Alexander Malovik. The exchange of shares for the debt will occur after a qualified transfer agent has been retained. Splinex LLC owned 98,157,334 shares of the Company as of December 17, 2007 after the transfer and will own 201,032,334 shares after the completion of the Exchange Agreement. The Company had 100,757,769 shares outstanding at December 17, 2007 and will have 214,257,769 shares outstanding after the completion of the Exchange Agreement. We believe, based on information supplied by the following persons that, except as noted, the persons named in this table have sole voting and investment power with respect to all shares of common stock which they beneficially own. The amount and percentage of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. The address of each person or entity named in the following table is c/o Splinex Technology Inc., 500 West Cypress Creek Road, Suite 100, Fort Lauderdale, Florida 33309.

Name and Address of Beneficial Owner		Amount and Nature of  Beneficial Owner (number  of common shares)			Percent of  Class
Splinex, LLC(1)			98,157,334			97.4	%
Peter Novak (2)			25,879			*
Gerard Herlihy (3)			225,000			*
All named executive officers and directors as a group			250,879			*

 

* less than 1%.

 

(1)

Under an Exchange Agreement dated December 18, 2007, the Company agreed to issue 113,500,000 newly issued shares of the Company to Splinex LLC of which 8,500,000 shares will be issued to Bzinfin and 2,125,000 will be issued to Alexander Malovik. Splinex LLC owned 98,157,334 shares of the Company as of December 17, 2007 after the transfer and will own 201,032,334 shares after the completion of the Exchange Agreement. The Company had 100,757,769 shares outstanding at December 17, 2007 and will have 214,257,769 shares outstanding after the completion of the Exchange Agreement. Dr. Peter Novak, Mike Zoi, Ludmila Enilina and Albina Boeckli have dispositive and voting power over the shares of our common stock held by Splinex, LLC.

(2)

Amount shown excludes shares owned indirectly through Splinex, LLC, of which Dr. Novak is a member and owned indirectly through Ener1 Group, Inc., of which an entity owned by Dr. Novak is a stockholder.

(3)

Includes options to purchase 225,000 shares of common stock which could be acquired within 60 days of December 1, 2007.

 

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Item 12. Certain Relationships and Related Transactions.

In December 2007, Bzinfin agreed to loan Splinex LLC up to $500,000 to lend to the Company to be used to fund the settlement of certain financial obligations and the costs of audit and filing financial reports with the SEC. On or about December 17, 2007, under a Purchase Agreement, 1) certain holders, who had received shares in the Company as distributions from Splinex LLC, transferred their ownership of 35,162,334 shares of common stock of the Company to Splinex LLC for nominal consideration, and 2) Bzinfin and Ener1 Group assigned debt obligations to Splinex LLC in the amount of $2,805,207 and $845,864, respectively. Under a Purchase Agreement dated December 17, 2007, TGR Capital LLC, a Florida limited liability company (“TGR”) controlled by a related party, 1) acquired the membership interests in Splinex LLC, thereby giving TGR control over Splinex LLC, and 2) agreed to repay the Bzinfin loan of $500,000. Under an Exchange Agreement dated December 18, 2007, the Company agreed to issue 113,500,000 newly issued shares of the Company to Splinex LLC of which 8,500,000 shares will be issued to Bzinfin and 2,125,000 will be issued to Alexander Malovik. Splinex LLC owned 98,157,334 shares of the Company as of December 17, 2007 after the transfer and will own 201,032,334 shares after the completion of the Exchange Agreement. The Company had 100,757,769 shares outstanding at December 17, 2007 and will have 214,257,769 shares outstanding after the completion of the Exchange Agreement.. On December 17, 2007, the Company agreed to revised payment terms related to a termination agreement with its former chief executive officer. The Company has terminated consulting agreements with Mike Zoi and Peter Novak, and the consultants have agreed to terminate all previous accrued consulting payment obligations. As of December 20, 2007, the Company has reached settlement agreements with substantially the majority of all remaining creditors.

