Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
incorporation or organization Identification No.)
800 Fifth Avenue, Suite 4100, Seattle, Washington 98104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 259-7867
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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 May 1, 2012, the registrant had 203,438,640 shares of its common shares
issued and outstanding.
1
TABLE OF CONTENTS
PART I
ITEM 1 Consolidated Financial Statements 3
ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations 17
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk 22
ITEM 4T Controls And Procedures 22
PART II
ITEM 1. Legal Proceedings 24
ITEM 1A. Risk Factors 24
ITEM 2. Unregistered Sales of Equity Securities and the Use of
Proceeds 24
ITEM 3. Defaults Upon Senior Securities 24
ITEM 4 Mine Safety Disclosures 24
ITEM 5 Other Information 24
ITEM 6. Exhibits 25
SIGNATURES 25
ecoTECH Energy Group Inc., including all its subsidiaries, are collectively
referred to herein as "ecoTECH," "the Company," "us," "our" or "we."
As applicable for clarity, ecoTECH Energy Group Inc. is specifically defined as
ecoTECH Inc and ecoTECH Energy Group (Canada) Inc.is specifically defined as
ecoTECH (Canada).
2
PART 1
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE 4 Consolidated Statements of Operations and Comprehensive Loss for
the period from November 28, 2007 (Inception) to March 31, 2012,
and for the three months ended March 31, 2012 and 2011.
PAGE 5 Consolidated Balance Sheets as of March 31, 2012 and December 31,
2011.
PAGE 6 Consolidated Statements of Cash Flows for the period from
November 28, 2007 (Inception) to March 31, 2012, and for the
three months ended March 31, 2012 and 2011.
PAGE 7-16 Notes to Consolidated Financial Statements
3
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
From
November 28, 2007 Three Months Three Months
(Inception) Ended Ended
March 31, 2012 March 31, 2012 March 31, 2011
Revenue $ -- $ -- $ --
Operating Expenses:
General and administration: 4,487,151 199,413 428,586
Stock-based compensation (note 8) 28,181,593 -- --
Office relocation (notes 5 and 7) 120,070 -- --
Research and development 800,766 63,318 12,516
------------------ ------------------ -----------------
33,589,580 262,731 441,102
------------------ ------------------ -----------------
Operating loss (33,589,580) (262,731) (441,102)
Other (Income) Expense:
Loss on fixed asset disposal 5,704 -- --
Interest expense 2,293,735 13,766 9,431
Extinguishment of debt 700,535 -- --
Other income (83,217) -- --
------------------ ------------------ -----------------
Net loss before income tax benefit (36,506,337) (276,497) (450,533)
Income tax benefit 72,719 -- 11,582
------------------ ------------------ -----------------
Net loss (36,433,618) (276,497) (438,951)
Foreign currency translation adjustment (115,699) (70,910) (56,586)
------------------ ------------------ -----------------
Comprehensive loss $ (36,549,317) $ (347,407) $ (495,537)
------------------ ------------------ -----------------
Basic and diluted net loss per common share (less than $0.01 per share) $ -- $ --
Weighted average common shares outstanding 203,413,977 195,305,459
The accompanying notes are an integral part of these statements
4
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 721 $ 1,134
Prepaid expenses 1,126 3,358
Due from related parties 2,005 1,961
---------------------------------------
Total current sssets 3,852 6,453
Deposits 5,014 4,902
Property plant and equipment, net (note 4) 321,738 331,198
---------------------------------------
Total assets $ 330,604 $ 342,553
---------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 763,642 $ 718,130
Accounts payable - related party (notes 6 and 10) 142,312 134,458
Accrued liabilities (notes 5 and 7) 2,790,032 2,524,273
Mortgage Payable (note 4) 199,475 195,038
Notes payable to related parties (notes 6 and 10) 106,589 101,732
---------------------------------------
Total current liabilities 4,002,050 3,673,631
---------------------------------------
Commitments and contingencies (note 3 and 7)
Stockholders' deficit:
Common stock (Note 8), 675,000,000 shares ($0.001 par value)
203,438,640 and 203,405,984 (7,915,385 not yet issued)
shares issued and outstanding at March 31, 2012 and at
December 31, 2011, respectively. 203,439 203,406
Additional paid-in capital 32,907,361 32,900,355
Accumulated comprehensive income 2,499 2,499
Cumulative foreign currency translation adjustment (note 9) (115,699) (44,789)
Deficit accumulated during the development stage (36,669,046) (36,392,549)
---------------------------------------
Total stockholders' deficit (3,671,446) (3,331,078)
---------------------------------------
Total liabilities and stockholders' deficit $ 330,604 $ 342,553
---------------------------------------
The accompanying notes are an integral part of these statements
5
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
November 28, 2007 Three Months Three Months
(Inception) to Ended Ended
March 31, 2012 March 31, 2012 March 31, 2011
