Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
|
|
[X] ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the fiscal year ended August 31,
2009
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|
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the transition period from __________ to __________
|
000-51716
|
|
Commission
File Number
|
|
CLEAN POWER TECHNOLOGIES
INC.
|
|
(Exact
name of registrant as specified in its charter)
|
|
Nevada
|
98-0413062
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Unit 7(W) E-Plan Industrial Estate New Road, New
Haven, East Sussex, UK
|
BN90EX
|
(Address
of principal executive offices)
|
(Zip
Code)
|
+44 1273-516013
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|
(Registrant’s telephone
number, including area code)
|
Securities
registered pursuant to Section 12(b) of the Exchange Act:
|
|
Title
of each class
|
Name
of each exchange on which registered
|
n/a
|
n/a
|
Securities
registered pursuant to Section 12(g) of the Exchange Act:
|
Title
of class
|
Common Stock, $0.001 par
value
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
|
[ ]
|
No
|
[X]
|
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes
|
[ ]
|
No
|
[X]
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
|
[X]
|
No
|
[ ]
|
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§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
|
[ ]
|
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
|
[ ]
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
|
[ ]
|
Smaller
reporting company
|
[X]
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
|
[ ]
|
No
|
[X]
|
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
As
of February 28, 2009 the aggregate market value of voting common stock held by
non-affiliates of the registrant is $30,102,365. Shares of
common stock held by each officer and director have been excluded in that such
persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PAST 5 YEARS:
Indicate
by check mark whether the issuer has filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a
court.
Yes
|
[ ]
|
No
|
[ ]
|
APPLICABLE
ONLY TO CORPORATE REGISTRANTS
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
76,940,942
common shares outstanding as of November 18, 2009
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes.
None
CLEAN
POWER TECHNOLOGIES INC.
TABLE
OF CONTENTS
Page
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PART
I
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||
Item
1
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Business
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3 |
Item
1A
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Risk
Factors
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18 |
Item
1B
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Risk
Factors
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18 |
Item
2
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Properties
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18 |
Item
3
|
Legal
Proceedings
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19 |
Item
4
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Submission
of Matters to a Vote of Security Holders
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19 |
PART
II
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||
Item
5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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20 |
Item
6
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Selected
Financial Data
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22 |
Item
7
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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22 |
Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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24 |
Item
8
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Financial
Statements and Supplementary Data
|
24 |
Item
9
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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25 |
Item
9A(T)
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Controls
and Procedures
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25 |
Item
9B
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Other
Information
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25 |
PART
III
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||
Item
10
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Directors,
Executive Officers and Corporate Governance
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26 |
Item
11
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Executive
Compensation
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28 |
Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
33 |
Item
13
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Certain
Relationships and Related Transactions, and Director
Independence
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34 |
Item
14
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Principal
Accounting Fees and Services
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36 |
PART
IV
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||
Item
15
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Exhibits,
Financial Statement Schedules
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37 |
SIGNATURES
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41 |
i
PART
I
ITEM 1.
BUSINESS
The
statements contained in this Annual Report on Form 10-K for the fiscal year
ended August 31, 2009, that are not purely historical statements are
forward–looking statements within the meaning of Section 21E of the Securities
and Exchange Act of 1934, as amended, including statements regarding the
Company’s expectations, beliefs, hopes, intentions or strategies regarding the
future. These forward-looking statements involve risks and
uncertainties. Our actual results may differ from those indicated in
the forward-looking statements. Please see “Risk Factors
that May Affect Future Results,” “Special Note Regarding Forward-Looking
Statements” and the factors and risks discussed in other reports filed from time
to time with the Securities and Exchange Commission.
General
Development of Business
The
Company was incorporated in the State of Nevada, United States of America on
October 30, 2003 as Sphere of Language. On June 13, 2006, the Company
changed its name to Clean Power Technologies Inc. (the “Company”, “we”, “our”,
or “us”). The Company incorporated Clean Energy and Power Solutions Inc.
(“CEPS”) on May 12, 2006 in the State of Nevada as a wholly-owned
subsidiary.
By
agreement dated May 22, 2006, the Company agreed to issue 30,765,377 common
shares for all the issued and outstanding common shares of Clean Power
Technologies Inc. (“CPTI Private”), a privately held company, incorporated on
March 14, 2006 in the State of Nevada. CPTI Private was developing a
project for a gas/steam or diesel/steam hybrid technology, and had incorporated
a wholly-owned subsidiary, Clean Power Technologies Limited, (“CPTL-UK”) a
company based in Great Britain and incorporated on May 10, 2006, to carry on all
its research and development. On April 24, 2006, CPTI Private entered
a research and development agreement to fund all future costs for research,
development, patenting, licensing and marketing for an alternative hybrid fuel
technology that combines diesel and steam and gas (petrol) and steam
technologies for a 100% ownership of the technology and any associated
intellectual rights. CPTI Private and CEPS merged on June 20, 2006 with CEPS
being the surviving entity. On July 10, 2006 CEPS became a wholly-owned
subsidiary of the Company when the stockholders of CPTI Private tendered their
remaining shares; CPTL-UK remains as a wholly-owned subsidiary of
CEPS.
We
undertake all of our business operations indirectly through CPTL-UK. These
operations are presently focused on the research and development of our steam
hybrid technology.
Plan
of Operation
Our
Company is committed to developing hybrid fuel technology and alternative fuel
for a range of applications including landfill sites, locomotives, heavy trucks
and light cars. The Company’s proprietary technology significantly reduces
pollution through its Clean Energy Separation and Recovery (“CESAR”) system,
which takes otherwise wasted heat from the exhaust of a conventional combustion
engine and modifies it through a heat recovery system to generate clean power
for vehicles.
The
Company operates out of its development facilities in Newhaven, East Sussex, in
the United Kingdom.
Our CESAR
technology is designed to increase vehicle fuel economy and reduce emissions by
capturing, storing, and reusing otherwise wasted heat from the exhaust of a
conventional combustion engine. A heat exchanger captures waste energy, which is
then stored in the form of steam in an accumulator, for ‘on demand’ use either
in the same ‘primary’ engine, or in a secondary vapour engine. Power can be
produced solely by the secondary vapour engine even after the primary combustion
engine has shut down. Our CESAR system can be used to power auxiliary truck
systems, such as trailer refrigeration and cab coiling or heating, in regulatory
‘no idle’ or ‘quiet’ zones. In addition to initial truck applications, CESAR can
be further applied in our well developed passenger car program, as well as
having longer term potential in the locomotive and marine sectors.
In 2006,
testing of the CESAR system began on a Mazda RX8 passenger vehicle engine, with
trials on a second identical engine commencing later that year. In June 2007,
testing also began on a Caterpillar C15 diesel engine to explore applications,
such as auxiliary power and trailer refrigeration, within the industrial vehicle
and truck industries.
3
Throughout
2007, the Company carried out numerous tests on the accumulator that was
provided by Doosan Babcock. After intensive testing, we believed that we had
validated the theoretical predictions that were the foundation of the CESAR
system. However the tests results also raised engineering issues which
basically arose out of the design of the accumulator. As the accumulator was too
wasteful of heat, with all the 70 litres of water to be heated and with its size
it clearly could not be accommodated in any vehicle. It was decided to go
for quick heat as in steam cars. It followed then that a burner was required to
supplement the heat at tick over but we knew that there was sufficient heat
available at cruise and also that a bypass was required on hill climbing. Also
we knew that S/H tubes were needed to heat to about 390 C which is the
temperature at which that all entrained water drops are
eliminated.
In
November 2007, after substantive testing of our technology, we made a
determination to redirect our research and development efforts.
Therefore,
whilst development of the vehicle technology was to be continued, it was decided
that the fastest route to market and revenue was to focus on the development of
the refrigeration engines (also called the reefer engines) for grocery
trucks.
The
Company employed a CAD engineer in mid-January 2008 and work commenced on the
development of the truck production and vehicle detail design and initial system
configuration feasibility. The CAD engineer is experienced in all aspects of
design and development. The Company has licensed UGS NX5 and S-IDEAS CAD
software to achieve its design objectives. The Company, as it
continues to evolve from the research phase to that of testing and
pre-production, continues to bring additional engineering expertise
in-house. Also acquired in January 2009 was a CNC milling machine,
enabling more rapid and cost effective metal fabrication work on-site, rather
than through a sub-contractor.
In August
2008, the Company entered into a collaboration agreement with Voith Turbo Gmbh
& Co. KG to develop steam and heat energy recovery engines for Clean Power's
proprietary heat recovery technology for refrigeration trailers for the grocery
market. Under the terms of the collaboration agreement, Clean Power and Voith
Turbo GmbH & Co. KG will analyse data from the testing of an existing
refrigeration engine, results from which will be used to build and test a new
engine that incorporates Clean Power's proprietary heat recovery technology.
Voith is a multi-national company with significant interest in the development
of expanders in engine and braking systems. As part of its own drive systems and
components development programme Voith Turbo GmbH & Co. KG has already
developed hybrid systems, waste recovery systems and expansion engines based on
the internal combustion engine which is used on the road, on rail, on water and
in other industries.
On
December 12, 2008, the Company entered into a Memorandum of Understanding
(“MOU”) with Farm Fresh Marketing Inc. (“Farm Fresh”). The MOU
sets out the high-level commercial principles of the collaboration between the
Company and Farm Fresh whereby Farm Fresh will provide the Company with a Road
Load Data Collection Vehicle for installation of the Company’s data gather
systems to test the fuel and operating efficiencies of the Company’s heat
recovery systems, noise and emission control. The parties’
intent under the MOU is to prove the benefits of the Clean Power technology to
Farm Fresh and upon successful testing, Farm Fresh and Clean Power shall enter
into discussion to establish ongoing collaborations and commercial
relationships. Clean Power had agreed that for two years following
completion of the test, it will make the Clean Power system (once in production)
available to Farm Fresh in such quantities as Farm Fresh may order at prices and
terms as favorable to Farm Fresh as those offered by the Company to any of its
other customers. Farm Fresh has acknowledged its intent to purchase
at least 53 systems within the two year period, subject only to the proof of
CPTI’s technology.
