Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT #1
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______to______.
Commission File Number 333-138989
ecoTECH Energy Group Inc.
(Exact name of registrant as specified in its charter)
Nevada 98-0479847
------------------------------------- --------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
800 Fifth Avenue, Suite 4100, Seattle, WA 98104
(Address of principal executive offices) (Zip Code)
206-259-7867
Registrant's telephone number, including area code.
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes |_| No |X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes |_| No |X|
As of October 31, 2011, the registrant had 199,802,202 shares of its common
stock issued and outstanding.
Documents incorporated by reference: None
1
ECOTECH ENERGY GROUP INC.
FORM 10-Q
September 30, 2011
TABLE OF CONTENTS
Page
PART I-- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4T Control and Procedures 18
PART II-- OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 1A Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 20
Item 4. (Removed and Reserved) 20
Item 5. Other Information 20
Item 6. Exhibits 20
SIGNATURES 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
SEPTEMBER 30, 2011
Financial Statements
Page
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Cash Flows F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-13
F-3
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2011 2010
---------------------- --------------------
ASSETS
Current Assets
Cash and cash equivalents $ 5,134 $ 12,262
Due from related parties 2,953 3,055
Prepaid expenses 6,602 7,311
--------------------- -------------------
Total Current Assets 14,689 22,628
--------------------- -------------------
Deposits 21,547 60,033
Property, plant and equipment, net (Note 4) 394,652 180,039
--------------------- -------------------
TOTAL ASSETS $ 430,888 $ 262,700
===================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 654,249 $ 503,883
Accounts payable - related parties 110,088 110,542
Accrued liabilities (Notes 5 and 9) 2,194,247 1,596,213
Note payable to related parties (Note 6) 124,178 85,193
--------------------- -------------------
Total Current Liabilities 3,082,762 2,295,831
--------------------- -------------------
Notes payable (Note 4) 193,640 -
--------------------- -------------------
TOTAL LIABILITIES 3,276,402 2,295,831
--------------------- -------------------
Commitments and contingencies (Note 7)
STOCKHOLDERS' DEFICIT
Common Stock
Common stock, $0.001 par value 675,000,000 shares authorized;
196,886,577, and 195,233,427 common shares issued at
September 30, 2011 and December 31, 2010, respectively 196,887 195,233
Additional paid-in capital 30,241,439 29,392,934
Accumulated other comprehensive income 2,499 2,499
Cumulative foreign currency translation adjustment (7,934) (125,745)
Deficit accumulated during the development stage (33,278,405) (31,498,052)
--------------------- -------------------
Total Stockholders' Deficit (2,845,514) (2,033,131)
--------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 430,888 $ 262,700
===================== ===================
The accompanying notes are an integral part of these statements.
F-4
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
For the For the For the For the November 28,
three-months three-months nine-months nine-months 2007
ended ended ended ended (Inception) to
September 30, September 30, September 30, September 30, September 30,
2011 2010 2011 2010 2011
---------------- --------------- ---------------- ----------------- -----------------
Revenues $ - $ - $ - $ - $ -
Operating Expenses
General and administration 416,944 302,831 1,744,304 15,675,710 29,787,035
Research and development - - 17,437 - 420,950
---------------- --------------- ---------------- ----------------- -----------------
Total operating expenses 416,944 302,831 1,761,741 15,675,710 30,207,985
---------------- --------------- ---------------- ----------------- -----------------
Operating Loss (416,944) (302,831) (1,761,741) (15,675,710) (30,207,985)
Other (Income) and Expenses
Loss on disposal of fixed - - - - 5,704
Interest expense 13,515 4,774 36,245 23,788 2,267,675
Extinguishment of - - - - 700,535
Other income - - (5) - (83,222)
---------------- --------------- ---------------- ----------------- -----------------
Net loss before income tax
benefit (430,459) (307,605) (1,797,981) (15,699,498) (33,098,677)
Income tax benefit (Note 2) (2,895) 91 (17,628) (17,320) (55,700)
---------------- --------------- ---------------- ----------------- -----------------
Net Loss (427,564) (307,696) (1,780,353) (15,682,178) (33,042,977)
================ =============== ================ ================= =================
Changes in cumulative foreign
currency translation
adjustment (160,020) 34,058 (117,811) 28,223 7,934
---------------- --------------- ---------------- ----------------- -----------------
Comprehensive Loss $ (267,544) $ (341,754) $ (1,662,542) $ (15,710,401) $ (33,050,911)
================ =============== ================ ================= =================
Basic and diluted loss per
common share $ (0.00) $ (0.00) $ (0.01) $ (0.16)
================ =============== ================ =================
Weighted Average Number of
Shares Outstanding 196,833,770 103,636,459 196,140,774 99,889,068
================ =============== ================ =================
The accompanying notes are an integral part of these statements.