Cash flows from Operating activities:
Net loss $ $36,433,618) $ (276,497) $ (438,951)
Add (deduct) items to reconcile to net cash
used in operating activities
Stock-based compensation 28,181,593 -- --
Office relocation (notes 5 and 7) 120,070 -- --
Depreciation 221,757 9,460 16,696
Income tax benefit (72,719) -- (11,582)
Accretion of beneficial conversion features 541,131 -- --
Loss on extinguishment of convertible debt 700,535 -- --
Financing costs 1,389,908 -- --
Changes in operating assets and liabilities:
Prepaid expenses (3,516) 1,729 --
Deposits (11,839) (87) 36,950
Accounts payable 1,157,689 33,969 107,209
Accrued liabilities 2,337,849 210,047 259,900
------------------ ------------------ -----------------
Net cash used in operating activities (note 3) (1,871,160) (21,379) (29,778)
------------------ ------------------ -----------------
Cash flows from Investing activities:
Purchase of property, plant and equipment (note 4) (391,320) -- (51,345)
Cash received in reverse acquisition 8,510 -- --
------------------ ------------------ -----------------
Net cash used in investing activities (382,810) -- (51,345)
------------------ ------------------ -----------------
Cash flows from Financing activities:
Sale of common stock net of commissions 685,020 8,282 8,046
Sale of flow-through shares net of commissions 222,286 -- 73,833
Sale of convertible debentures 1,137,581 -- --
Payments on vendor financed mortgage (1,075) -- --
Payments on convertible debentures (24,071) -- --
Net proceeds (payments) on related party notes 214,049 12,667 (9,345)
------------------ ------------------ -----------------
Net cash provided by financing activities 2,233,790 20,949 72,534
------------------ ------------------ -----------------
Foreign currency effect on cash 20,901 17 (113)
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash equivalents 721 (413) (8,702)
Cash and cash equivalents - beginning of period -- 1,134 12,262
------------------ ------------------ -----------------
Cash and cash equivalents - end of period $ 721 $ 721 $ 3,560
------------------ ------------------ -----------------
Supplemental cash flow disclosure (note 11)
The accompanying notes are an integral part of these statements
6
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
1 - BUSINESS
Over the past 30 years, the ecoTECH Energy Group, Inc. (the "Company") team has
developed and refined the proprietary ecoPHASER thermal gasification technology
which enables very clean-burning of bio-mass and wastes. We are in various
stages of project development primarily located in the United States of America
and in Canada. The Company is also pursuing international opportunities.
EcoTECH's combined heat and power (CHP) technology produces: (i) electricity,
which can be channelled to utilities and end-users via the local electrical
distribution system and (ii) heat which can be used to fuel a variety of "Green"
operating facilities.
Our current activities are focused on developing several strategically
positioned CHP power stations in order to: (i) reduce the reliance on fossil
fuels by providing a sustainable and environmentally friendly source of energy
and fuel products manufactured from local biomass feedstocks; (ii) meet specific
local needs for decentralized power, while reducing the cost of biomass
transportation; (iii) assist communities meet federal and state renewable energy
and reduced emissions mandates; and, (iv) provide local jobs and community
development for the project communities.
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 our Annual Report on Form
10-K for the year ended December 31, 2011, 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, 2011 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.
Comparative financial information
Certain prior year's amounts have been reclassified to conform to the 2012
presentation.
7
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
3 - GOING CONCERN
The accompanying unaudited 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 is a development-stage company with no revenues, has a working
capital deficit, has net losses and used cash from operating activities from
Inception to March 31, 2012 of $1,871,160. At March 31, 2012, 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, raise
additional capital, and the success of its future operations.
The Company requires additional capital of approximately $600,000 to $1.2
million to continue its development activities and provide working capital for
general corporate purposes for the next 12 months. In addition, the Company also
needs to obtain debt and equity financing to construct its current projects
which range in cost from approximately $4 million to $130 million depending on
the scale of each project.
To the extent we are unable to meet our operating expenses we may borrow funds
from our current management or other related parties. We will also attempt to
raise capital from private individuals or institutional investment equity and/or
debt funds for operating purposes.