The first
reefer engine system has been installed on the Company’s truck, which was
acquired and delivered during the 2nd quarter of fiscal
2009. The Company’s truck is similar to the trucks in the U.S.
trucking company fleet. This truck is a Columbia CL120 Conventional Chassis with
a Day Cab. This vehicle has the same specifications as the current U.S. fleet of
vehicles on which we did our testing in mid 2008. The Company had conducted a
series of tests in mid 2008 to collect data and validate test results to be used
in this test vehicle.
Customer
expectations are that any vehicle application will be fully reliable,
continuously delivering the performance benefits promised in all conditions over
a period of at least ten years. To this end the Company has recently made a
major investment of approximately $170,000 in a rolling road dynamometer
manufactured by Dynomite of New Hampshire USA. This substantial piece of
equipment can accommodate a maximum weight double-drive axle truck which turns
the dynamometer rollers against a variable load created by applying electrical
inertia. This allows the simulation of all road conditions that a truck may
encounter in its day to day operation such as hilly terrain, urban stop-start
and interstate highway running.
4
Using
field data collected in mid 2008 during a three week exercise with the U.S.
grocery hauler operations in Canada it will be possible, with appropriate
instrumentation, to simulate fleet routes, to develop and refine particular
applications, and to deliver maximum fuel benefits with minimum emissions. The
equipment will allow, under fully-controlled laboratory conditions, the speedy
characterisation of any vehicle exhaust temperature, flow and constituency
together with fuel usage.
The
Rolling Road will provide the “hub” of the development and validation programme
for the CESAR system ensuring optimum functionality for each vehicle
application. The issue of durability will also be addressed by other recent
investments such as multi-axis shaker test rigs which will be programmed to
hone-in on harmful resonant frequencies for the system, as identified by data
collected over specific proving ground surfaces. By running these shaker rigs on
a 24 hour basis in environmental enclosures, capable of operating between -40
and +50 degrees Celsius, ten year life testing can be compressed into a period
of only a few months. This rigorous testing of our technology and
associated refinements that ensure from the testing we believe will accelerate
our technology from an advanced prototype to a commercially viable
product.
The
Rolling Road became fully operational in the quarter ended May 2009, with
testing having commenced on our truck. This bespoke truck, fitted
with a Detroit Diesel engine and Eaton transmission, is designed to be used on
highways, hectic city streets, narrow roads and can also be driven
off-road. The Rolling Road, which will be able to simulate all these
conditions, will be a perfect test ground for the vehicle, and allow Clean Power
to demonstrate how its CESAR technology improves the truck’s fuel efficiency in
these conditions. This vehicle has been installed with a Prototype 2 CESAR
system. The testing underway will reproduce the delivery routes used in the
areas covered by the U.S. hauler. This will confirm the actual fuel savings to
the major grocery hauler when compared against their current fuel usage. Typical
routes we would use are Calgary to Banff and Calgary local area city
routes.
Once the
system is working on the truck with the Rolling Road, the vehicle will be used
for data collection at Millbrook Proving ground (this is GM built, proving
ground just outside Bedford). This data will be used for drive file
creation for accelerated durability testing on our hydraulic fatigue testing
machines in Newhaven. These tests will represent the equivalent to 10 years of
road durability in the space of 4 weeks.
The
Company hired its first CAD engineer in mid-January 2008 and work commenced on
the development of the truck production and vehicle detail design and initial
system configuration feasibility. The Company has licensed UGS NX5 and S-IDEAS
CAD software to achieve its design objectives. The Company, as it
continues to evolve from the research phase to that of testing and
pre-production, continues to bring additional engineering expertise
in-house. Also acquired in January 2009 was a CNC milling machine,
enabling more rapid and cost effective metal fabrication work on-site, rather
than through a sub-contractor.
For the
reefer application, the Company expects to submit the CESAR technology for
regulatory approval under various jurisdictions worldwide, including the US
Environmental Protection Agency (“EPA”), with the hopes of achieving full
commercialization by 2011.
As part
of our new development, we are concurrently developing a system for use in land
fill site electrical power generation. This will be installed on existing
generator engines at landfill sites and will produce a continuous flow of
electrical power for supply to the national electricity grid, providing revenue
at ‘feed-in’ tariff rates. These installations are not subject to the arduous
operating environment of a vehicle, or the stringent regulatory approvals, hence
it is anticipated that these will now be the ‘first to market’ applications of
the CESAR technology.
Our plan
of operation is to further the research and development on our technology
resulting in an advanced prototype and commercial application in mid 2010. If
successful, we intend to license the technology or form partnerships for the use
of the technology with any customers we may identify.
Recent
Activities
Recent
testing in the fully instrumented and controlled Laboratory at CPTI’s Newhaven,
UK R&D Centre has demonstrated the significant potential from the patented
CESAR heat energy recovery system:
5
From the
waste exhaust heat of a 450HP Caterpillar C15 truck diesel engine running at 70%
of its fully rated power, sufficient super heated steam was generated from
CPTI’s patented Heat Exchanger to drive a compact Steam Expander to deliver 23HP
from the Expander’s output shaft.
This
supplementary power amounts to a 7.3% gain in the effective use of the fuel
being supplied to the diesel engine allowing less fuel usage, with attendant
reduction in emissions.
As the
CESAR system can be applied to any internal combustion engine, whether
in-vehicle or stationary as in Generator Sets, the same supplementary power and
emissions benefits apply.
Starting
June 1, 2009, our CAD engineering team began preparing drawings for production,
with drawing release expected in early 2010.
Michael
Roberts, our Product Acceptability Engineer, started work on April 27, 2009. His
role is to ensure that our product is suitable and acceptable to the end user /
customer. He is responsible for the work content required to validate the system
for the North American markets and the introduction to the EPA of our system and
the market sectors that our product can enter. He is also
responsible for negotiations of available tax benefits for our customers
installing our fuel saving environmentally friendly systems, and unique
electronic control system, using Clean Power’s own Intellectual Property to
ensure the maximum possible fuel efficiency and emissions reductions in all
operating conditions.
Also
recently joining the Company is Mr. Marco Cucinotta, a Control System
Specialist. Under Mr. Cucinotta, the Company is undertaking the
development of a unique electronic control system, using Clean Power’s own
Intellectual Property to ensure the maximum possible fuel efficiency and
emissions reductions in all operating conditions.
During
the quarter ended May 31, 2009, Clean Power engaged Cascade Sierra Solutions
(“Cascade”) as potential advisors for the EPA and other Regulatory application
processes (www.cascadesierrasolutions.org). Located in the State of Oregon,
Cascade is a non-profit organization working with heavy duty truck operators to
save fuel and reduce emissions. Cascade is well connected with Federal and State
agencies, working especially closely with agenda-setting regulators in
California. The Company believes this will assist in optimizing the
approval process, as well as benefitting from Cascade’s broad expertise in
implementation of innovative technologies in the trucking industry.
Collaborative
Partners
Doosan
Babcock
Doosan
Babcock is a multi-specialist energy services company operating in the thermal
power, nuclear, petrochemical, oil & gas and pharmaceutical industries and
are leading international steam generation equipment manufacturers. Doosan
Babcock developed and manufactured the initial heat exchanger for the CESAR
system.
Voith
In August
2008, the Company entered into a collaboration agreement with Voith Turbo
Gmbh& Co. KG to develop steam and heat energy recovery engines for Clean
Power's proprietary heat recovery technology for refrigeration trailers for the
grocery market. Under the terms of the collaboration agreement, Clean Power and
Voith Turbo GmbH & Co. KG will analyze data from the testing of an existing
refrigeration engine, results from which will be used to build and test a new
engine that incorporates Clean Power's proprietary heat recovery technology.
Voith is a multi-national company with significant interest in the development
of expanders in engine and braking systems. As part of its own drive systems and
components development program Voith Turbo GmbH & Co. KG has already
developed hybrid systems, waste recovery systems and expansion engines based on
the internal combustion engine which is used on the road, on rail, on water and
in other industries.
DLM
In order
to meet many challenges relating to the development of the steam technology, the
Company appointed a Swiss steam technology specialist company called
Dampflokomotiv-und Maschinenfabrik DLM AG (“DLM”) to act as its outside
consultant for the further development of the Company’s CESAR technology. DLM
will advise and use its in-house expertise to assist and facilitate the
development of the next stage in our CESAR programme.
6
DLM has
professionally qualified engineers with specialist experience. DLM will provide
knowledge and experience in such areas as the design of the process to predict
and analyse the heat transfer performance and issues associated with pressure
losses for a range of thermal operations involving liquids and gases with and
without change of phase. DLM has experience with stress analysis including
pressure vessel design to European and British standards. DLM will work with the
engineers of the Company on a routine basis. We intend to continue this
development on an ongoing basis.
The first
system has been installed on the Company’s truck, which was acquired and
delivered during the 2nd quarter of fiscal 2009. The Company’s
truck is similar to the trucks in the U.S. trucking company fleet. This truck is
a Columbia CL120 Conventional Chassis with a Day Cab. This vehicle has the same
specifications as the current U.S. fleet of vehicles on which we did our testing
in mid 2008. The Company had conducted a series of tests in mid 2008 to collect
data and validate test results to be used in this test vehicle.