F-5
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine For the nine Cumulative from
months ended months ended November 28, 2007
September 30, September 30, (Inception) to
2011 2010 September 30, 2011
Cash Flows From in Operating Activities
Net loss $ (1,780,353) $ (15,710,401) $ (33,042,977)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 50,553 50,269 197,698
Stock-based compensation 697,500 14,929,920 25,519,452
Accretion of beneficial conversion features - - 541,131
Loss on extinguishment of convertible debt - - 700,535
Financing costs - - 1,389,908
Income tax benefit on flow-through shares (17,628) - (17,628)
Changes in operating assets and liabilities
Prepaid expenses 493 (10,281) (8,962)
Deposits 38,555 (41,352) (18,414)
Accounts payable 210,447 36,871 1,039,084
Accrued liabilities 665,548 284,298 1,847,389
------------------- ----------------- ---------------------
Net Cash Used in Operating Activities (134,885) (460,676) (1,852,784)
Cash Flows From Investing Activities
Cash received in reverse acquisition - - 8,510
Purchase of property, plant and equipment (51,415) (9,272) (391,390)
------------------- ----------------- ---------------------
Net Cash Used in Investing Activities (51,415) (9,272) (382,880)
Cash Flows From Financing Activities
Proceeds from notes payable to related parties - - 153,950
Proceeds from notes payable - - -
Proceeds from sale of common stock 20,074 453,917 653,735
Proceeds from sale of flow-through shares 115,206 - 224,845
Proceeds from sale of convertible debentures - - 1,137,581
Loans from related parties 69,866 48,496 109,348
Payments on convertible debentures - (24,055) (24,071)
Payments on Notes Payable - - -
Payments on notes payable to related parties (27,214) (1,925) (36,897)
------------------- ----------------- ---------------------
Net Cash Provided by Financing Activities 177,932 476,433 2,218,491
Foreign currency effect on cash 1,240 28,190 22,307
Net Increase (Decrease) in Cash and Cash (7,128) 34,675 5,134
Cash and Cash Equivalents, beginning balance 12,262 195 -
------------------- ----------------- ---------------------
Cash and Cash Equivalents, ending balance $ 5,134 $ 34,870 $ 5,134
=================== ================= =====================
The accompanying notes are an integral part of these statement
F-6
ECOTECH ENERGY GROUP INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest $ 7,715 $ - $ 12,486
==================== ================ =====================
Income taxes $ - $ - $ -
==================== ================ =====================
Supplemental Disclosure of Non-cash Investing and
Financing Activities
Fair value of beneficial conversion feature of
convertible debentures $ - $ - $ 544,307
==================== ================ =====================
Conversion of debentures into common stock $ - $ - $ 1,116,391
==================== ================ =====================
Premium on flow-through shares $ - $ - $ 36,306
==================== ================ =====================
Shares issued to extinguish debt $ - $ - $ 99,138
==================== ================ =====================
Accounts payable settled through the issuance
of stock $ 34,878 $ - $ 133,291
==================== ================ =====================
Note payable issued to acquire land $ 204,760 $ - $ 204,760
==================== ================ =====================
The accompanying notes are an integral part of these statements.
F-7
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
1. BUSINESS
We are a development-stage renewable energy company which plans to
manufacture biomass-fuelled combined heat and power (CHP) stations that
produce renewable and sustainable "green" energy products. Over the
past 30 years, ecoTECH Energy Group, Inc. ("ecoTECH") executives have
developed and refined a "proprietary thermal gasification" technology
to create clean-burning waste-to-energy cogeneration Power Stations.
This combined heat and power (CHP) technology produces: (i)
electricity, which can be channeled to utilities and end-users via the
electrical infrastructure grid (the "Grid"); and (ii) heat which can be
used to fuel a torrefied biomass briquette manufacturing facility,
allowing for a "green-fuel" offering and related revenue stream.
ecoTECH will specialize in the development and operation of CHP Power
Stations and intends to build five CHP Power Stations in North American
in the next five to seven years. In March 2011, the Company acquired
land which it intends to utilize to build its first production plant if
construction and equity capital is raised by management.
During April 2011, the Company established an operating division in
Montana to engage in operations across the state to manufacture biomass
energy and grow / distribute our horticulture products. We have hired
three new members to ecoTECH's management team to head-up the Montana
division.
Also during April 2011, we entered into a Memorandum of Understanding
("MOU") with Wayzata Investment Partners, LLC ("Wayzata") to negotiate
a purchase agreement with Thompson River Power, LLC ("TRP") and its
manager, Wayzata, for the acquisition of 100% of the equity interests
in TRP. The Company has entered into a Due Diligence Phase related to
this MOU, and hopes to solidify it into a binding agreement once
completed. To date we have been unable to move forward due to lack of
funds. This opportunity continues to exist, and we intend to proceed
pending available funding.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of
ecoTECH have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction
with the audited consolidated financial statements and notes thereto
contained in the Form 10-K filed with the SEC. In the opinion of
Management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position
and results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
Notes to our consolidated financial statements which substantially
duplicate the disclosures contained in our Annual Report on Form 10-K
for the year ended December 31, 2010 have been omitted.