The Company's management remains optimistic that some of our developing projects
will proceed in the relatively near future. Future project revenues and/or
sales, if any, which exceed operating expenses and debt repayments will be used
to pay outstanding liabilities and expand operations.
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 to ensure that we have sufficient cash on hand to expand our
operations. These factors raise substantial doubt about our ability to continue
as a going concern.
There is no assurance that our capital raising plans will be successful in
obtaining sufficient funds to assure the eventual profitability of the Company.
If we are unable to obtain sufficient amounts of additional capital, we may be
required to reduce the scope of our planned development, which could harm our
business, financial condition and operating results.
These unaudited consolidated financial statements do not include any adjustments
that might result from these uncertainties.
8
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
March 31, December 31,
2012 2011
Land $ 256,725 $ 256,725
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 (note 7) -- --
Website 14,463 14,463
Less accumulated depreciation (note 7) (137,318) (127,858)
------------------------------------
Total property, plant and equipment, net $ 321,738 $ 331,198
------------------------------------
Depreciation expense for the period from Inception to March 31, 2012, and for
the three months ended March 31, 2012 and 2011 was $221,757, $9,460 and $16,696,
respectively.
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 an aggregate purchase price of $256,725, of which $51,345 was paid
in cash along with a $200,000 Canadian dollar vendor mortgage at 8% annual
interest.
The vendor mortgage has a two year term expiring March 15, 2013 and is secured
by the land. Combined interest and principal payments of $1,587 are due monthly,
with the balance due at expiration. Interest expense for the three months ended
March 31, 2012 and 2011 was $3,947 and $667, respectively.
The Company is not current in servicing the note, and accordingly, the note has
been classified as a current liability. We are working on a satisfactory
resolution to bring the loan current or payout the remaining balance due. The
loss of this property would not have an adverse impact on our ability to operate
in the region.
9
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
5 - ACCRUED LIABILITIES
Accrued liabilities by major classification are as follows:
March 31, December 31,
2012 2011
Accrued wages and payroll taxes $ 2,393,386 $ 2,133,656
Accrued consulting 300,000 300,000
Accrued interest 28,132 23,627
Accrued liability for office relocation (note 7) 68,514 66,990
------------------------------
Total accrued liabilities $ 2,790,032 $ 2,524,273
------------------------------
Accrued liabilities balances reflected above include interest applicable to
convertible debenture balances outstanding, mortgage for land purchased, accrued
fees for capital raise and a provision for the office relocation settlement
(note 7).
6 - ACCOUNTS PAYABLE AND 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 $27,959 interest accrued since note
Inception. The remaining accrued interest of $18,252 remains to be paid at March
31, 2012.
On November 17, 2009, the Company borrowed $34,151 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. As of March 31, 2012, the Company has not repaid any of
the principal balance.
From time to time, the directors and officers have loaned money to the Company
for general operating capital. These loans are repaid in part or in full when
additional capital is raised. Due to the short-term nature of these loans, the
directors and or officers agreed that they would not be interest bearing, and
are due upon demand.
Related party payables represent balances in accounts payable that are owed to
directors, officers 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 additional capital is raised.
10
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leased office space in Langley, British Columbia, Canada. The office
lease became effective on April 1, 2008 and was for a term of five years. Basic
rent for the first three years was $4,794. Basic rent for the last two years
increased approximately 7% to $5,113 per month. In addition to basic rent and
applicable taxes, the Company was responsible for varying operating expenses
(HVAC, assessments, utilities and service charges, licenses and permits) as they
arose.
Due to delayed receipt of project approvals and sales deposits applicable to the
Company's business plans, the office rent payments were in arrears prior to
December 31, 2011. Subsequently, in 2012 the lessor was no longer willing to
allow rent payments to be in arrears, resulting in the Company vacating the
premises on March 1, 2012, Accordingly at December 31, 2011, the Company wrote
off its leasehold improvements of $139,600 and applicable accumulated
depreciation of $99,185 and has recorded an accrued provision for future
settlement costs of $79,655, offset partially by a lease deposit of $12,665
(note 5).
Actual office rent expense, including all applicable taxes and operating costs,
for the period from Inception to March 31, 2012, and the three months ended
March 31, 2012 and 2011 were $349,136; $0 and $23,345, respectively.