East West
Express
In August
2008 the Company signed a Memorandum of Understanding with a Calgary, Alberta,
Canada, based transportation company called East West Express Inc., a
trans-Canadian freight trucking company. Under the terms of the MOU, East
West will provide Clean Power a Road Load Data Collection Vehicle (“the
Vehicle”) for the purpose of detailed research on its existing refrigerated
trailer fleet.
Farm
Fresh
On
December 12, 2008, the Company entered into a Memorandum of Understanding
(“MOU”) with Farm Fresh Marketing Inc. (“Farm Fresh”). The MOU
sets out the high-level commercial principles of the collaboration between the
Company and Farm Fresh whereby Farm Fresh will provide the Company with a Road
Load Data Collection Vehicle for installation of the Company’s data gather
systems to test the fuel and operating efficiencies of the Company’s heat
recovery systems, noise and emission control. The parties’
intent under the MOU is to prove the benefits of the Clean Power technology to
Farm Fresh and upon successful testing, Farm Fresh and Clean Power shall enter
into discussion to establish ongoing collaborations and commercial
relationships. Clean Power had agreed that for two years following
completion of the test, it will make the Clean Power system (once in production)
available to Farm Fresh in such quantities as Farm Fresh may order at prices and
terms as favorable to Farm Fresh as those offered by the Company to any of its
other customers. Farm Fresh has acknowledged its intent to purchase
at least 53 systems within the two year period, subject only to the proof of
CPTI’s technology.
NewEnCo
Renewable Power Systems
UK based
NewEnCo and Renewable Power Systems are sister companies engaged in the
development, marketing and operation of clean energy power generation systems.
CPT will install the first operational CESAR landfill system at the Renewable
Power Systems site in Abingdon, UK in early 2010.
Cascade
Sierra Solutions
During
the quarter ended May 31, 2009, Clean Power engaged Cascade Sierra Solutions
(“Cascade”) as potential advisors for the EPA and other Regulatory application
processes (www.cascadesierrasolutions.org). Located in the State of Oregon,
Cascade is a non-profit organization working with heavy duty truck operators to
save fuel and reduce emissions. Cascade is well connected with Federal and State
agencies, working especially closely with agenda-setting regulators in
California. The Company believes this will assist in optimizing the
approval process, as well as benefitting from Cascade’s broad expertise in
implementation of innovative technologies in the trucking industry.
Principal
Products or Services and Their Markets
Our
Company is committed to developing the proprietary technology which
significantly increases fuel efficiency and reduces pollution through its Clean
Energy Separation and Recovery (“CESAR”) system. This system takes otherwise
wasted heat energy from the exhaust of a conventional combustion engine and
modifies it through a heat recovery system to generate clean power for
electrical energy and vehicles. The Company operates out of its development
facilities in Newhaven, East Sussex, in the United Kingdom.
7
Our CESAR
technology is designed to increase vehicle fuel economy and reduce emissions
through lowered fuel consumption by capturing, storing, and reusing otherwise
wasted heat from the exhaust of a conventional combustion engine. A heat
exchanger captures waste energy, which is then stored in the form of steam in an
accumulator, for ‘on demand’ use either in the same ‘primary’ engine, or in a
secondary vapour engine. Power can be produced solely by the secondary vapor
engine even after the primary combustion engine has shut down.
We
believe that we have validated the theoretical predictions that were the
foundation of the CESAR system. A substantial development component of the
programme has now commenced and will require appropriate augmentation of the
engineering team, which the Company continues to undertake in 2009. This is
essential for design studies of potential applications of the total system
and will commence using the empirical data revealed by the research program
undertaken.
Customer
expectations are that any vehicle application will be fully reliable,
continuously delivering the performance benefits promised in all conditions over
a period of at least ten years. To this end the Company has recently made a
major investment of approximately $170,000 in a rolling road dynamometer
manufactured by Dynomite of New Hampshire USA. This substantial piece of
equipment can accommodate a maximum weight double-drive axle truck which turns
the dynamometer rollers against a variable load created by applying electrical
inertia. This allows the simulation of all road conditions that a truck may
encounter in its day to day operation such as hilly terrain, urban stop-start
and interstate highway running.
Using
field data collected in mid 2008 during a three week exercise with the U.S.
grocery hauler operations in Canada it will be possible, with appropriate
instrumentation, to simulate fleet routes, to develop and refine particular
applications, and to deliver maximum fuel benefits with minimum emissions. The
equipment will allow, under fully-controlled laboratory conditions, the speedy
characterization of any vehicle exhaust temperature, flow and constituency
together with fuel usage.
The
Rolling Road will provide the “hub” of the development and validation program
for the CESAR system ensuring optimum functionality for each vehicle
application. The issue of durability will also be addressed by other recent
investments such as multi-axis shaker test rigs which will be programmed to
hone-in on harmful resonant frequencies for the system, as identified by data
collected over specific proving ground surfaces. By running these shaker rigs on
a 24 hour basis in environmental enclosures, capable of operating between -40
and +50 degrees Celsius, ten year life testing can be compressed into a period
of only a few months. This rigorous testing of our technology and
associated refinements that ensure from the testing we believe will accelerate
our technology from an advanced prototype to a commercially viable
product.
The
Rolling Road became fully operational in the quarter ended May 2009, with
testing having commenced on our truck. This bespoke truck, fitted
with a Detroit Diesel engine and Eaton transmission, is designed to be used on
highways, hectic city streets, and narrow roads and can also be driven
off-road. The Rolling Road, which will be able to simulate all these
conditions, will be a perfect test ground for the vehicle, and allow Clean Power
to demonstrate how its CESAR technology improves the truck’s fuel efficiency in
these conditions. This vehicle has been installed with a Prototype 2 CESAR
system. The testing underway will reproduce the delivery routes used in the
areas covered by the U.S. hauler. This will confirm the actual fuel savings to
the major grocery hauler when compared against their current fuel usage. Typical
routes we would use are Calgary to Banff and Calgary local area city
routes.
Prior to
this a Prototype 1 CESAR system has been tested and validated within the test
cell with the same vehicle package constraints being driven from our Caterpillar
C15 engine.
Once the
system is working on the truck with the Rolling Road, the vehicle will be used
for data collection at Millbrook Proving ground (this is GM built, proving
ground just outside Bedford). This data will be used for drive file
creation for accelerated durability testing on our hydraulic fatigue testing
machines in Newhaven. These tests will represent the equivalent to 10 years of
road durability in the space of 4 weeks.
It is
anticipated that the vehicle may require some electronic tuning in order for the
system to work including steam valve optimization. This testing is
planned to commence in 2009. A successful completion of the test will assist in
demonstrating the fuel savings for our potential customers.
The
Company anticipates that a newly designed reefer engine will be ready for road
testing by later 2009. Following a ten month road trial and analysis, and
further design refinements, the Company expects to submit the CESAR technology
for regulatory
approval under various jurisdictions worldwide, including the US Environmental
Protection Agency (“EPA”), with the hopes of achieving commercialization during
late spring of 2010.
8
The
captured waste heat from the exhaust is converted through the ‘CESAR’ system to
create rotational energy of the steam engine crankshaft. This rotational energy
can be utilised in a multitude of applications:
1.
|
Landfill
Power Generation - Landfill gas is the natural by-product of the
decomposition of solid waste in landfills and is comprised primarily of
carbon dioxide and methane. Many landfill sites are now utilising this gas
to power large spark ignition engines driving electrical generators
connected to the national electricity grid. The benefits of this are two
fold in that electrical energy is produced from a free resource and
methane emissions are substantially reduced. The CESAR system can be run
from a landfill engine to provide an anticipated 12% increase in
electrical power output.
|
2.
|
Refrigerated
Transporter (Reefer) Power System – Large refrigerated trucks use a
refrigeration system powered by a separate diesel engine. This engine is
running continually to provide refrigeration, consuming fuel and producing
emissions. The CESAR system can be run from the trucks’ main engine to
power the refrigeration unit without additional fuel or
emissions. Currently these reefer engines operate on diesel
fuel and with approximately a litre an hour of fuel consumption, the fuel
cost can add up to thousands of dollars per year. The project team
determined that through heat capture process and using it to create
steam in the accumulator, an engine can be developed that will provide in
excess of 50% fuel efficiency with corresponding reduction in the levels
of emission.
|
3.
|
Biomass
Power Generation – Organic processing plants such as flour mills typically
produce 10 tonnes per week of organic waste, which is disposed of on
landfills. By using this waste as a fuel in a specifically designed
burner, the CESAR system can be used to recover the heat energy and
convert it into electricity for use at the plant, or to feed into the
national grid, providing several economic and environmental
benefits.
|
4.
|
Further
Transportation Developments – The CESAR system can be applied directly to
large engines fitted to locomotives, ships and military vehicles to
provide supplementary electrical power. The CESAR system could also be
integrated easily into the power train of a diesel-electric ‘hybrid’ bus.
The concept of a ‘hybrid’ engine (part steam/ part gasoline) has been
investigated, and with development, is highly feasible for application to
passenger cars.
|
Landfill
application
Currently
there are approximately 500 landfill gas energy projects operational in the
United States. These 500 projects generate approximately 12 billion
kilowatt-hours of electricity per year. There are also approximately 520
additional candidate landfills currently undeveloped.
Based on
the current power generation levels alone, full application of the CPTI CESAR
system could enable a generation of an additional 1.5 billion kilowatt-hours of
electricity per year. CPTI anticipates the purchase cost to the customer of a
single landfill CESAR unit will be $30,000. With negligible running costs this
equates to a cost of $750 per net Kw based on a 40Kw output unit. At an
electricity buyback rate of $0.10 per Kw this equates to a payback period of
7500 hours (less than 1 year).