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 the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
These estimates are based on management's best knowledge of current
events and actions the Company may undertake in the future. Actual
results may ultimately differ from those estimates. The significant
estimates made by management relate to the estimation of the value of
the Company's common stock. Changes in estimates are reported in
earnings in the period in which they become known.
F-8
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
Flow-Through Shares Financing
During the three months ended September 30, 2011, the flow through
shares sold generated a current income tax benefit of $2,895, as
reflected in the accompanying consolidated statements of operations and
comprehensive loss.
3 GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles in the
United States of America, which contemplates continuation of the
Company as a going concern. The Company has incurred losses from
Inception to September 30, 2011 of $33,042,977 and used cash in
operating activities of $1,852,784. At September 30, 2011, the Company
had limited available capital. These matters raise substantial doubt
about the Company's ability to continue as a going concern. In view of
these matters, realization of certain of the assets in the accompanying
balance sheets are dependent upon the Company's ability to meet its
financing requirements and raise additional capital, and upon the
success of its future operations. The Company requires additional
capital of approximately $600,000 to $1,200,000 to continue its
development activities and provide working capital for general
corporate purposes for the next 12 months. In addition, the Company
needs to obtain financing of approximately $160,000,000 for the
construction of the proposed 60 Megawatt plant. There is no assurance
that our capital raising plans will be successful in obtaining
sufficient funds to assure the eventual profitability of the Company.
We believe that actions planned and presently being taken to revise the
Company's operating and financial requirements provide the opportunity
for the Company to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that
might result from these uncertainties.
4 PROPERTY, PLANT AND EQUIPMENT
Acquisition of Land
On March 16, 2011 our wholly owned subsidiary, ecoTECH Energy Group
(Canada) Inc., completed its acquisition of a parcel of land located in
McBride, British Columbia for $257,075, of which $51,415 was paid in
cash and the remaining is subject to a mortgage from the seller,
which is included in notes payable on the accompanying balance sheet.
The mortgage is for 200,000 Canadian dollars, which translates to
$193,640 as of September 30, 2011. The mortgage accrues simple interest
at 8% annually, calculated monthly, but not in advance, over a two year
term expiring March 15, 2013 and is secured by the land. Payments of
$1,587 are due monthly, with a balloon payment at expiration. As of
September 30, 2011, interest expense of approximately $8, 866 has been
recorded in relationship to this note.
F-9
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
Property, plant and equipment consist of the following:
September 30, 2011 December 31, 2010
-------------------------- ---------------------------
Land $ 257,075 $ -
Computer hardware 110,458 110,458
Computer software 23,904 23,904
Furniture and fixtures 20,043 20,043
Equipment 33,463 33,463
Leasehold improvements 139,600 139,600
Website 14,463 14,463
Less accumulated depreciation (204,354) (161,892)
-------------------------- ---------------------------
Total property, plant and equipment, net $ 394,652 $ 180,039
========================== ===========================
Depreciation expense for the three and nine-months ended September 30,
2011 and 2010 and for the period from Inception to September 30, 2011
was $16,840, $21,943 $50,553, $50,269, and $197,698, respectively.
5 ACCRUED LIABILITIES
Accrued liabilities by major classification are as follows:
September 30, 2011 December 31, 2010
------------------------- ---------------------------
Accrued interest $ 19,209 $ 18,832
Accrued wages and payroll taxes 1,863,438 1,302,381
Accrued consulting fees 311,600 275,000
------------------------- ---------------------------
Total accrued liabilities $ 2,194,247 $ 1,596,213
========================= ===========================
Accrued liabilities balances reflected above include interest accrued
on note payable and convertible debenture balances outstanding, accrued
payroll and related payroll taxes, accrued fees due to an external
consulting firm, and the flow-through share premium liability which
represents a premium payment paid by investors for shares of common
stock purchased under a tax-advantage program. The Company must record
this premium until they comply with the provisions of the Canada
Revenue Agency ("CRA") program by submitting an annual form containing
eligible expenses submitted for tax exemption, thus renouncing the tax
benefit.
6 NOTES PAYABLE TO RELATED PARTIES
On February 5, 2009, the Company borrowed $99,137 from a shareholder
for operating capital, and agreed to repay the principal plus 10%
annual interest in 90 days. On September 8, 2009, the note was amended
to pay interest at 20% interest per annum and matured in 90 days. Upon
default, the note continues to earn 20% per annum. On November 1, 2010,
the note holder converted the principal balance into 312,500 shares of
private company common stock (pre-acquisition). The Company has paid
$9,707 of the interest accrued on the note. Accrued interest of $19,251
remains to be paid as of September 30, 2011.
The Company borrowed from a shareholder for operating capital. This
loan is non-interest bearing and does not have a specific maturity
date. Management did not impute interest as such amount was not deemed
significant.
See Note 9 for additional related party transactions.