11
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
8 - COMMON STOCK
Number of Common Shares
-----------------------------------
March 31, December 31,
2012 2011
Authorized - 675,000,000 Voting Shares ($0.001 par value)
Number of shares issued and outstanding 203,438,640 195,490,599
Number of shares sold not yet issued (a) -- 285,697
Number of shares to be issued for compensation (a) -- 7,629,688
---------------- ----------------
203,438,640 203,405,984
---------------- ----------------
(a) The issuance of these common shares were approved by the Board of
Directors; however, the shares are not considered to be "issued and
outstanding" until they have been formally issued by our transfer
agent. These shares are detailed below under the caption "Common Shares
to be issued for 2011. These shares were issued on May 1, 2012 (note
12).
Common Shares Issued During 2011
On January 4, 2011, the Company satisfied a $5,036 accounts payable balance by
issuing 18,518 shares of common stock to a utility company at $0.27 per share.
During February 2011, the Company raised $8,021 through the sale of 29,366
shares of common stock for cash to three investors, at stock prices between
$0.25 and $0.32 per share, less commissions of $1,203.
During March and April 2011, the Company raised $107,486 through the sale of
209,288 flow-through common shares to eight investors at stock prices ranging
between $0.51 and $0.52 per share, depending on the current exchange rate at the
time of the transaction, less commissions of $16,122. The Company has recorded a
corresponding tax benefit of $28,484.
Common Shares to be Issued for 2011
The following share transactions were approved by the Board of Directors, but
were not formally issued by our transfer agent until May 1, 2012 (note 12).
Effective May 2011, the Company approved the issuance of 1,000,000 common shares
as compensation to an officer in accordance with a compensation agreement. The
individual was granted 500,000 shares immediately. The remaining balance of
500,000 shares was issued in November 2011. The Company has recorded total stock
compensation expense related to the grant of $450,000 reflecting a share value
of $0.45 per share.
Effective May 2011, the Company approved the issuance of 750,000 common shares
as compensation to an officer. The Company has recorded stock compensation
expense of $300,000 reflecting a share value of $0.40 per share.
On May 31, 2011 the Company satisfied a $29,841 accounts payable balance by
issuing 64,785 shares of common stock to a utility company, based on a stock
price of $0.46 per share.
12
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
During May to September 2011, Company raised $23,257 through the sale of 48,840
flow-through common shares to three investors at stock prices ranging between
$0.48 to $0.51 per share, depending on the current exchange rate at the time of
the transaction, less commissions of $1,974. The Company has recorded a
corresponding tax benefit of $6,163.
In July 2011, the Company raised $1,000 through the sale of 5,111 common shares
for cash at $0.20 per share less commission of $150.
In September 2011, the Company raised $5,031 through the sale of 15,614 common
shares for cash at $0.35 per share including 1,420 shares for commission.
In September 2011, the Company raised $5,000 through the sale of 11,628 common
shares for cash at $0.43 per share, less commission of $797.
In October 2011, the Company raised $5,001 through the sale of 15,625 common
shares for cash at $0.32 per share, less commission of $750.
Effective October 2011, the Company approved the issuance of 5,300,000 common
shares as compensation for services to 9 individuals. The Company has recorded
stock compensation expense of $2,399,000 reflecting share values of $0.39, $0.50
and $0.51 per share
Effective October 2011, the Company approved the issuance of 79,688 common
shares as additional commissions to 10 individuals. The Company has recorded
stock compensation expense of $40,641, reflecting share values of $0.51 per
share.
During November and December 2011, the Company raised $15,104 through the sale
of 84,703 common shares for cash at $0.16 to $0.19 per share, less commissions
of $2,266.
During November and December 2011, the Company raised $10,689 through the sale
of 39,391 common shares for cash at $0.27 to $0.28 per share, less commissions
of $1,603.
Effective December 2011, the Company approved the issuance of 500,000 common
shares as compensation to an officer of the Company. The Company has recorded
stock compensation expense of $170,000 reflecting a share value of $0.34 per
share.
Common Shares Issued During 2012
The following share transactions were approved by the Board of Directors, but
were not formally issued by our transfer agent until May 1, 2012 (note 12).
In February 2012, the Company raised $1,006 through the sale of 3,211 common
shares for cash at $0.31 per share, less commission of $151.
In March 2012, the Company raised $7,276 through the sale of 29,445 common
shares for cash at $0.25 per share, less commissions of $1,091.