CPTI has
an agreement in place with UK based landfill energy company NewEnCo to install
the first landfill generator system at their site in Oxfordshire, UK. Once
installed and operating, the unit will be used to demonstrate the viability of
the system to other energy companies in the UK and US. Suitable operating
partners with landfill gas generation sites will be identified to enable
installation and monitored operation of 5 development units. Once the technology
is proven, these installations will be used to demonstrate the technology to
operators to identify further prospective trial sites. CPTI will install and
maintain 15 pilot landfill gas generator systems operating with energy
companies. This will enable final development of a commercial CESAR system for
application to gas generators at existing and proposed sites throughout the
world.
9
Transport
Refrigeration Unit (TRU) Reefer Application
There are
currently an estimated 1 million TRUs in operation in the US. Application of the
CESAR system will reduce the diesel fuel consumption by an estimated 85%. Market
projections of 50,000 units in operation by 2020 would result in an annual
savings of 85 million gallons of diesel fuel, with the consequent reduction of
greenhouse gases and toxic emissions.
CPTI
anticipates the purchase cost to the customer of a single TRU CESAR unit will be
$20,000. Based on a saving of 85% diesel from TRUs which typically consume 2,000
gallons/year, using approximately 1 gallon/hour with average diesel fuel price
of $3/gallon, the CESAR would save 1,700 gallons and $5,100 per year, with a
payback period of less than four years excluding tax and other incentives. (Carrier
Corporation: http://www.trucktrailer.carrier.com/Files/TruckTrailer/Local/US-en/trucktrailer/extramilefall2005.pdf)
CPTI will
identify a suitable TRU operator and route to operate a TRU power unit
development vehicle, built, supplied and fully supported by CPTI. Once the
technology is proven, this vehicle will be used to demonstrate the technology to
operators to identify 15 prospective trial users for pilot trials
activity.
CPTI will
install and maintain 15 reefer pilot power units on trucks operating on a
variety of routes with different operators. These field trials will enable
development and proving of a commercially available system, which will be
marketed and distributed to operators in the US by CSS through their established
outreach network.
Vehicle
Data Collection:
During
the July 2008 visit to Calgary, Alberta, the following data were collected from
a refrigerated truck and is important for the energy balance
calculations.
The
exhaust temperatures measured were lower than expected, with a medium
temperature of 350 °C and a maximum of 450°C. The load fluctuations were, as
usual in road transport, considerable – around 20% of the time, the main diesel
engine is idling or at very low power. Higher exhaust gas
temperatures of 550 °C were recorded during regeneration periods of the exhaust
after treatment system.
Lower
exhaust gas temperatures were measured under operating conditions such as idling
and downhill running with engine braking. To compensate for the
fluctuation in heat temperature in the exhaust system for city and stationary
situations, a burner is incorporated within the exhaust system, with a target
temperature to accommodate every situation. At times, where there is
excessive heat within the system, a by-pass valve is incorporated into the
exhaust.
The power
requirement for the auxiliary engine to drive the refrigerator compressor is
less than expected. An average of 15 kW with a peak of 23 kW was measured, even
though the ambient temperature was high. Originally a nominal power of 35 kW was
expected.
With the
results of the vehicle data collection, it is now possible to work out a
realistic energy balance and to determine, if the idea to drive a refrigerator
compressor by means of a steam engine working on steam gained from waste heat
recovered from the exhaust from the main diesel engine is suitable at all. The
energy balance is worked out on a purely theoretical basis, e.g. without
actually dimensioning the necessary components such as heat-exchanger,
superheater, steam engine and so on. However, the calculations are based on
figures and experience with existing equipment. It is therefore possible to
calculate how much steam at which quality can be produced from the waste
heat.
The
analysis of this data and the energy balance equations conducted by DLM “shows
that the idea to power a refrigerator compressor by means of a steam engine
working on steam gained from the waste heat recovered from the exhaust main
diesel engine is realistic”. Data from the data collection exercise has been
handed over to Voith.
In August
2008 the Company signed a Memorandum of Understanding with a Calgary, Alberta,
Canada, based transportation company called East West Express Inc., a
trans-Canadian freight trucking company. Under the terms of the MOU, East
West will provide Clean Power a Road Load Data Collection Vehicle (the
“Vehicle”) for the purpose of detailed research on its existing refrigerated
trailer fleet.
10
Forward
Plan:
Although
the Company remains focused on completing this US reefer project on schedule,
there is significant interest in its steam hybrid technology for broader
applications (including automotive, marine and military) in a wide range of
countries. The Company continues to respond to these expressions of interest and
will pursue opportunities which may arise and which management believes to be in
the best interests of the Company. As part of our new
development, we are developing a system for use in land fill site electrical
power generation; our system will deliver an estimated 12% or greater extra
power back to the national grid. The spark ignition engines are run using the
methane gas from the land fill, our system will add to this via heat recovery
from the otherwise wasted exhaust gases. The Company has already entered into
preliminary discussions with a regional landfill site operator in the U.K. and
will be meeting another larger UK player in the near future. Clean Power intends
to install a prototype test engine at a landfill site by early spring
2010.
Our plan
of operation over the next twelve months is to further the research and
development on our technology resulting in an advanced prototype and commercial
application in mid 2010. If successful, we intend to license the technology or
form partnerships for the use of the technology with any customers we may
identify.
Our
Technology:
Life on
earth is almost totally dependent upon the unique properties of water. Among
these, and in particular, for energy storage potential, is its very high latent
heat associated with the change of phase between liquid and vapour at moderate
temperatures. Our proposed technology utilizes these properties but could also
use alternative fluids of acceptable thermal and chemical properties, probably
in closed cycle form. The proposal is to use water, or other fluid as available,
at its saturation (boiling) temperature to store energy for a hybrid vehicle in
a pressurised container from which vapour is drawn to provide pollution-free
motive power as required. Used energy is replaced from the exhaust heat of the
associated combustion engine prime mover as circumstances allow, either in
motion or at rest.
The
combustion engine to supply power is prominent and could be petrol, diesel or
gas turbine and away from urban restrictions, would provide traction power. The
exhaust from the engine may be controlled either to pass direct to atmosphere or
through the steam accumulator to charge or maintain pressure where pollution
controls are relaxed. This represents a very attractive direct improvement in
fuel consumption by retaining a substantial proportion of the engine exhaust
heat (up to two-thirds of the fuel energy with engine cooling) which is
otherwise discarded.
In
strictly pollution-controlled environments, the combustion engine would be shut
down and the traction power unit driven by steam drawn from the accumulator, in
which the pressure will steadily fall while exhausting the vapour to atmosphere.
As an indication of the potential of the steam accumulator, about 5 kWh of
energy would be available from a single charge to 100 bar maximum pressure of a
vessel of 100 litres volumetric capacity. The power would be available at widely
variable and controllable rates and, depending on these, the vessel could be
recharged several times on a single water filling.
As an
option to improve power, fuel efficiency and range at the expense of weight, the
exhaust vapour from the engine may be returned to the boiler after condensation
in a heat exchanger cooled by atmospheric air and shown dashed in the figure as
optional. Such a system would allow the use of working fluids other than water
where this was required for thermodynamic or other reasons. Other important
features of the system are the moisture separator, which may be contained as
shown within the accumulator vessel to operate at reservoir pressure. Steam from
the accumulator may in certain circumstances be efficiently used to enhance
power output from the combustion engine. Such hybrid power plant systems, in
addition to allowing pollution-free operation as demanded, would further enhance
environmental acceptance through the high thermal efficiency of the cycle
resulting from the unique utilisation of exhaust heat and the consequent reduced
consumption of combustion engine fuel. A reciprocating steam engine would
function as the auxiliary power unit, for which a computerised mechatronic unit
would drive the valve system. This would replace economically and effectively
the complex mechanical linkages traditionally associated with earlier
generations of stream engines for precise control of power output.
Using the
heat engine exhaust gas to charge the saturated liquid reservoir has been seen
as one of the key features of this hybrid vehicle system so increasing
substantially the thermal efficiency of internal combustion
engines.
As modern
engine cooling systems continue to be operated at ever higher temperatures,
overall system design will be able to utilize a portion at least of this
otherwise dissipated heat from the fuel with theoretical possible advances of up
to 100 percent. A source of significant energy consumption in an automotive
installation is through electrical power derived from the main engine. The small
auxiliary vapour power unit of the saturated liquid hybrid could be run to
generate electrical power as required even during charging periods. As has been
noted, these may be repeated several times in a working day as the weight of
liquid in the accumulator slowly reduces on each discharge.
11
This will
reduce the frequency of the need to refill the reservoir with water specially
treated to reduce fouling and deterioration of the accumulator heat transfer
surfaces. There is much scope for optimizing the charging and discharging
periods and, indeed, of the thermal cycling of the whole system. The saturated
liquid hybrid will have its greatest attraction for heavier vehicles, hitherto
seen as those intended for road use. There are, however, at least as great
attractions for railway power – for locomotives – where the extra weight is
wholly acceptable for significantly reduced fuel consumption and where there is
long experience of vapour engines and re-supplying them with liquid even when in
high speed motion.
The
Steam Accumulator:
Our
proposed technology is to use water, or other fluid as available, at its
saturation (boiling) temperature to store energy for a hybrid vehicle in a
pressurized container from which vapour is drawn to provide pollution-free
motive power as required. Used energy is replaced from the exhaust heat of the
associated combustion engine prime mover as circumstances allow, either in
motion or at rest.
A
possible general scheme is shown as Figure 2 directly below.