F-10
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
7 COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space in Langley, British Columbia, Canada.
The office lease became effective on April 1, 2008 and is for a term of
five years. Basic rent for the first three years is $4,794. Basic rent
for the last two years increases approximately 7% to $5,113 per month.
In addition to basic rent and applicable taxes, the Company will also
be responsible for varying operating expenses (HVAC, assessments,
utilities and service charges, licenses and permits) as they arise.
The Company leases an automobile, under a four-year term agreement, for
use by one of its directors, with current lease payments of $1,239 per
month.
Actual office rent expense, including all applicable taxes and
operating costs, for the three and nine-months ended September 30, 2011
and 2010 and the period from Inception to September 30, 2011 were
$25,537, $21,932, $73,684, $66,024, and $325,677, respectively.
Litigation
The Company is involved in claims and litigation from time to time in
the normal course of business. Management of the Company believe there
are no matters pending that are expected to have a material adverse
effect on the business of the Company, their financial condition,
results of operations or cash flows.
8 STOCKHOLDERS' DEFICIT
Issuance of Common Stock
On January 4, 2011, the Company satisfied a $5,037 accounts payable
balance by issuing 18,518 shares of common stock of ecoTECH Energy
Group, Inc. to a utility company, based on a stock price of
approximately $0.27 per share. These shares contain an 18 month
restriction from the date of issuance.
During February 2011, the Company raised $8,046 through the sale of
29,366 shares common stock via subscription agreements sold to three
investors, based on a stock prices between $0.25 and $0.32 per share.
During February 2011, the Company established a private equity offering
to Canadian investors to raise operating capital. The offering was for
"CRCE Flow-Through Shares" of common stock, whereas CRCE is defined
under section 1219 of the Income Tax Regulations as "Canadian Renewable
and Conservation Expense" for the purposes of subsection 66.1(6) of the
Canadian Income Tax Act..CRCE is included in calculating Canadian
Exploration Expense and is eligible to be renounced under a
flow-through share agreement. Investment in these shares allows for
specific income tax benefits for Canadian individual filers, in which
specific expenses incurred by the Company is passed through to these
investors to recognize (pro-rated) on their individual Canadian income
tax returns.
During March 2011, the Company raised $86,926 through the sale of
169,288 shares common stock via subscription agreements sold, under
guidelines of the Canadian Renewable Conservation Expense program
("CRCE") to six investors, based on a stock price of approximately
$0.51 per share, for which $13,093 in commissions were paid relative to
the sale of this stock. In accordance with the sale of CRCE "flow
through shares", the Company recognized an income tax credit of $11,582
at March 31, 2011, on the accompanying consolidated statement of
operations contained herein.
During April and May 2011, the Company raised $22,839 though the sale
of 44,000 shares of common stock via subscription agreements sold under
the guidelines of the CRCE program to three investors, based on a stock
price of approximately $0.52 per share, for which $2,088 in commissions
were paid relative to the sale of this stock. In accordance with the
sale of CRCE "flow through shares", the Company recognized an income
tax credit of $2,970 at September 30, 2011, on the accompanying
consolidated statement of operations and comprehensive loss contained
herein.
F-11
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
On May 1, 2011 the Company issued 750,000 shares to a director of the
Company for prior services rendered. These shares were valued based on
the stock price of $0.40 per share and charged to operations. In
addition, on May 10, 2011 in connection with an employment arrangement,
the board of directors approved the issuance of 2,000,000 shares of the
Company's common stock over a period of 18 months to its Chief
Financial Officer. In connection therewith, Company issued 500,000
fully-vested shares of common stock to the officer based on a stock
price of $0.45 per share, the estimated grant-date fair value on May
10, 2011. The remaining 1,500,000 shares, valued at the grant-date fair
value of $675,000, cliff vest evenly on November 10, 2011, May 10, 2012
and November 10, 2012, and will be amortized to expense over the period
of 18 months. During the nine-months ended September 30, 2011, the
Company recognized aggregate stock-based compensation expense in the
amount $697,500 for the above services which is included in general and
administrative expenses.
On May 31, 2011, the Company satisfied a $29,841 accounts payable
balance by issuing 64,785 shares of common stock of ecoTECH Energy
Group, Inc. to a utility company, based on a stock price of
approximately $0.45 per share. These shares contain an 18 month
restriction from the date of issuance.
During August and September 2011, the Company raised $21,230 though the
sale of 42,000 shares of common stock via subscription agreements sold
under the guidelines of the CRCE program to two investors, based on a
stock price of approximately $0.51 per share, for which $1,003 in
commissions were paid relative to the sale of this stock. In accordance
with the sale of CRCE "flow through shares", the Company recognized an
income tax credit of $2,835 at September 30, 2011, on the accompanying
consolidated statement of operations and comprehensive loss contained
herein.
During the period from July to September 2011, the Company raised
$12,157 through the sale of 32,353 shares common stock via subscription
agreements sold to four investors, based on stock prices between $0.20
and $0.43 per share.