13
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
9 - FOREIGN CURRENCY TRANSLATION
From November
28, 2007 Three Months Three Months
(Inception) to Ended Ended
March 31, 2012 March 31, 2012 March 31, 2011
Cumulative foreign currency translation adjustment
Unrealized losses upon translation $ (115,699) $ (70,910) $ (56,586)
The exchange rates used to translate amounts in Canadian dollars ("CAD") into
United States dollar equivalents ("USD") for the purposes of preparing these
financial statements were as follows:
March 31, 2012 December 31, 2011
Fixed assets - historical rates 0.9707 to 0.9989 0.9707 to 0.9989
Other assets and liabilities - period end rate 1.0027 0.9804
Shareholder deficit - historical rates 0.8986 to 1.0126 0.8986 to 1.0104
Three months ended Three months ended
March 31, 2012 March 31, 2011
Costs, and expenses - average, specific or historical rates 0.9946 to 0.9974 0.9946 to 1.0136
NOTE 10 - RELATED-PARTY TRANSACTIONS
Shareholder Loans
From time to time, the directors and officers have loaned money to the Company
for general operating capital. These loans are repaid in part or in full 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.
Related-Party Payables
Related party payables represent balances in accounts payable that are owed to
directors, officers 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 additional capital is raised.
Accrued Wages
Due to capital restraints, management has deferred certain of their monthly
salaries until capital is available.
14
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
March 31, 2012
(Unaudited)
11 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
From November
28, 2007 Three Months Three Months
(Inception) to Ended Ended
March 31, 2011 March 31, 2012 March 31, 2011
Cash Payments:
Cash paid for interest $ 21,280 $ -- $ --
Cash paid for income taxes -- -- --
Non-cash investing and financing activities:
Fair value of beneficial of 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 34,877 -- 5,036
Vendor financing - mortgage to acquire land 205,380 -- 205,380
NOTE 12 - SUBSEQUENT EVENTS
In April 2012, the Company borrowed $5,000 in United States dollars and $15,000
in Canadian dollars from a related party to fund certain corporate expenses. The
demand loan is non-interest bearing.
On May 1, 2012, the Company's transfer agent formally issued the 7,948,041
common shares previously approved by the Board of Directors (note 8).
Accordingly as at May 1, 2012, the Company has 203,438,640 common shares fully
issued and outstanding.
15
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 Quarterly 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.
ecoTech is a development-stage renewable energy company which plans to
manufacture, construct and/or operate bio-mass-fuelled power stations that not
only provide electrical power from bio-mass and/or waste but that can also be
augmented with various operational facilities that utilize waste energy from
these power plants.
ecoTECH has developed and refined its proprietary ecoPHASER thermal gasification
technology. The ecoPHASER enables various configurations of clean-burning of
bio-mass and /or that provides optimal revenue performance, correct volumetric
fuel flow systems and minimum environmental impact.
CURRENT PROJECTS
We are in different stages of project development primarily located in the U.S.
and Canada. The Company is investigating other international opportunities;
however, there have been no such activities to date.
McBride, British Columbia -- Aquaponics:
A combined self-contained $92 million Aquaponic Project, in addition to our
power plant and power-line projects as noted below. We have also developed a
stand-alone Aquaponics project which combines a self-contained 5 megawatts per
hour biomass power plant, together with a fresh fish farming (aqua-culture) and
a greenhouse vegetables facility hydroponics) using 100% organic processes.
The Company has entered into a 5 year supply purchase contract from one of
Canada's largest supermarket chains, to purchase a minimum $12 million of
organic fish and vegetables per year. The facility is designed to be able to
produce revenues of approximately $55 million per year under full commercial
operations.
Land has already been purchased by the Company, near the town of McBride, which
has the appropriate zoning and for which we have obtained the necessary water
permits. The Company has contracted out the preliminary site clearing and,
subject to receiving project financing, is in the position to commence
construction in the summer of 2012; with commercial operations projected for
2013.
We have received majority debt financing offers for this project and are
currently in negotiations with equity investors. No final contracts have been
signed to date.
McBride, British Columbia - Power Generation:
The Company currently is awaiting an Energy Purchase Agreement ("EPA") for the
construction and operation of a $78 million, 24 megawatts per hour bio-mass
power plant and a $52 million 138 kilovolt power-line. The EPA has been delayed
since September 2011, primarily due to the British Columbia Government's imposed
review of BC Hydro's proposed 3 year rate increases.
In February 2012, the BC Utilities Commission authorized a 7.07% interim rate
increase to BC Hydro, rather than the BC Government's suggested rate of 3.91%.
With the rate review completed, management believes that BC Hydro will be able
to move forward and issue the EPA in the near future.
16
The Company intends to purchase additional land in the McBride area for the
power plant with right of ways to be established for the power lines, if and
when the EPA has been finalized and given the availability of funds.