The
combustion engine to supply power is prominent and could be petrol, diesel or
gas turbine and away from urban restrictions, would provide traction power. The
exhaust from the engine may be controlled either to pass direct to atmosphere or
through the steam accumulator to charge or maintain pressure where pollution
controls are relaxed. This represents a very attractive direct improvement in
fuel consumption by retaining a substantial proportion of the engine exhaust
heat (up to two-thirds of the fuel energy with engine cooling) which is
otherwise discarded.
In
strictly pollution-controlled environments, the combustion engine would be shut
down and the traction power unit driven by steam drawn from the accumulator, in
which the pressure will steadily fall while exhausting the vapour to atmosphere.
As an indication of the potential of the steam accumulator, about 5 kWh of
energy would be available from a single charge to 100 bar maximum pressure of a
vessel of 100 litres volumetric capacity. The power would be available at widely
variable and controllable rates and, depending on these, the vessel could be
recharged several times on a single water filling.
As an
option to improve power, fuel efficiency and range at the expense of weight, the
exhaust vapour from the engine may be returned to the boiler after condensation
in a heat exchanger cooled by atmospheric air and shown dashed in the figure as
optional. Such a system would allow the use of working fluids other than water
where this was required for thermodynamic or other reasons. Other important
features of the system are the moisture separator, which may be contained as
shown within the accumulator vessel to operate at reservoir pressure. Steam from
the accumulator may in certain circumstances be efficiently used to enhance
power output from the combustion engine. Such hybrid power plant systems, in
addition to allowing pollution-free operation as demanded, would further enhance
environmental acceptance through the high thermal efficiency of the cycle
resulting from the unique utilisation of exhaust heat and the consequent reduced
consumption of combustion engine fuel.
12
The
figure below shows the calculated specific energy performance of the accumulator
system to be comparable with that of conventional batteries. A reciprocating
steam engine would function as the auxiliary power unit, for which a
computerised mechatronic unit would drive the valve system. This would replace
economically and effectively the complex mechanical linkages traditionally
associated with earlier generations of stream engines for precise control of
power output. There is considerable scope for optimising this and all aspects of
the liquid-vapour accumulator hybrid cycle, which throughout would employ
existing well-proven technology.
The
Saturated Liquid Accumulator for Transportation Energy Storage
The
inevitable economic pressures on the supply of liquid hydrocarbon fossil fuels,
coupled with the no less inevitable social pressures against their consequential
local and global pollution continue to demand increasing effectiveness in their
utilization. Despite the continuing efforts to seek alternatives, the internal
combustion engine, in petrol or diesel form, seems, for the immediately
foreseeable future, destined to continue in transportation as the most effective
converter of the intrinsic energy in a hydrocarbon fuel to useful purpose. This
is justified when effectiveness is measured by the proportion of this energy
usefully converted – the thermal efficiency; but less so when pollution by the
products of combustion is taken into account. Restricting operation to areas
away from urban centres would offer a significant advance in the acceptability
of the internal combustion engine by lessening local pollution. At the same time
increasing thermal efficiency would have an advantageous global effect. These
objectives are achieved by the system described here.
The
Hybrid Vehicle
Avoiding
noxious emissions in densely populated urban areas may be achieved with a
vehicle having a non-polluting power source for such areas even if combined with
a conventional prime mover for use away from such centres – a ‘hybrid’ vehicle.
A general form is shown in Figure 2 below with traction available from two
sources, in this example a conventional prime mover and an auxiliary
pollution-free unit receiving its energy from a storage device or energy
reservoir.
This form
is known as a ‘parallel hybrid’ system since it allows both a direct path from
the engine prime mover to the traction unit and a parallel path through the
energy storage system. This theoretically could take several forms as indicated,
electrical, hydraulic, pneumatic or mechanical with a flywheel, and is clearly
crucial to the attractions of the total system. The commonest such device, that
most attractively provides pollution free electrical power, is the battery, and
hybrid vehicles employing this format have received much attention. The
electrical battery, however, continues to offer only a very limited performance
in terms of energy storage per unit weight (about 50-70 Watt-hours per kilogram,
compared with 12,000 Wh/kg for a liquid hydrocarbon). Further, specific power in
Watts per unit weight is even more restricted in terms of transportation
requirements at 50W/kg compared with 1000 W/kg for even unsophisticated internal
combustion. As a consequence frequent recharging of batteries is required, and
can be slow. Also, recharging requires explicit further consumption of fuel from
the prime mover or elsewhere. It is the objective of this presentation to
demonstrate an alternative energy storage source with striking advantages in
specific power availability and comparability with batteries in specific energy
resource. Further it offers a substantial improvement in overall fuel
consumption efficiency by using the otherwise wasted prime mover exhaust heat
for charging the reservoir, thus also contributing to a reduction of global
pollution.
13
A
Hybrid Vehicle Power Plant For Pollution Control Using Steam Or Other Vapour
From A Saturated Liquid Accumulator
In many
countries and regions, legislation is extant or proposed to control and severely
limit pollution of the environment by automotive vehicles, private and
commercial cars, vans and lorries. Almost all such vehicles are currently
propelled by prime movers burning a hydrocarbon fuel, some of the combustion
products from which are a prime source of atmospheric pollution. Legislation is
and will be increasingly used to reduce the amount of such pollution in all
areas and effectively to zero in densely populated urban centres.
At
present electric traction offers the only practicable possibility of a totally
pollution free power source for vehicles, and although the fuel cell exhausting
only water may offer, albeit expensively, a long-term prospect of self-contained
continuous electrical energy, in realistic and immediate practice, an energy
reservoir - a battery - is the only current source of such energy.
Battery
performance has improved little in the just over hundred years since they were
first used on a commercial scale, principally for the propulsion of under-water
vehicles. In respect of energy per unit weight or specific energy, the commonest
lead-acid batteries store about 50 Watt-hours (180 kJ) of energy per kg compared
with 12,000 Wh (43,200 kJ) for petrol. No less critical is specific power,
batteries yielding about 50W/kg or less compared with up to 500 for current
combustion engines. The prospect of radical advances for batteries of even
sophisticated design is remote, even with the support of modern science and
technology. In recognition of this situation, in Los Angeles, one of the urban
centres setting standards for the world-wide anti-pollution drive, the specified
range of statutorily proposed electric vehicles has been reduced from the 250 km
originally planned to 100 and the target date for implementation of the
anti-pollution legislation postponed.
The
limitations of battery performance have directed attention towards the so-called
hybrid vehicle, in which electric power for use in urban regions with a zero
polluting emission limit is provided from a reservoir of energy. This is
charged, while in open areas with less restrictive pollution controls, from a
conventional combustion engine albeit with improved emissions performance
compared with average current engines. There are many variations available upon
this general hybrid concept, one convenient form of which is shown in Figure 1
immediately below.
14
This is
known as a ‘parallel hybrid’ system since it allows both a direct path from the
combustion engine prime mover to the traction unit and a parallel path through
the energy storage system. Theoretically this could take several forms but
currently electricity with a battery as the energy storage element is regarded
as the likely practicable form despite its limitations. The saturated liquid
accumulator of this proposal avoids these limitations by offering energy storage
with a specific energy comparable with batteries with their chemical and
potentially polluting contents, a major increase in specific power availability
and substantial fuel savings while maintaining pollution-free operation where
the environment so demands.
Basic
Fact Sheet on the Subject Of Hybrid Cars.
Hybrid
vehicles are now generally accepted as offering the transportation industry a
solution to the need for reducing fuel consumption in this age of high oil
prices as well as for reducing atmospheric pollution on both the global and
local scales. As a consequence, most manufacturers are at least considering the
design of hybrid vehicles, comprised of a main internal combustion engine and a
parallel auxiliary motor for either joint or separate operation, most commonly
for use in especially urban areas in which pollution is closely
controlled.
By far
the greatest attention has been given to the use of electric power as the
auxiliary in the hybrid vehicle and several are now in mass production and on
the road from major manufacturers. Such systems will, for the foreseeable
future, provide the major competition to our proposals. Electric batteries are
however the only means of energy storage for these vehicles and have the major
disadvantages of low specific energy and power, high cost, limited life and the
need for main engine operation for charging with the high consequent fuel
costs.
Our
system uses otherwise dissipated combustion engine exhaust heat for charging the
energy storage components at negligible recurrent cost and with high specific
power availability from the saturated liquid energy accumulator.
The key
to our process is the steam accumulator, which will truly create a hybrid fuel
system. The competitive objectives will be to minimize additional weight of the
auxiliary power system and to maximize fuel saving through sophisticated
controls for “on-the-road”, as well as urban, low pollution operation. At
present, the only competitor known to be considering a similar system is
BMW-Rolls Royce, which has published an outline of an apparently more complex
scheme than ours as part of a ten-year program to production. However, a closer
examination of their project indicates that their system is designed to capture
heat from the exhaust and re-cycle it in order to give fuel savings of
approximately 15%. Our process is designed to provide fuel savings of between
30%-40% and reduce emissions by a corresponding amount, if not
more.
As for
the competition, a majority of auto manufacturers are developing alternative
fuel technology vehicles and to that extent, must be considered as competitors.
However, most of them are developing vehicles to replace gas (petrol) as fuel of
choice. Moreover, the present alternative fuel technologies carry negative
baggage such as higher costs, logistic problems, lack of mass availability of
such alternative fuels at regular gas service stations, lack of adequate
transportation systems and current oil prices. Our hybrid fuel
technology is expected to eliminate most of these problems.
15
Sources
and Availability of Raw Materials and the Names of Principal
Suppliers
Our
current suppliers are:
·
|
SAMSON
AG for steam and water valves;
|
·
|
Poole
Process Equipment Ltd. for the steam accumulator
manufacture;
|
·
|
RS
Components Ltd. for electronic
equipment;
|
·
|
Rudgwick
Metals Ltd. for steel raw material;
|
·
|
Heltech
3 for the base engine management system;
and
|
·
|
Ekstroms
Varmetekniska AB, Sweden supplies the tubes for the
accumulator.
|
·
|
VOITH
for our Heat Expander engines
|
We do not
anticipate any problems with availability from these suppliers.