Stock based compensation expense for the three and nine-months ended
September 30, 2011 and 2010 and for the period from Inception to
September 30, 2011 was $112,500, $0, $697,500, $14,929,920, and
$25,519,452, respectively.
Foreign Currency Translation
The exchange rates used to translate amounts in Canadian Dollars
("CAD$") into U.S. Dollars ("US") for the purposes of preparing the
consolidated financial statements were as follows: As of September 30,
2011 and December 31, 2010, the Company used the period-end rates of
exchange for assets and liabilities of CAD$1 to US$0.9682 and CAD$1 to
US$1.0015, respectively.
For the nine months ended September 30, 2011 and 2010, the Company used
the period's average rate of exchange to convert revenues, costs, and
expenses of CAD$1 to US$1.0230 and CAD$1 to US$0.9622, respectively.
F-12
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
9 RELATED PARTY TRANSATIONS
Related-Party Payables
Related party payables represent balances in accounts payable that are
owed to directors and shareholders. These payables are primarily for
unreimbursed travel and entertainment expenses incurred on behalf of
the Company. The respective parties have agreed to defer these
payables, interest-free, until a time at which the Company has raised
sufficient capital.
Accrued Wages
Due to capital restraints, management has deferred certain of their
monthly salaries until capital is available. Although there are no
employment agreements, the Chief Executive Officer earns $18,000 per
month; The Chief Operating Officer earns $10,000 per month; the
Executive Vice President of Business Development earns $10,000 per
month; the Executive Vice President of Engineering earns $10,000 per
month, and the Vice President of Administration earns $10,000 per
month.
Shareholder Loans
From time to time, the four founding directors loaned money to the
Company for general operating capital. These loans are repaid to the
respective directors when additional capital is raised. Due to the
short-term nature of these loans, the officers/directors agreed that
they would not be interest bearing, and are due upon demand.
Shareholder loans are included in notes payable to related parties on
the accompanying balance sheet. Net proceeds from shareholder loans
during the nine-months ended September 30, 2011 were $42,652.
10 SUBSEQUENT EVENTS
Issuances of Common Stock
During October 2011, we sold 15,625 common shares of common stock to
one investor for a cash payment of $5,000. On October 26, 2011 the
Board of Directors passed a resolution to issue 2,900,000 common shares
of common stock as stock based compensation at a value of $.45 per
share. 1,300,000 common shares were issued to Edward Michael Wilby and
1,600,000 common shares were issued to John Nanton in Trust. The
shares were issued in recognition for contributions to further the
ecoGrow technology.
F-13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information and discussion should be read in conjunction with such
consolidated financial statements and notes thereto. Additionally, this
Management's Discussion and Analysis of Financial Condition and Results of
Operation contains certain statements that are not strictly historical and are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a high degree of risk and uncertainty.
Actual results may differ materially from those projected in the forward-looking
statements due to other risks and uncertainties that exist in the Company's
operations, development efforts and business environment, the other risks and
uncertainties described in the section entitled "Cautionary Note Regarding
Forward-Looking Statements" at the front of this Report on Form 10-Q, and our
"Risk Factors" section herein. All forward-looking statements included herein
are based on information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statement.
OUR BUSINESS
Our business will encompass development activities culminating in the
construction and long-term operation of biomass energy production plants. As
such, we are currently in the stage of finding suitable locations, securing
proper financing for building plants, and deploying project opportunities for
converting woody biomass feedstock into torrefied bio-energy products such as
electricity via gasification process, activated carbon, and "green coal" via
pelletization process. As we build these plants, we intend to increase our
number of employees appropriately.
The Company intends to strategically position multiple CHP Power Stations in
order to:
o Reduce the reliance on fossil fuels by providing a sustainable and
environmentally friendly source of energy and fuel products
manufactured from local biomass feed-stocks;
o Meet specific local needs for decentralized power, while reducing the
cost of biomass transportation;
o Assist communities to meet federal and state renewable energy and
reduced emissions mandates; and,
o Provide local jobs and community development for the project
communities.
Long-term markets and goals have been identified for each of our projects,
designed to fulfill corporate, investor and shareholder requirements. These can
be summarized as follows:
14
Renewable Energy Production:
CHP Power Stations are modular units built in chains to meet specified power
needs of the community or communities. Combined heat and power are produced in
variable ratios, depending on the application. Local fiber availability and
transmission bandwidth are two limiting factors when determining total capacity
to construct. Hence, a Power Station is expandable and flexible to changing
environments. Each Power Station project brings baseline income for two to three
decades. Power supply purchase agreements run from five to 30 years, and we
generally expect a return on investment circa 25%, being unaffected by market
trends.