Ambato, Ecuador
A $6 million Garbage to Concrete (Garcrete) system for Ambato, with additional
orders expected to be received for five additional Garcrete systems for other
locations in Ecuador.
In addition, an interior location is being sought by the Ecuador federal
government for a 72 megawatts per hour W2E CHP (Waste to Energy Combined Heat
and Power) facility, quoted by Excelsior Recycle Concepts Inc. (our sales and
marketing agents) on behalf of ecoTECH.
These facilities will utilize the Company's ecoPHASER thermal gasification
technology and will burn municipal waste in order to reduce the country's
reliance on landfills.
It is our understanding that these projects have been delayed due to a pending
review in Ecuador by the government in respect of certain local circumstances
which are unrelated to Excelsior or to ecoTECH. The pending government review
has delayed the completion of final contracts and receipt of purchase deposits
to ecoTECH.
Other Projects in Development
The Company is investigating several other projects, including a 24 megawatts
per hour bio-mass power plant project for an operating gold mine in Fiji, a
smaller Aquaponics project in the lower mainland of British Columbia, and a
hybrid power/torrefaction facility for fiber export to Asia from Whitehall,
Montana.
ecoTECH has been accepted as a registered supplier to the US Department of
Defense. The Company, under a Current Request for Proposal, has entered into the
bidding for the Fort Bliss - Net Zero Project.
We are pleased to advise that Lockheed Martin's M2 division has offered to be
our Engineering Procurement and Construction (EPC) contractor on US projects,
both for power and military base projects.
17
Results of Operations and Development Expenditures
ecoTECH is a development-stage Company as we have had no revenues or sales from
November 28, 2007 ("Inception") through March 31, 2012. The Company does not
anticipate recognizing sales or revenues from its activities in the next six to
nine months.
General and administrative expenditures decreased to $199,413 from $428,586 for
the three months ended March 31, 2012 and 2011, respectively. The $229,173
decrease is primarily due to lower operating expenditures reflecting our limited
capital resources, combined with reductions in certain rent obligations for the
three month's ended March 31, 2012.
Research and development expenditures increased to $63,318 from $12,516 for the
three months ended March 31, 2012 and 2011, respectively. The $50,802 increase
reflects a higher allocation of costs pertaining to projects under development.
Interest expense increased to $13,766 from $9,431 for the three months ended
March 31, 2012 and 2011 respectively, due to the mortgage applicable to the
property purchased in March 2011.
The Company did not sell any flow-through shares in the first quarter of 2012.
Accordingly the income tax benefit was $0 compared with $11,582 for the three
months ended March 31, 2012 and 2011 respectively.
We do not anticipate having to pay income taxes in the upcoming years due to our
accumulated net operating loss carry forwards for tax purposes of 2,666,609 as
of December 31, 2011.
During the three months ended March 31, 2012, the Company recognized a net loss
of $276,497 compared to $438,951 during the three months ended March 31, 2011.
The decrease of $162,454 was a result of the $229,173 decrease in general and
administrative expense offset partially by a $50,802 increase in research and
development, a $4,335 increase in interest expense and a decrease in tax benefit
of $11,582.
Capital and Liquidity
The following table provides selected financial data as of March 31, 2012:
March 31, 2012
Cash and cash equivalents $ 721
Total current assets 3,852
Total assets 330,604
Total liabilities 4,002,050
Stockholders' deficit (3,671,446)
During the three months ended March 31, 2012, the Company received $8,282 in net
cash from the sale of its common stock. These proceeds are being used for
operating and general and administrative expenses to sustain the Company through
its development stage until it establishes profitable operations or receives
cash from the issuance of additional common stock.
Net cash used in operating activities for the period from Inception to March 31,
2012, was $1,871,160, consisting primarily of our net losses of $36,433,618
offset by non-cash expenses of $28,181,593 of stock compensation expense,
$221,757 in depreciation, $541,131 for accretion of beneficial conversion
feature, $700,535 of loss on extinguishment of convertible debt, financing costs
of $1,389,908, an increase in accounts payable of $1,157,689 and an increase in
accrued liabilities of $2,337,849.
Net cash used in operating activities decreased to $21,379 from $29,778 for the
three months ended March 31, 2012 and 2011 respectively. The decrease is
primarily due to the reduced operating activities as noted above.
Net cash used in investing activities for the period from Inception to March 31,
2012, was $382,810, which consisted of purchases of property, plant and
equipment, less $8,510 cash received in consolidation. In March 2011, ecoTECH
18
Canada acquired land located in McBride, British Columbia. The purchase price
was $256,725, of which approximately 20 percent was paid in a cash use of
$51,345, and the balance by a non-cash vendor financed mortgage for a term of 2
years at an interest rate of 8%.