Distribution
Methods of the Products and Services
The
Company is in the preliminary stage of sourcing potential marketing and
distribution networks for its products, and does not currently have a
distribution method under contract at this stage of development of the Company’s
products.
Competitive
Business Conditions and Our Competitive Position In The Industry and Methods of
Competition
The
market for the food trailers refrigeration engines is currently dominated by two
major manufacturers, Thermo King (a subsidiary of Ingersoll-Rand) and Carrier (a
subsidiary of United Technologies). The present retail cost of these
reefer engines is approximately between $18,000 and $30,000 per
engine. It is projected that our heat recovery based hybrid engines
will cost approximately the same as these currently priced
engines. However, we believe that our engines will provide fuel
efficiency of over 40% or better with corresponding reductions in emission
levels.
According
to the industry, currently there are over 10 million refrigeration engines in
use. Our business model is to sell these reefer engines through
licensing arrangements. Through this business model, we expect to be
able to control the manufacturing and production costs more
effectively. As well, it is anticipated the prospective licensees
will help market our reefer engines through their present marketing base and
there sell our reefer engines to their current and repeat
customers.
To the
best of our knowledge no other entity is developing this technology anywhere in
the world, and if true, we believe we will enjoy considerable market lead in
this sector.
With the
ever-present possibility for skyrocketing oil prices, combined with a growing
interest in doing less harm to the environment, there has been a great deal of
interest in hybrid cars over the past few years. Most major automobile
manufacturers now have at least one model of a hybrid car in production, whereas
just a short time ago they were a rarity. A number of alternative fuel
technologies have been or are being developed at the present time. Fuel cell
technology took a giant leap in the later part of the 1990’s. But the
technology has not yet come to the market due to technological and logistic
problems. Ethanol, bio-diesel and other alternative fuel technologies are
currently being marketed and all major auto manufacturers have one or more
models in the market. However, there are costs, logistics, distribution and
other related issues which must be confronted and resolved before wider
acceptance of ethanol, bio-diesel and such other alternative fuel technologies
can firmly secure its niche in the market place. Hybrid cars differ from
electric cars and cars designed to run on alternative fuels, but are also an
alternative fuel option themselves.
The
Company considers most major automobile manufacturers to be competitors as each
now have at least one model of a hybrid car in production. Each of these
manufacturers is in the process of developing a number of alternative fuel
technologies which may become the norm in a few years.
Dependence
on One or a Few Major Customers
We
presently do not have any customers for our technology as we are still in the
development phase.
16
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts, Including Duration:
The
general concept of an internal combustion engine hybridized with steam is in the
public domain and cannot, in and of itself, and without significant specific
enhancements or innovations, be patented under either a ‘first to invent’ or
‘first to file’ system. The implementations of the general concept as well as
non-obvious variations will be the subject of patent applications and, when
issued, these patents will be the primary assets of the Company. A patent
application has been filed in the United States which claims both the concept of
a Unitary Engine and an Energy Accumulation System. The application is based
upon the technology and concepts that are currently available for patent
protection. The U.S. parent application, Serial Number 12/214,835, was filed on
June 23, 2008 and has a priority date of August 1, 2007. Corresponding
applications have been prepared and are being filed under the Patent Cooperation
Treaty. It is anticipated that national phase examination and
prosecution will be conducted in those countries which constitute the major
world automotive markets in which vehicles are manufactured and sold. These will
be determined by management but are currently intended to include, at least, the
U.S., European states, Japan and other Asian states. We expect that we will
require approximately $1,000,000 for patent filings and,
prosecution.
Our
agreement with Doosan Babcock treats the patents as follows: All technology and
intellectual property developed in connection with the collaboration program or
the accumulator technology that are patentable and/or patented or otherwise
protected will at all times belong and be owned solely by the Company and Mitsui
will require the prior written approval of the Company for the use of any such
technology. Any technology or intellectual property which is not patentable or
otherwise protected may be used by Doosan Babcock without the prior written
consent of the Company.
If the
Company is unable to reimburse Doosan on any call for reimbursement as allowed
under the collaboration agreement then the Company will transfer an equal share
of the intellectual property to Mitsui so that Mitsui and the Company will own
the intellectual property equally.
On March
13, 2009, the Company and The University of Sussex (“Sussex”) entered into a
binding letter of intent (the “Letter of Intent”) providing for (i) the
assignment to the Company of Sussex’s existing patent application relative to
its high energy storage system for motor vehicles (“HYSTOR”); and (ii) an
understanding between the parties to collaborate on certain matters in
connection with the HYSTOR project.
Pursuant
to the Letter of Intent, the Company will be responsible for filing and
prosecuting, at its sole expense, territorial applications based upon the
International Publication Number (“WIPO Application”) in Japan, the United
States, Canada, and the European Union. Simultaneous with the execution of the
Letter of Intent, the Company and Sussex executed an Assignment (Non-Provisional
Patent Application) (the “Assignment”) to sell, assign, transfer and convey to
the Company all right, title and interest in and to the WIPO Application.
Further, pursuant to the Letter of Intent, the parties also agreed to enter into
a separate collaborative relationship agreement providing for the parties to
collaborate in good faith to secure funding to further develop the HYSTOR
project. The application has been filed in the United States and
Canada and the Company’s foreign associates are undertaking to complete the
filings in Japan and the European Union.
With
respect to the intellectual property of the Company, as of August 31, 2009,
patent applications will have been filed in five jurisdictions, with the
intention to include additional jurisdictions. Additional embodiments and
inventive concepts are the subject of one or more continuation in part
applications which are being prepared and will be filed before the end of the
years. Furthermore, the Company has received the international search
report and written opinion of the Searching Authority and understands that all
of the claims were deemed to have industrial applicability and that 10 of the 19
claims were both novel and inventive. The Company intends to make certain
revisions to the other claims and seek to get additional claims allowed. To
further assist and accelerate this process, the Company has engaged US legal
counsel specifically for patent management.
Need
for Any Government Approval of Principal Products or Services
Our heat
recovery based hybrid engine is not a new technology, although its application
is new. We believe that we will not be subject to compliance of any
Government Regulations with respect to marketing and sale of our engines to end
users. However, prior to launching our product in the market place,
we will require verification and certification by the United States Government
Environmental Protection Agency (“EPA”) to ensure our compliance with all
existing laws, rules and regulations. Similar
compliance may be required for sale of our products in other
jurisdictions. Preliminary discussions with the EPA are expected to
commence in before the end of 2009.
17
Effects
of Existing or Probable Government Regulations On Our Business
In the
U.S., states are legislating for a reduction in the use of auxiliary power units
(“APUs”), which may impact on our business. APU emissions are not currently
regulated but we believe that it is becoming increasingly likely that the
quality of APU emissions will be regulated.
Our
technology will address the requirements for cleaner emissions which may be
regulated.
Research
and Development Activities and Costs
All of
our research and development activities are presently borne by the Company,
except for an amount of $400,000 which was expended by Mitsui on behalf of the
Company based on our collaboration agreement. For fiscal 2008, we expended a
total of $152,585 on research and development, net of salaries and
wages. For the fiscal year ending August 31, 2009, we expended a
total of $519,409 on research and development, net of salaries and
wages.
Our
business plan calls for us to expend a total of approximately $4,000,000 over a
twenty-one month period for research and development. We do not presently have
sufficient funds to complete the development of the technology. Management is
seeking alternative sources of funding either by the way of equity financing or
loans.
Costs
and Effects of Compliance with Environmental Laws
We do not
expect any environmental laws to give rise to additional costs to our business.
We believe, although no assurance can be given, that our technology, if
successful will comply with any environmental regulations already enacted or
which may be enacted in the future.
Employees
As of
August 31, 2009, the Company had a total of 14 employees of whom 11 are
full-time employees. We have employment agreements with Abdul Mitha, our Chief
Executive Officer, and Mike Burns, a director of our Company and an officer of
our UK Subsidiary.
The
Company has also retained a consultant who is a steam specialist to advise on
the steam and technical issues pertaining to the development of the reefer
engine and a marketing consultant for advice on marketing
strategies.
We
believe our employee relations are generally good. Our
employees are not represented by a collective agreement.
The
Company is a smaller reporting company and is not required to provide this
information.
ITEM
1B. UNRESOLVED STAFF COMMENTS
The
Company is a smaller reporting company and is not required to provide this
information.
ITEM 2.
PROPERTIES
All of
the operations of the Company are currently undertaken by our wholly-owned U.K.
subsidiary, CPTL-UK, with whom the Company shares office space. On
July 26, 2006 CPTL–UK entered into a three year lease agreement for an office
and research facility located in Newhaven, United Kingdom. The lease
expired on July 25, 2009 and is currently operating on a month to month
basis. The monthly rental payable is total $2,441(£1,500) plus
applicable taxes.
Effective
November 13, 2008 the Company entered into a five (5) year lease for office and
warehouse space in a property located in New Haven, East Sussex, U.K., adjacent
to its current leased facilities at an annual rate of $24,412.50 (£15,000)
payable quarterly commencing March 2009. Concurrently the Company
entered into an option to purchase the aforementioned property, exercisable
March through August 2010, for a purchase price the greater of (i) the price
stated in an Independent Valuation or (ii) £425,000 less any reductions
previously specified and agreed in a former option agreement.