Green Fuel Production:
Torrefied Briquettes, "Green-fuel", production allows an alternative to
coal-fired energy manufacturers in order to meet renewable energy mandates by
established deadlines. When wood is roasted ("torrefied"), it becomes brittle at
a certain temperature and takes on the attributes of coal, with the exceptions
that it provides greater heat energy by weight, is sustainably renewable, and
meets the mandated criteria. We intend to use surplus heat generated by the
Power Stations to provide this torrefaction process to woody biomass, which is
then formed into briquettes to be sold at respectable margins on long-term fuel
supply contracts with coal-fired power stations. This allies our efforts with
the existing coal power giants, where helping them gives access to transmission
facilities that would not be afforded a competitor. Our projections indicate
this business segment offers a return on investment (ROI) of approximately 20%.
Ancillary Operations:
Food Production Projects are interrelated self-contained businesses that can
evolve around the Power Stations, utilizing the surfeit of energy by-products to
support local hydroponic greenhouses and aquaculture fish facilities.
PLAN OF OPERATIONS
The Company requires an additional capital of approximately $600,000 to
$1,200,000 to continue its development activities and provide working capital
for general corporate purposes for the next 12 months. In addition, the Company
needs to obtain financing of approximately $160,000,000 for the construction of
the proposed 60 Megawatt plant. There is no assurance that our capital raising
plans will be successful in obtaining sufficient funds to assure the eventual
profitability of the Company.
Currently, our development-stage operations have been funded through the sale of
our common stock. We plan to raise additional funds through Federal and State
grants, loan guarantees, and project debt financings or through future sales of
our common stock, until such time as our revenues are sufficient to meet our
cost structure, and ultimately achieve profitable operations. There is no
assurance that we will be successful in raising additional capital or achieving
profitable operations. Our consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
McBride, British Columbia, Canada
---------------------------------
On March 16, 2011, we finalized the purchase of land for the planned first plant
location in McBride, British Columbia. The land will be used for one of the
Company's biomass energy production plants along with hydroponic greenhouses and
fish propagation facilities, scheduled for start of construction late spring
2012
During the following months, the Company plans to fund the construction of its
first CHP Power Station projects in McBride, British Columbia, Canada, through
debt financing (acquired, subject to successful due diligence) and private
placement equity funding, obtaining the estimated $160 million in capital
required for completion of this two-phase project. Through proprietary thermal
gasification technology, this plant is expected to create a total of 60 MW/hour
of electricity which can be channeled via the Grid to utilities and end-users;
and heat which can be used to fuel ancillary operations such as large scale
15
(four-hectare) hydroponic greenhouses, and food fish propagation facilities. The
Company has already secured long-term large-tonnage biomass fuel source
agreements to fuel the plants.
HosMedEx S.A. of Ecuador
------------------------
The Company has been awarded a USD$36 million contract for its proprietary
Garbage to Concrete (Gar-Crete) processing systems to Hospital Medical Expres of
Ecuador (HosMedEx S.A.). Under terms of the contract, ecoTech will provide
HosMedEx S.A. six Gar-Crete systems for use in 6 regions across Ecuador. ecoTECH
will receive USD$6 million for each system delivered and will receve an initial
deposit from HosMedEx of USD$6 million. ecoTECH's Gar-Crete system is designed
to convert trash into reusable conrete for industrial products such as culverts,
pipes and barriers and is uesed where infrastructure is uneconomic or
unavailable. The product of the combined systems is pozzolanic ash for high
strength, low mass cast concrete products manufacture. The ecoPHASER MkV unit in
this sytems is the tried and proven ramjet burner in this application.
We are presently awaiting the confirmation of the start dates for the build out
which will begin upon receipt of a deposit for the first location.
Montana
-------
During April 2011, after receiving endorsement by the Governor's office of
Economic Development, the Company established an operating division in Montana
to engage in operations across the state to manufacture biomass energy and grow
/ distribute our horticulture products.
Also during April 2011, we entered into a Memorandum of Understanding ("MOU")
with Wayzata Investment Partners, LLC ("Wayzata") to negotiate a purchase
agreement with Thompson River Power, LLC ("TRP") and its manager, Wayzata, for
the acquisition of 100% of the equity interests in TRP. The Company has entered
into a Due Diligence Phase related to this MOU, and hopes to solidify it into a
binding agreement once completed.
The Company is exploring the opportunity of putting a hybrid geothermal/biomass
thermal power station with a torrifaction plant attached in the vicinity of
Whitehall in Jefferson county. The county's Matching Funds Grant provides funds
to facilitate the feasibility study for this project, and we are looking to
complete our side of the matching arrangement. To date we have been unable to
move forward due to lack of funds.
During fiscal 2010, we signed a letter of intent agreement with the Northern
Cheyenne Tribe of Montana to negotiate and enter into definitive agreements for
the location and operating of a 36MW biomass fuelled power-plant on certain fee
lands adjacent to the Northern Cheyenne Reservation. The agreement would provide
for political and economic support, reservation biomass, labor contracting, land
and water rights and many other mutual benefits.
COMPARISON OF OPERATING RESULTS
RESULTS OF OPERATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2010
Revenues
We had no revenue for the three months ended September 30, 2011 and 2010. The
lack of revenue in both periods is a direct reflection of the change of control
and introducing a new focus and business plan. We do not intend to generate
revenue in the near future until our business plan goals have been met.