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Our company and Ener1, Inc. and some of its affiliates

 

To aid your understanding of the relationships among us, our principals and Ener1 we have included the following chart:

 

		Splinex, LLC		Relationship With
		Ownership Interest
Name		(voting/economic)  prior to December 18, 2007 transaction		Ener1 Group		Ener1, Inc.		Splinex Technology Inc.
Alexander Malovik		50%/49%		None		None		Will own 2,150,000 shares of Splinex Technology Inc. Owned 16 million shares prior to the Exchange Indirect Stockholder. Owned 100% of ANTAO Ltd, which he contributed to Splinex Technology pursuant to his obligations under the Splinex, LLC operating agreement
Boris Zingarevich		12.5%/12.75%		Indirect Stockholder, Director		Indirect Stockholder		Will indirectly own 8,500,000 shares of Splinex Technology Inc. through Bzinfin. Indirect Stockholder and Beneficial owner of Bzinfin, which has entered into the Revolving Loan Agreement with Splinex Technology
Mikhail Zingarevich		12.5%/12.75%		Director, Brother of Boris Zingarevich		Brother of Boris Zingarevich		Indirect Stockholder
Peter Novak		12.5%/12.75%		Chief Technology Officer, Indirect Stockholder, Director		Chief Executive Officer, Director, Stockholder		Former Consultant, Director, Indirect Stockholder
Mike Zoi		12.5%/12.75%		Indirect Stockholder, Director		Officer, Director, Indirect Stockholder		Sole beneficial owner of TGR which owns 100% of Splinex LLC which will own 83.94% of Splinex. Former Consultant, Indirect Stockholder

 

As a result of the Merger and distribution, the shareholders of record of Ener1 as of January 17, 2005 received approximately 5% of our common stock outstanding on the date the Merger was completed.

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Dr. Peter Novak, one of our directors, is a 50% equityholder of Z-N, LLC, a company that holds approximately 31% of the outstanding common stock of Ener1 Group. Ener1 Group holds approximately 90% of the outstanding common stock of Ener1. Mike Zoi, a consultant for our company, holds the other 50% equity interest in Z-N, LLC. Mr. Zoi’s consulting agreement is described under “—Additional agreements—Consulting agreement of Mike Zoi” below. Mike Zoi and Dr. Novak are directors of Ener1 and Ener1 Group. Each of Dr. Novak and Mr. Zoi also receive annual compensation of $250,000 and insurance benefits, and annual automobile allowances of $11,124 and $23,715, respectively, from Ener1 in return for their services as directors of Ener1.

 

The remaining equity of Ener1 Group is owned by Bzinfin, S.A., which is beneficially owned by Boris Zingarevich. Boris Zingarevich, Mike Zoi and Dr. Novak are directors of Ener1 Group.

 

Until September 2007, Curtis Wolfe was our general counsel and secretary. He was also the general counsel for Ener1 Group. He received his salary from Ener1 Group. At the end of every month, Ener1 Group invoiced us at a rate equal to his base salary, plus 20% to cover benefits and other fixed costs, for the number of hours he worked for our company that month, based on the assumption that Mr. Wolfe worked a total of 160 hours per month. We were not billed for more than 8 hours of Mr. Wolfe’s time per day, even if he worked for us for more than 8 hours a day. This arrangement allowed us to benefit from Mr. Wolfe’s legal skills at an effective rate that we believed, based on our knowledge of the local legal market, to be below that of an attorney in private practice with his experience and skill level. In addition, we benefited from having a general counsel without incurring liability for the salary and benefits for a full-time employee. The hourly billed rate for Mr. Wolfe’s time was $101 per hour. The percentage of Mr. Wolfe’s time that he devoted to our affairs varied from week to week depending on our need for his services.

 

One of our employees performed technology consulting and patent advisory work for Ener1 and Ener1 Group related entities. We were reimbursed for these services at the rate of 120% of his direct hourly rate.

 

Ener1 Group

 

In fiscal 2005, Ener1 Group loaned us a total of $800,000 to fund our working capital needs. These loans bear interest at an annual rate of 5% and were assumed by Bzinfin SA effective February 5, 2005. In fiscal 2006, Ener1 Group loaned us $429,000 under demand notes that bear interest at an annual rate of 5%. On January 24, 2005, we issued 20,629 shares of restricted common stock to Ener1 Group, Inc. in partial reimbursement for certain expenses paid for by Ener1 Group, Inc. at a value of $0.25 per share. From October 2005 through March 31, 2007, we borrowed $739,431 from Ener1 group, Inc., under a demand note that bears interest at an annual rate of 5% payable at maturity.