18
Effective
February 1, 2009 the Company entered into a six (6) year lease for office and
warehouse space in a property located in New Haven, East Sussex, U.K., adjacent
to its current leased facilities at an annual rate of $26,040 (£16,000) plus
taxes and expenses, payable monthly in advance, commencing January 30,
2009. Concurrently the Company entered into an option to purchase the
aforementioned property during the period April 30, 2014 through January 29,
2015, for a purchase price of £230,000.
ITEM
3. LEGAL PROCEEDINGS.
The
Company is not a party to any legal proceedings and is not aware of any pending
legal proceedings as of the date of this Report.
The
Annual General Meeting of Shareholders was held on June 13, 2009, at which the
following items were voted upon:
a) The
following directors were elected to the board of directors to hold such position
until the next annual meeting of the shareholders or until their successor is
duly elected and qualified:
Voting
Results
|
Elected
or Re-elected
|
For
|
Against
|
Abstain
|
Abdul
Mitha
|
Re-elected
|
41,673,863
|
0
|
0
|
Diane
Glatfelter
|
Re-elected
|
41,673,863
|
0
|
0
|
Michael
Burns
|
Re-elected
|
41,673,863
|
0
|
0
|
David
Anthony
|
Re-elected
|
41,673,863
|
0
|
0
|
Peter
J. Gennuso
|
Re-elected
|
41,673,863
|
0
|
0
|
b) The
shareholders ratified the re-appointment of Child, Van Wagoner & Bradshaw,
PLLC as the Company’s auditors for the fiscal year 2009, and authorized the
Board of Directors to approve the auditor’s remuneration.
Voting
Results
|
For
|
Against
|
Abstain
|
To
re-appoint Child, Van Wagoner & Bradshaw, PLLC as the Company’s
auditors, and have the Board approve remuneration
|
41,673,863
|
0
|
0
|
c) The
shareholders approved the 2009 Stock Option and Stock Award Plan (the “Plan”) of
up to 4,000,000 shares of the Company’s common stock in the form of stock
options and stock awards as compensation to employees, officers, directors
and/or consultants of the Company.
Voting
Results
|
For
|
Against
|
Abstain
|
To
approve the 2009 Stock Option and Stock Award Plan
|
41,673,863
|
0
|
0
|
There
were no abstentions or broker non-votes on any matters put before the Annual
Meeting.
19
PART
II
Market
Information, Holders and Dividends
The
Company's common stock is presently quoted on the Over the Counter Bulletin
Board (OTC/BB) under the symbol "CPWE". Our shares of common stock
began trading during the third quarter ending May 31, 2006.
Following
is a report of high and low closing bid prices for each quarterly period for the
fiscal years ended August 31, 2009 and August 31, 2008.
Year 2009
|
High
|
Low
|
4th
Quarter ended 8/31/2009
|
0.23
|
0.20
|
3rd
Quarter ended 5/31/2009
|
0.25
|
0.155
|
2nd
Quarter ended 2/28/2009
|
0.28
|
0.11
|
1st
Quarter ended 11/30/2009
|
0.57
|
0.10
|
Year 2008
|
||
4th
Quarter ended 8/31/2008
|
0.60
|
0.36
|
3rd
Quarter ended 5/31/2008
|
0.57
|
0.35
|
2nd
Quarter ended 2/28/2008
|
1.05
|
0.51
|
1st
Quarter ended 11/30/2008
|
1.00
|
0.45
|
The
information as provided above for the fiscal years ended 2009 and 2008 was
provided by Pink Sheets. The quotations provided herein may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions and have not been adjusted for stock dividends or
splits.
As of
November 18, 2009, there were 461 record holders of the Company’s common stock
(which number does not include the number of stockholders whose shares are held
by a brokerage house or clearing agency, but does include such brokerage houses
or clearing agencies as one record holder).
The
Company has never paid a cash dividend on its common stock and does not intend
to pay cash dividends on its common stock in the foreseeable
future.
Securities
Authorized for Issuance under Equity Compensation Plans
Number of
securities
|
|||
remaining available
for
|
|||
Number of securities
to
|
Weighted-average
|
issuance under
equity
|
|
be issued upon
exercise
|
exercise price
of
|
compensation
plans
|
|
of outstanding
options,
|
outstanding
options,
|
(excluding
securities
|
|
warrants and
rights
|
warrants and
rights
|
reflected in column
(a))
|
|
Plan
Category
|
(a)
|
(b)
|
(c)
|
Equity
Compensation Plans approved by security holders
|
-0-
|
N/A
|
5,743,000
|
Equity
Compensation Plans not approved by security
holders
|
6,000,000(2)
|
$0.59
|
-0-
|
Total
|
6,000,000
|
$0.59
|
5,743,000
|
(1)
The Company is authorized to issue up to 8,500,000 shares under its stock
option and award plans; as at August 31, 2009, 2,000,000 have been issued or
reserved for issuance out of a total 2,000,000 from the 2007 Plan, and757,000
have been reserved for issuance out of a total of 2,500,000 from the 2008
Plan. 1,743,000 and 4,000,000 remain available for issuance under the
2008 and 2009 Plans, respectively.
(2)
These options were issued pursuant to an employment agreement between the
Company and Mr. Abdul Mitha, its Chief Executive Officer. Under the
terms of the Agreement, the Company has agreed to enter into a stock option
agreement with Mr. Mitha, granting Mr. Mitha the option to purchase at the end
of each anniversary of the Agreement 1,000,000 shares of the Company’s common
stock at an exercise price of the average 90 days trading price
immediately preceding the anniversary date of the Agreement The
options vest immediately upon issuance of the underlying agreement at each
anniversary date, and the option shares shall be exercisable by Mr. Mitha within
5 years from the date of grant.
20
Following
is a table outlining the number of options required to be granted as fully
vested under the Agreement at each anniversary date and the term of said
options:
Date
|
Number of options
|
Expiry date
|
May
1, 2009
|
1,000,000
|
April
30, 2014
|
May
1, 2010
|
1,000,000
|
April
30, 2015
|
May
1, 2011
|
1,000,000
|
April
30, 2016
|
May
1, 2012
|
1,000,000
|
April
30, 2017
|
May
1, 2013
|
1,000,000
|
April
30, 2018
|
May
1, 2014
|
1,000,000
|
April
30, 2019
|
6,000,000
|
Recent
Sales of Unregistered Securities
Except as
identified below, there were no other unregistered securities sold or issued by
the Company without the registration of these securities under the Securities
Act of 1933 in reliance on exemptions from such registration requirements,
within the period covered by this report, which have not been previously
included in a Quarterly Report on Form 10-Q or a Current Report on Form
8-K. There were no underwriting discounts or commissions paid in
connection with the sale of the identified securities.
Name
& Address
|
Number
of Shares Issued
|
Reason
for Issuance
|
Gersten
Savage LLP
600
Lexington Ave, 9th Floor
New
York, NY 10022
|
2,160,000
shares of common stock
|
Pursuant
to two agreements for the provisioning of various patent related legal
services
|
Steve
Wilson
435
- 36th
Avenue NW
Calgary,
Alberta T2K 0C1
Canada
|
25,000
shares of common stock
|
Stock
Award pursuant to an employment agreement.
|
Quercus
Trust
1835
Newport Boulevard
A109-PMB
467
Costa
Mesa, CA 92627
|
470,725
shares of common stock
|
Payment
of annual interest on Secured Convertible
Debenture
|
The
shares of common stock issued to Gersten Savage and Quercus Trust were
restricted stock and may only be resold pursuant to an effective registration
statement or pursuant to applicable provisions of Rule 144.
The
Company claims an exemption from the registration requirements of the Securities
Act of 1933, as amended, for the issuance of shares to Gersten Savage
and The Quercus Trust pursuant to Section 4(2) of the Act and/or Rule 506 of
Regulation D promulgated thereunder since, among other things, the transaction
does not involve a public offering, the purchasers are “accredited investors”
and/or qualified institutional buyers, the purchasers have access to information
about the Company and its purchase, the purchasers will take the securities for
investment and not resale, and the Company is taking appropriate measures to
restrict the transfer of the securities.
21
The
shares of common stock issued to Steve Wilson were issued under the Regulation S
exemption in compliance with the exemption from the registration requirements
found in Regulation S promulgated by the Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as
amended. The offer and sale to the purchasers was made in an offshore
transaction as defined by Rule 902(h). No directed selling efforts were made in
the U.S. as defined in Rule 902(c). The offer and sale to the
purchasers was not made to a U.S. person or for the account or benefit of a U.S.
person. The following conditions were present in the offer and
sale: a) The purchaser of the securities certified that it is not a
U.S. person and did not acquire the shares for the account or benefit of any
U.S. person; b) The purchaser has agreed to resell the securities only in
compliance with Regulation S pursuant to a registration under the Securities
Act, or pursuant to an applicable exemption from registration; and has agreed
not to engage in hedging transactions with regard to the securities unless in
compliance with the Securities Act; c) The purchaser has acknowledged and agreed
with the Company that the Company shall refuse registration of any transfer of
the securities unless made in accordance with Regulation S, pursuant to a
registration statement under the Securities Act, or pursuant to an applicable
exemption from registration; and d) The purchaser has represented that it is
acquiring the shares for its own account, for investment purposes only and not
with a view to any resale, distribution or other disposition of the shares in
violation of the United States federal securities laws. Neither the Company nor
any person acting on its behalf offered or sold these securities by any form of
general solicitation or general advertising. The shares sold are
restricted securities and the certificates representing these shares have been
affixed with a standard restrictive legend, which states that the securities
cannot be sold without registration under the Securities Act of 1933 or an
exemption therefrom.