General and Administrative Expense
Our general and administrative expenses increased to $416,944 for the three
months ended September 30, 2011, from $302,831 for the comparable period in
2010. The increase during the three months ended September 30, 2011 was
primarily attributable to the increase in stock based compensation of $112,500.
Interest Expense
Our interest expense increased to $13,515 for the three month period ended
September 30, 2011, from $4,774 for the comparable period during 2010. This
increase is attributable to increased borrowings during the period.
Loss from Operations
Our net loss from operations increased to $416,944 for the three months ended
September 30, 2011, from $302,831 for the comparable period in 2010. The
increase was primarily attributable to the increase in stock compensation
expense of $112,500.
RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Revenues
We had no revenue for the nine months ended September 30, 2011 and 2010. The
lack of revenue in both periods is a direct reflection of the change of control
and introducing a new focus and business plan. We do not intend to generate
revenue in the near future until our business plan goals have been met.
16
General and Administrative Expenses
Our general and administrative expenses decreased to $1,744,304 for the nine
months ended September 30, 2011, from $15,675,710 for the comparable period in
2010. The decrease during the nine months ended September 30, 2011 was primarily
attributable to a decrease in stock-based compensation of $14,232,420, offset by
an increase of $37,723 in engineering and consulting costs incurred in
connection with preparing the business plan for BC Hydro Phase II on the McBride
British Columbia project, an increase of $269,491 in wages for an increase of
four employees relative to pursuing the new business focus, and an increase of
$56,943 in legal and audit costs inherent to public companies.
Interest Expense
Our interest expense increased to $36,245 for the nine month period ended
September 30, 2011, from $23,788 for the comparable period during 2010. This
increase is attributable to increased borrowings during the period.
Loss from Operations
Our net loss from operations decreased to $1,761,741 for the nine months ended
September 30, 2011, from $15,675,710 for the comparable period in 2010. The
decrease during the nine months ended September 30, 2011 was primarily
attributable to the reduction of share based compensation of $14,232,420 between
the two periods. Absent of stock compensation, current period's general and
administrative expenses actually increased by $301,014, as described above.
LIQUIDITY AND CAPITAL RESOURCES
We had total assets of $430,888 as of September 30, 2011, consisting of,
$394,652 in net fixed assets, $21,547 in deposits, $6,602 in prepaid expenses,
and $2,953 in other receivables. We had a working capital deficit of $3,068,073.
We had total liabilities of $3,276,402 as of September 30, 2011, consisting of
$3,082,762 in current liabilities, which included $654,249 of accounts payable;
accrued wages of $1,863,438; $311,600 in accrued consulting fees; $19,209 in
accrued interest; and short term debt of $234,266 to related parties. We had
long term liabilities consisting of a land mortgage for $193,640.
We had a total stockholders' deficit of $2,845,514 as of September 30, 2011, and
an accumulated deficit as of September 30, 2011 of $33,278,405.
We had $134,885 in net cash used in operating activities for the nine months
ended September 30, 2011, which included $1,780,353 in net loss and $17,628
income tax benefit on flow-through shares which was offset by $50,553 in
depreciation; $697,500 in stock-based compensation; $210,447 in accounts
payable; $665,548 in accrued liabilities; $38,555 in deposits, and $493 in
prepaid expenses. This represents a decrease in cash used of $325,791 over prior
year's comparable period, which is primarily attributable to the increase in
accounts payable balances and accrued salaries due to limited funds being
available in the current period.
We had $51,415 in net cash used by investment activities, to purchase land,
during the nine months ended September 30, 2011. This represents an increase
cash used in investment activities over prior year's comparable period due to
the purchase of land in the current period.
We had $177,932 of net cash provided by financing activities for the nine months
ended September 30, 2011, which included $20,074 in proceeds from the sale of
common stock and $115,206 in proceeds from the sale of flow-through shares; and
$42,652 in net proceeds from notes payable by related parties.
On March 16, 2011, we acquired land of which $204,760 was financed through a two
year note at 8%.
Since we have no liquidity and have suffered losses, we depend to a great degree
on the ability to attract external financing in order to conduct our business
activities and in order that we have sufficient cash on hand to expand our
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. If we are unable to raise additional capital from
17
conventional sources, including increases in related party loans and/or
additional sales of additional stock, we may be forced to curtail or cease our
operations. Even if we are able to continue our operations, the failure to
obtain financing could have a substantial adverse effect on our business and
financial results. We have no commitments to provide us with financing in the
future, other than described above. Our independent registered public accounting
firm included an explanatory paragraph raising substantial doubt about the
Company's ability to continue as a going concern.
In the future, we may be required to seek additional capital by selling debt or
equity securities, selling assets, or otherwise be required to bring cash flows
in balance when it approaches a condition of cash insufficiency. The sale of
additional equity securities, if accomplished, may result in dilution to our
shareholders. We cannot assure you, however, that financing will be available in
amounts or on terms acceptable to us, or at all.