 

Sublease 

 

We had previously subleased commercial property, which served as our headquarters and work space, through an assignment of a sublease from Splinex, LLC. Splinex, LLC subleased this property from Ener1 Group. Under the terms of our sublease, we were required to make monthly lease payments in the base amount of $4,661 to $5,453 per month through February, 2008. Our sublease and related documents are filed as exhibits to the registration statement of which this prospectus is a part. Due to Splinex, LLC’s lack of financial history at the time it entered into the sublease, it was unable to obtain a lease from a third party on terms comparable to or more favorable than those contained in the sublease. The rent we paid under the sublease is the same amount as the rent Ener1 Group pays under the lease with no mark-up; the other terms of the sublease were also the same terms as Ener1 Group is subject to under the lease. We believed the terms of the sublease, including the amount of rent, were comparable with terms that were generally available in the local market at the time we entered into the sublease, based on our knowledge of the local real estate market. Splinex vacated this lease and Ener1 Group has sublet the space to another tenant. Splinex is currently occupying limited storage space at the offices of Ener1 Inc. at 500 Cypress Creek Road, Suite 100, Fort Lauderdale, FL 33309 with a phone number of 954 556-4020.

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Our company and Splinex, LLC 

 

In connection with our formation and in return for the issuance of all of our outstanding common stock, Splinex LLC agreed to contribute to us substantially all of its assets and liabilities. This contribution occurred as of April 1, 2004. We recorded this transaction at the book value of the assets and liabilities at the date of transfer. Splinex, LLC no longer conducts any operations but will continue to hold our common stock.

 

Splinex, LLC owns approximately 94% of our outstanding common stock.

 

Dr. Novak and Mike Zoi are both members and managers of Splinex, LLC and each holds 12.75% of the economic membership interests (and 12.5% of the voting membership interests) of Splinex, LLC. Each of Mikhail and Boris Zingarevich also indirectly holds 12.75% of the economic membership interests (and 12.5% of the voting membership interests) of Splinex, LLC.

 

Bzinfin, S.A., the company with whom we have a revolving loan agreement, is also a shareholder of Ener1 Group. Bzinfin S.A. is indirectly owned by Boris Zingarevich, who beneficially owns a limited liability company that is a member of Splinex, LLC and is a director of Ener1 Group.

 

Alexander Malovik is a member of Splinex, LLC and held 49% of the economic membership interests (and 50% of the voting membership interests) of Splinex, LLC until the Exchange on December 17, 2007. Mr. Malovik formed ANTAO, Ltd. to be the administrative vehicle for our development efforts in Russia. Between July 1, 2004 and March 31, 2005, we paid an aggregate of $260,000 to Splinex Outsourcing through ANTAO to pay the costs associated with our operations in Russia, including wages and benefits paid to Russian personnel and rent. During the year ending March 31, 2006, the Company paid $40,207 to Splinex Outsourcing through ANTAO. ANTAO sent these funds, after retaining sufficient funds to pay its administrative expenses and taxes, to Splinex Outsourcing LLC, a Russian limited liability corporation, which used the funds to pay these costs. Neither ANTAO nor Mr. Malovik received any consideration from us in return for these services. Mr. Malovik contributed the outstanding stock of ANTAO, Ltd. to us on September 20, 2004 as part of Mr. Malovik’s contribution obligation under the operating agreement of Splinex, LLC. Mr. Malovik does not have an ongoing operational role in the day-to-day operations of ANTAO, Ltd.

 

Revolving Loan Agreement

 

We are party to a revolving loan agreement with Bzinfin, S.A., a British Virgin Islands limited corporation. Bzinfin, S.A. is wholly owned by Boris Zingarevich. Additionally, Bzinfin, S.A. and Z-N, LLC are the sole owners of Ener1 Group. Ener1 Group is the majority shareholder of Ener1.

 

Under the revolving loan agreement, Bzinfin, S.A. has agreed that it or one of its affiliates will loan and reloan us amounts up to $2,500,000 upon our request, at an annual interest rate of 5%. This $2,500,000 commitment was available from January 18, 2005, through July, 2005. All outstanding principal and interest under this agreement must be repaid on the second anniversary of the first disbursement of funds under the revolving loan agreement. The maximum loan amount will be reduced dollar-for-dollar by the cumulative gross proceeds we receive from the sale of our equity or debt securities or from any loans or other credit facilities extended to us. As of July 27, 2005, and March 31, 2007, the Company had borrowed $2,500,000 under the revolving loan agreement and an additional $50,000 from Bzinfin during September 2005, and the loan agreement was amended to include the additional borrowing under the same terms and conditions.

 

Consulting agreements with Dr. Novak and Mr. Zoi

 

 Both Dr. Novak and Mr. Zoi had signed consulting agreements with us. We entered into a consulting agreement with Dr. Novak under which Dr. Novak agreed to work for us as an independent contractor providing technical advice, technical management, strategic planning and international licensing advice. We agreed to pay him a consulting fee of $100,000 per annum. Dr. Novak was required to submit statements on a monthly basis describing the nature of his work during the previous month. The agreement required Dr. Novak to keep our proprietary information confidential and required him to enter into a separate assignment of his intellectual property rights with respect to any inventions relating to business of Splinex to us. The agreement was terminated effective January 1, 2007. Under the agreement, during the period of his consultancy and for 12 months thereafter, Dr. Novak has agreed not to solicit any of our employees to terminate their employment with us.