Net cash provided by financing activities for the period from Inception to March
31, 2012, was $2,233,790 which consisted of $214,049 in proceeds from notes and
loans payable (net of repayments) from related parties; $685,020 in proceeds
from the sale of common stock; $222,286 in proceeds from the sale of
flow-through shares; $1,137,581 in proceeds from the sale of convertible
debentures, less $24,071 in payments on convertible debentures; and $1,075 in
principal payments on the mortgage.
We had minimal cash on hand of $721 and $1,134 at March 31, 2012 and December
31, 2011, respectively.
To the extent we are unable to meet our operating expenses, we may borrow funds
from our current management or other related parties. The Company has borrowed
$12,667 (net of repayments) during the three months ended March 31, 2012 and
repaid $9,345 during the three months ended March 31, 2011. The Company
continues to seek new capital from private individuals or institutional
investment equity and/or debt funds for operating purposes. Future project
revenues and/or sales, if any, which exceed operating expenses and debt
repayments, will be used to pay outstanding liabilities and expand operations.
We are continually attempting to raise debt and equity financing applicable for
our developing projects.
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 to ensure that we have sufficient cash on hand to expand our
operations. These factors raise substantial doubt about our ability to continue
as a going concern.
Additional information with respect to our ability to continue as a going
concern is disclosed in Item 1, Note 3 of the Consolidated Financial Statements,
and with respect to commitments and contingencies is disclosed in Item 1, Note 7
of the Consolidated Financial Statements, included in this Form 10-Q.
If we are unable to raise additional capital from 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. 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
existing shareholders. We cannot assure you, however, that debt or equity
financing will be available in amounts or on terms acceptable to us, or at all.
Summary of Critical Accounting Policies
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 and income tax benefit related to the sale of
flow-through shares. Changes in estimates are reported in earnings in the period
in which they become known.
We believe the following critical accounting policies involve our more
significant judgments and estimates used in the preparation of our financial
statements.
19
Share-Based Payments
The Company accounts for stock issued to employees and directors under ASC 718
"Compensation - Stock Compensation." Under ASC 718, stock-based compensation
cost to employees is measured at the grant date, based on the estimated fair
value of the award, and is recognized as expense over the employee's requisite
vesting period. No stock options are currently outstanding.
The Company measures compensation expense for its non-employee stock-based
compensation under ASC 505 "Equity." The fair value of the option issued or
committed to be issued is used to measure the transaction. The fair value is
measured at the value of the Company's common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty's performance is complete or the award is fully vested. The fair
value of the equity instrument is charged directly to stock-based compensation
expense and credited to common stock and additional paid-in-capital.
Prior to November 12, 2010, there was no public market for ecoTECH Canada's
common stock, and accordingly, the amount of the compensatory charge was based
on prevailing sales price of the stock since Inception under which the
determination of stock-based compensation was inherently highly uncertain and
subjective, and involved the application of discounts deemed appropriate to
reflect the lack of marketability of the Company's securities - which have not
been considered in the basis for calculation. If the Company had made different
assumptions, its stock-based compensation expense and relative net loss could
have been significantly different.
Research and Development Costs
Research and development costs are expensed as incurred. The costs of materials
and equipment that will be acquired or constructed for project development
activities, and that have alternative future uses, both in project development,
marketing or sales, will be capitalized classified as property, plant and
equipment and depreciated over their estimated useful lives. To date, research
costs include engineering expenses related to the Company's future
waste-to-energy facilities, and all have been expensed when incurred.
Foreign Currency Translations
The Company uses the Canadian dollar as its functional currency of its operating
subsidiary ecoTECH Canada. Unless otherwise noted, for the purpose of this
report, the financial statements of the ecoTECH Canada have been translated into
United States dollars in accordance with ASC 830, "Foreign Currency Matters,"
using historical rates for fixed assets and year-end exchange rates in effect on
the balance sheet dates for all other assets and liabilities, average, specific
or historical exchange rates as applicable in effect for the period for
revenues, costs, and expenses, and historical exchange rates for shareholder
equity (deficit).
Translation adjustments resulting from translation of balances from functional
to reporting currency are accumulated as a separate component of shareholders'
deficit and as a component of comprehensive loss in the accompanying statements
of operations. Transaction gains and losses are reported in the statements of
operations and comprehensive loss. To date, no transaction gains or losses have
been experienced.