Foreign Currency Translations
The functional currency is the Canadian dollar and the reporting currency is the
U.S. dollar. At each balance sheet date, assets and liabilities that are
denominated in a currency other than U.S. dollars are adjusted to reflect the
current exchange rate which may give rise to a foreign currency translation
adjustment accounted for as a separate component of shareholders' equity and
included in other comprehensive loss.
Revenues and expenses are translated at the average daily rate for the year
covering the financial statement year to approximate the rate of exchange on the
transaction date. Exchange gains and losses are included in the determination of
net income (loss) for the period.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this Quarterly Report on Form 10-Q (the "Evaluation Date"), have concluded that
as of the Evaluation Date, our disclosure controls and procedures were not
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
18
Securities and Exchange Commission 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 timely decisions
regarding required disclosure. In March 2011 our Independent Registered Public
Accounting firm identified a lack of a formal review process for account
reconciliations and complex accounting and reporting matters which increases the
risk that errors or omissions exist and go undetected by management. The Company
will continue to take steps to identify matters of accounting and disclosure.
(b) Changes in internal control over financial reporting. There were no changes
in our internal control over financial reporting during our most recent fiscal
quarter that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
INHERENT LIMITATIONS OF INTERNAL CONTROLS
Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purposes in accordance with
the U.S. GAAP. Our internal control over financial reporting includes those
policies and procedures that:
o pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our
assets;
o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of consolidated financial statements
in accordance with the U.S. GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations of
our management and directors; and
o provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that
could have a material effect on the consolidated financial statements.
Management does not expect that our internal controls will prevent or detect all
errors and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of internal controls
can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. Also, any evaluation of the effectiveness of
controls in future periods are subject to the risk that those internal controls
may become inadequate because of changes in business conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best of our knowledge, there are no known or pending litigation
proceedings against us.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are
not required to provide information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period of July 1, 2011 through September 30, 2011, the Company made
the following unregistered issuances of its equity.
19
On May 1, 2011 the Company issued 750,000 shares to a director of the Company
based on a stock price of $0.40 per share. In addition, on May 10, 2011 in
connection with an employment arrangement, the board of directors approved the
issuance of 2,000,000 shares of the Company's common stock over a period of 18
months to its Chief Financial Officer. In connection therewith, Company issued
500,000 fully-vested shares of common stock to the officer based on a stock
price of $0.45 per share, the estimated grant-date fair value on May 10, 2011.
The remaining 1,500,000 shares, valued at the grant-date fair value of $675,000,
vest evenly on November 10, 2011, May 10, 2012 and November 10, 2012, and will
amortized to expense over the period of 18 months. During the quarter ended
September 30, 2011, the Company recognized stock based compensation expense in
the amount $112,500.
During August and September 2011, the Company raised $21,230 through the sale of
42,000 shares common stock via subscription agreements sold under the guidelines
of the Canadian Renewable Conservation Expense program ("CRCE") to two
investors, based on a stock price of approximately $0.51 per share, for which
$1,003 in commissions were paid relative to the sale of this stock. In
accordance with the sale of CRCE "flow through shares", the Company recognized
an income tax credit of $2,835 at September 30, 2011, on the accompanying
statement of operations contained herein.
During the three month period from July to September 2011, the Company raised
$12,157 through the sale of 32,353 shares common stock via subscription
agreements sold to four investors, based on stock prices between $0.20 and $0.43
per share.
Exemption From Registration Claimed
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). All of the individuals and/or entities that purchased
the unregistered securities were known to the Company and its management,
through pre-existing business relationships. All purchasers were provided access
to all material information, which they requested, and all information necessary
to verify such information and were afforded access to management of the Company
in connection with their purchases. All purchasers of the unregistered
securities acquired such securities for investment and not with a view toward
distribution, acknowledging such intent to the Company. All certificates or
agreements representing such securities that were issued contained restrictive
legends, prohibiting further transfer of the certificates or agreements
representing such securities, without such securities either being first
registered or otherwise exempt from registration in any further resale or
disposition.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
None
Item 6. Exhibits
(a) Pursuant to Item 601 of Regulation S-K, the following exhibits are included
herein.
Item
No. Description Method of Filing
-------------------------------------------------------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) Filed herewith.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) Filed herewith.
20
32.1 Chief Executive Officer Certification pursuant to 18 U.S.C.ss.1350 adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 Filed herewith.
32.2 Chief Financial Officer Certification pursuant to 18 U.S.C.ss.1350 adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 Filed herewith.
101.INS XBRL Instance Document (1)
101.SCH XBRL Taxonomy Extension Schema Document (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (1)
(1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOTECH ENERGY GROUP INC.
November 23, 2011 /s/ Colin V. Hall
-----------------
Colin V. Hall
Chairman
Principal Executive Officer
November 23, 2011 /s/ Barry Sheahan
---------------------------
Barry Sheahan
Chief Financial Officer
Principal Accounting Officer
2