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We entered into a consulting agreement with Mr. Zoi in February, 2004. Under the agreement, Mr. Zoi agreed to work for us as an independent contractor providing advice regarding capital formation, equity structuring, business planning, strategic planning and international licensing. We agreed to pay him a consulting fee of $100,000 per annum. Mr. Zoi was required to submit statements on a monthly basis describing the nature of his work during the previous month. The agreement required Mr. Zoi to keep our proprietary information confidential. Under the agreement Mr. Zoi also assigned to us any intellectual property rights he may have acquired while working with our technology. The consulting agreement was terminated effective January 1, 2007. Under the agreement, during the period of his consultancy and for 12 months thereafter, Mr. Zoi has agreed not to solicit any of our employees to terminate their employment with us.

 

Both consulting contracts were cancelled on December 31, 2006.

 

Ener1 Inc.

Effective February 1, 2006, our President, Mr. Herlihy, was appointed to the position as Chief Financial Officer of Ener1, Inc. in addition to his continuing role at Splinex. Splinex paid $60,000 of Mr. Herlihy’s $250,000 annual salary as Chief Financial Officer of Ener1, and Ener1 paid $190,000 of Mr. Herlihy’s salary until May 2007. Effective May 2007, Mr. Herlihy is dedicating substantially all of his time to Ener1 except for the time necessary to attend to the administrative and financial matters of Splinex.

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Item 13. Exhibits

 

Exhibit Number		Description
2.1		Agreement and Plan of Merger among Ener1 Acquisition Corp., Registrant and Ener1, Inc., dated as of June 9, 2004, incorporated herein by reference to Exhibit 2.1 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
2.2		First Amendment to Agreement and Plan of Merger among Ener1 Acquisition Corp., Registrant and Ener1, Inc., dated as of October 13, 2004, incorporated herein by reference to Exhibit 2.2 to Amendment No, 1 to Splinex’s Registration Statement on Form S-1 filed with the Commission on October 15, 2004 (Registration No. 333-116817)
2.3		Second Amendment to Agreement and Plan of Merger among Ener1 Acquisition Corp., Splinex and Ener1, Inc., dated as of December 23, 2004, incorporated herein by reference to Exhibit 2.3 to Amendment No. 3 to Splinex’s Registration Statement on Form S-1 filed with the Commission on December 27, 2004 (Registration No. 333-116817)
3.1		Certificate of Incorporation of Splinex, incorporated herein by reference to Exhibit 3.1 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
3.2		Certificate of Merger of Splinex, incorporated herein by reference to Exhibit 3.2 to Amendment No. 3 to Splinex’s Registration Statement on Form S-1 filed with the Commission on December 27, 2004 (Registration No. 333-116817)
3.3		Bylaws of Splinex, incorporated herein by reference to Exhibit 3.3 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.1		Bridge Loan Agreement between Registrant and Ener1 Group, Inc. dated November 2, 2004 incorporated herein by reference to Exhibit 10.13 to Amendment No. 2 to Splinex’s Registration Statement on Form S-1 filed with the Commission on December 3, 2004 (Registration No. 333-116817)
10.2		Amendment to Bridge Loan Agreement between Registrant and Ener1 Group, Inc. dated November 17, 2004 incorporated herein by reference to Exhibit 10.14 to Amendment No. 2 to Splinex’s Registration Statement on Form S-1 filed with the Commission on December 3, 2004 (Registration No. 333-116817)
10.3		Employment Agreement between Christian Schormann and Splinex dated January 12, 2005, incorporated herein by reference to Exhibit 10.15 of the Current Report on Form 8-K filed with the Commission on January 25, 2005.
10.4		Revolving Debt Funding Commitment Agreement between Bzinfin, S.A. and Registrant, dated as of June 9, 2004, incorporated herein by reference to Exhibit 10.1 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)