Off-Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a small development-stage reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
20
ITEM 4. CONTROLS AND PROCEEDURES
Management's Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and financial
officers, has evaluated the effectiveness of our disclosure controls and
procedures in ensuring that the information required to be disclosed in our
filings under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, including ensuring that
such information is accumulated and communicated to management as appropriate to
allow timely decisions regarding required disclosure. Based on such evaluation,
our principal executive and financial officers have concluded that such
disclosure controls and procedures were not effective as of March 31, 2012 (the
end of the period covered by this Quarterly Report on Form 10-Q).
Management's Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The internal control process
has been designed, under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company's financial statements for external reporting purposes in accordance
with accounting principles generally accepted in the United States of America.
Management conducted an assessment of the effectiveness of the Company's
internal control over financial reporting as of March 31, 2012 including (i) the
control environment, (ii) risk assessment, (iii) control activities, (iv)
information and communication, and (v) monitoring, based on the framework in
Internal Control - Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). As of March 31, 2012,
management has determined that the Company's internal control over financial
reporting as of March 31, 2012 was not effective, as more fully described below.
This was due to the size of the deficiencies that existed in the design or
operation of our internal control over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses. The matters involving internal controls and procedures that the
Company's management considered to be material weaknesses under the standards of
the Public Company Accounting Oversight Board were: (1) lack of formal review
process for our financial information and related disclosures; (2) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; (3) inadequate segregation of duties consistent with control
objectives; and (4) lack of policies and procedures relating to issuances of our
common stock. The aforementioned material weaknesses were identified by the
Company's Chief Financial Officer in connection with the review of our financial
statements as of March 31, 2012 and communicated the matters to our management.
Management believes that the material weaknesses set forth above did not affect
the Company's financial results.
Management believes that preparing and implementing sufficient written policies
and checklists will remedy the following material weaknesses (i) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; and (ii) ineffective controls over period end financial close and
reporting processes. Further, management believes that the hiring of additional
personnel who have the technical expertise and knowledge will result in proper
segregation of duties and provide more checks and balances within the
department. Additional personnel will also provide the cross training needed to
support the Company if personnel turn over issues within the department occur.
This coupled with the appointment of additional outside directors will greatly
decrease any control and procedure issues the Company may encounter in the
future.
As is the case with many companies of similar size, we currently lack a
segregation of duties in the accounting department. Until our operations expand
and additional cash flow is generated from operations, a complete segregation of
duties within our accounting function will not be possible.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparations and presentations. 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.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
21
registered public accounting firm pursuant to permanent rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
Changes in Internal Control Over Financial Reporting
During the three months ended March 31, 2012, there were no significant changes
in our internal controls over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act, or in other factors that could
significantly affect these controls subsequent to the evaluation date.
22
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management is of the opinion, based upon information presently available, that
it is unlikely that any liability, to the extent not provided for, would be
material in relation to the Company's consolidated financial position
ITEM 1A. RISK FACTORS
Not Applicable to Small Reporting Companies.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
In February 2012, the Company raised $1,006 through the sale of 3,211 common
shares for cash at $0.31 per share, less commission of $151 to individuals and
entities known to the Company.
In March 2012, the Company raised $7,276 through the sale of 29,445 common
shares for cash at $0.25 per share, less commissions of $1,091 to individuals
and entities known to the Company.
The Company has used the funds from sale of its securities to support its
ongoing operations.
Exemption From Registration Claimed
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Rule 506 of Regulation D of the Securities Act
of 1933, as amended (the "1933 Act"). All of the individuals and/or entities
that purchased the unregistered securities were primarily existing shareholders,
known to the Company and its management, through pre-existing business
relationships, as long standing business associates and employees. 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. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION
None
23
ITEM 6. EXHIBITS
31.1 Certification of C. Victor Hall pursuant to Rule 13a-14(a), filed
herewith.
31.2 Certification of Rolf A. Eugster pursuant to Rule 13a-14(a), filed
herewith.
32.1 Certification of C. Victor Hall pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith
32.2 Certification of Rolf A. Eugster pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith.
101.INS XBRL Instance Document Filed Herewith
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ecoTECH Energy Group Inc.
Date: May 15, 2012 By: /s/ C. Victor Hall
--------------------------
C. Victor Hall
Chairman and
Chief Executive Officer
(principal executive officer)
Date: May 15, 2012 By: /s/ Rolf A. Eugster
----------------------
Rolf A. Eugster
Chief Financial Officer
(principal accounting officer)
2