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10.5		2004 Stock Option Plan of Registrant, incorporated herein by reference to Exhibit 10.2 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.6		Form of Stock Option Agreement of Registrant, incorporated herein by reference to Exhibit 10.3 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.7		Sublease Agreement between Ener1 Group, Inc. and Splinex, LLC, dated as of November 1, 2003, assigned to Registrant as of April 1, 2004, incorporated herein by reference to Exhibit 10.4 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.8		Contribution Agreement between Splinex, LLC and Registrant, dated as of April 1, 2004, incorporated herein by reference to Exhibit 10.5 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.9		Assignment and Assumption of Employment Agreements between Splinex, LLC and Registrant, dated as of April 1, 2004, incorporated herein by reference to Exhibit 10.6 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.10		Global Bill of Sale and Assignment and Assumption Agreement between Splinex, LLC and Registrant, dated as of April 1, 2004, incorporated herein by reference to Exhibit 10.7 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.11		Employment letter between Gerard Herlihy and Registrant, dated May 20, 2004, incorporated herein by reference to Exhibit 10.8 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.12		Consulting Agreement between Dr. Peter Novak and Registrant, dated January 1, 2004, incorporated herein by reference to Exhibit 10.9 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.13		Form of Employee Innovations and Proprietary Rights Assignment Agreement, incorporated herein by reference to Exhibit 10.10 to Splinex’s Registration Statement on Form S-1 filed with the Commission on June 24, 2004 (Registration No. 333-116817)
10.14		Form of Indemnification Agreement, incorporated herein by reference to Exhibit 10.11 to Amendment No. 3 to Splinex’s Registration Statement on Form S-1 filed with the Commission on December 27, 2004 (Registration No. 333-116817)
10.15		Employment Agreement between Michael Stojda and Registrant, dated September 1, 2004, incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to Splinex’s Registration Statement on Form S-1 filed with the Commission on October 15, 2004 (Registration No. 333-116817)
10.16		Reseller Agreement between Waterloo Maple Inc. and Splinex Technology Inc. dated May 27, 2005., incorporated herein by reference to Exhibit 10.1 to Splinex’s Current Report on Form 8-K, filed with the Commission on June 3, 2005

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10.17		Severance Agreement dated November 21, 2005 by and between Splinex and Michael Stojda, incorporated by reference to Exhibit 10.1 to Splinex’s Current Report on Form 8-K, filed with the Commission on November 21, 2005
10.18		Termination Agreement dated October 17, 2005 by and between Splinex and Christian Schormann, incorporated by reference to Exhibit 10.2 to Splinex’s Current Report on Form 8-K, filed with the Commission on November 21, 2005
10.19		Master Loan Agreement and Note dated July 9, 2006 by and between Splinex and Ener1 Group, Inc.
14		Code of Ethics incorporated by reference to Exhibit 10.2 to Splinex’s Annual Report on Form 10-K for the year ended March 31, 2005, filed with the Commission on June 30, 2005
31.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

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Item 14. Principal Accountant Fees and Services.

 

Audit Fees.   The aggregate fees, including expenses, billed by our current principal accountant in connection with the audit of our annual financial statements and review of regulatory filings including the financial statements included in our Annual and Quarterly Reports on Forms 10-KSB and 10-QSB was $54,647 for fiscal 2007 and $44,485 for fiscal 2006.

 

Audit Related Fees. The aggregate fees, including expenses, billed by our former and current principal accountants for services reasonably related to the audit for the years ended March 31, 2007 and 2006 were $0.

 

Tax Fees. The aggregate fees, including expenses, billed by our former and current principal accountants for services reasonably related to tax services during the fiscal years ending March 31, 2007 and 2006 were $0.

 

All Other Fees.  The aggregate fees, including expenses, billed for all other services rendered to us by our former and current principal accountants during fiscal 2006 and 2007 were $0.

 

Audit Committee Pre-Approval Policy

 

Our Audit Committee’s responsibilities include selecting and hiring our independent auditors and approving the audit and non-audit services to be performed by our independent auditors. The Audit Committee’s policy is that all audit and non-audit services provided by Splinex's independent auditor shall be approved before the independent auditor is engaged for the particular services. These services may include audit services and permissible audit-related services, tax services and other services. The Audit Committee may in the future establish pre-approval procedures pursuant to which our independent auditor may provide certain audit and non-audit services to us without first obtaining the Audit Committee's approval. All fees paid to the independent auditors in fiscal 2007 were pre-approved by the Audit Committee, and therefore no services were approved after the services were rendered pursuant to the “de minimus” exception established by the SEC for the provision of non-audit services.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Splinex Technology Inc.
January 10, 2008	by: /S/ Gerard A. Herlihy
	Gerard A. Herlihy
	President and Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

January 10, 2008	by: /S/ Gerard A. Herlihy
	Gerard A. Herlihy
	President and Chief Financial Officer
	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
January 10, 2008	by: /S/ Peter Novak
	Peter Novak
	Chairman of the Board and Director

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