ITEM
6. SELECTED FINANCIAL DATA
The
Company is a smaller reporting company and is not required to provide this
information.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This
annual report contains forward-looking statements relating to future events or
our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "intends",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential", or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors which may cause our or our
industry's actual results, levels of activity or performance to be materially
different from any future results, levels of activity or performance expressed
or implied by these forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity or
performance. You should not place undue reliance on these statements,
which speak only as of the date that they were made. These cautionary
statements should be considered with any written or oral forward-looking
statements that we may issue in the future. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results, later events or circumstances or to reflect the
occurrence of unanticipated events.
In
this annual report unless otherwise specified, all dollar amounts are expressed
in United States dollars and all references to “common shares” refer to the
common shares of our capital stock.
The
management’s discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP").
Liquidity
and Capital Resources
As of
August 31, 2009, we have a total of $29,346 in cash on hand. This is
insufficient to meet our immediate and projected commitments, as well as
insufficient to further our business plan in the absence of additional
funding.
The
Company commenced the fiscal year with $1,203,030 in cash, and expended
$2,183,581 in operating activities together with $570,166 in investing
activities, for a total of $2,753,747 during the year. A total of
$1,592,907 was provided by financing activities during the fiscal year,
which resulted in a final cash position of $29,346 after foreign exchange
effects amounting to $(12,844) as at the end of the fiscal
year.
22
The
Company also issued common stock for services in the amount of $1,211,380 and
$160,000 for interest accrued on senior convertible notes, together with
$851,802 in stock based compensation, which collectively amounted to $2,223,182
in stock based expenditures.
In order
to continue to meet identified commitments, as well as to further the business
plan and objectives of the Company, it is anticipated that a similar level of
cash expenditures will be required in fiscal year 2010, together with the
settlement of certain expenses with the common stock of the
Company. This would require approximately $700,000 in cash each
quarter, for a total cash requirement of $2,800,000, together with an estimated
$2,200,000 in stock based payments, based on the most recent fiscal
year.
The
Company will therefore be required to raise additional funds to continue planned
operations, and expects to do so by way of additional shareholder loans and
equity placements, which efforts to secure are ongoing. The Company
is anticipating obtaining first revenue from the sale of commercial or
pre-commercial units in the forthcoming fiscal year; however these amounts are
not presently expected to be significant.
Results
of Operations
The
Company had no revenues for the period from inception to August 31,
2009. The Company reported a net loss from its operations for the
fiscal year totaling $5,771,980 as compared to a loss from operations totaling
$6,443,127 in 2008. Despite the decrease in losses in the
current fiscal year, the Company expects to continue to incur significant
operational losses while remaining in the development stage.
Office
and administration expenses decreased by $261,534 compared to fiscal year 2008,
as a result of cost reductions found in travel related items, amounting to
$134,000, as well as reduced investor relation costs associated with the
Abchurch Communications contract.
The
Company’s interest expense increased by $386,183 year over year, inclusive of
interest amounts settled with shares, to $537,836. This was as a
result of amounts settled with stock relative to the $2,000,000 financing, as
well as increased costs associated with the related party debt. This
expense is expected to be maintained at a similar level in fiscal 2010, subject
to increases or decreases in the level of the Company’s debt.
Professional
fees settled with shares were $1,176,000 compared to nil in the prior year, as a
result of the payment of certain legal services associated with substantial work
being undertaken in enhancing the Company’s intellectual property
rights.
Salary
and consulting fees of $2,391,790 in fiscal year 2009 represents a decrease of
$1,553,736 compared to the prior year. The significant decrease is mainly due to
a one-time compensation cost of $2,600,000 incurred for the services provided by
Mr. Mitha to the Company from April 27, 2004 through May 28,
2008. Otherwise, salaries and consulting fees increased by $673,700
compared to fiscal year 2008 primarily as a result of the hiring new employees,
increased salaries related to new employment agreements with key personnel, as
well as stock-based compensations to employees.
Research
and development costs increased from $152,585 in 2008 to $519,409 in 2009, as a
result of substantial addition work undertaken in moving the Company’s key
technologies closer to commercial readiness. Subject to the Company
obtaining additional funding, this amount is expected to further increase in
2010 as further prototype development is undertaken.
As a
result of the period end revaluation of the Company’s financial instruments, the
Company’s derivative income was $3,581,773 in fiscal year 2009, compared to
derivative expense of $3,526,591 in fiscal year 2008. As a result, the Company’s
net loss of $2,820,543 in fiscal year 2009 decreased by $7,314,328 over the
prior year’s net loss $10,134,871.
23
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to
stockholders.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
This
Company is a smaller reporting company and is not reuired to provide this
information.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
The
financial statements and supplementary data required by this Item 8 are listed
in Item 15(a) (1) and begin on page F-1 of this Annual Report on Form
10-K.
24
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
REPORT
AND CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2009
(Stated in US
Dollars)
F-1
Child,
Van Wagoner & Bradshaw, PLLC
A
PROFESSIONAL LIMITED LIABILITY COMPANY OF CERTIFIED PUBLIC
ACCOUNTANTS
1284 W.
Flint Meadow Dr., Suite D, Kaysville, UT
84037 PHONE:
(801) 927-1337 FAX: (801) 927-1344
5296 S.
Commerce Dr., Suite 300, Salt Lake City, UT
84107 PHONE:
(801) 281-4700 FAX: (801) 281-4701
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Clean
Power Technologies Inc.
We have
audited the consolidated balance sheets of Clean Power Technologies Inc. (the
“Company”) as of August 31, 2009 and 2008, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders’
deficiency and cash flows for the years then ended, and for the period from May
12, 2006 (date of inception) to August 31, 2009. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of August 31,
2009 and 2008, and the results of its operations and its cash flows for the
years then ended, and for the period from May 12, 2006 (date inception) to
August 31, 2009 in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has cash flow constraints, an
accumulated deficit, and has suffered recurring losses from operations. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/
Child, Van Wagoner & Bradshaw, PLLC
Child,
Van Wagoner & Bradshaw, PLLC
Salt Lake
City, Utah
November
25, 2009
F-2
CLEAN POWER TECHNOLOGIES
INC.
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
August
31, 2009 and 2008
(Stated in U.S.
Dollars)
ASSETS
|
August
31,
2009
|
August
31,
2008
|
||||||
Current
|
||||||||
Cash
|
$ | 29,346 | $ | 1,203,030 | ||||
Amounts
Receivable - Note 3
|
38,637 | 15,071 | ||||||
Prepaid
expense
|
95,100 | 18,938 | ||||||
163,083 | 1,237,039 | |||||||
Plant
and equipment - Note 4
|
831,168 | 506,983 | ||||||
Deferred
financing costs, net of accumulated amortization
of
$107,705 as of August 31, 2009 and $15,205 as of August 31,
2008
|
77,295 | 169,795 | ||||||
Total
Assets
|
$ | 1,071,546 | $ | 1,913,817 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
Current
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 561,492 | $ | 194,908 | ||||
Accounts
payable – related party
|
159,427 | - | ||||||
Prepaid
deposit
|
84,000 | - | ||||||
Wages
payable
|
56,098 | |||||||
Wages
payable - related party - Note 5
|
499,582 | 126,667 | ||||||
Loan
payable
|
84,000 | |||||||
Stock
option liability - Note 9(ii)
|
718,836 | 380,290 | ||||||
Total
current liabilities
|
2,163,435 | 701,865 | ||||||
Due
to related party - Note 5
|
445,690 | 139,521 | ||||||
Secured
convertible notes payable - including $22,594 accrued interest - Note
7
|
264,898 | 47,342 | ||||||
Embedded
derivative liability - Note 7
|
779,193 | 1,933,002 | ||||||
Warrant
liability - Note 7
|
1,667,173 | 3,372,000 | ||||||
Total
Liabilities
|
5,320,389 | 6,193,730 | ||||||
Stockholders'
Deficiency
|
||||||||
Preferred
stock: 100,000,000 Class "A" preferred shares
authorized with zero shares
outstanding; 100,000,000 Class
"B" preferred shares authorized with zero shares
outstanding;
|
- | - | ||||||
Common
Stock, $0.001 par value: 350,000,000 shares authorized;
72,220,695
and 65,785,748 shares issued and outstanding
at
August 31, 2009 and August 31, 2008, respectively.
|
72,221 | 65,786 | ||||||
Additional
paid in capital
|
12,255,573 | 9,403,842 | ||||||
Accumulated
other comprehensive loss
|
(58,221 | ) | (51,668 | ) | ||||
Accumulated
deficit during the development stage
|
(16,518,416 | ) | (13,697,873 | ) | ||||
Total
Stockholders' Deficiency
|
(4,248,843 | ) | (4,279,913 | ) | ||||
Total
Liabilities and Stockholders' Deficiency
|
$ | 1,071,546 | $ | 1,913,817 |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-3
CLEAN POWER TECHNOLOGIES
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the
years ended August 31, 2009 and 2008 and for the period May 12, 2006 (Date of
Inception) to August 31, 2009
(Stated in U.S.
Dollars)
August
31,
|
||||||||||||
Expense
|
2009
|
2008
|
May
12, 2006
(Date
of Inception) to August 31, 2009
|
|||||||||
Depreciation
|
$ | 253,653 | $ | 157,115 | $ | 514,726 | ||||||
Office
and administration
|
673,279 | 934,813 | 2,084,219 | |||||||||
Organization
costs
|
- | - | 2,500 | |||||||||
Research
and development
|
519,409 | 152,585 | 1,295,740 | |||||||||
Foreign
exchange loss (gain)
|
12,158 | 85 | 12,243 | |||||||||
Amortization
of stock option benefits
|
338,546 | 380,290 | 718,836 | |||||||||
Professional
fees
|
1,583,145 | 364,713 | 2,833,132 | |||||||||
Salaries
and consulting fees - Note 6, Note 10
|
2,391,790 | 3,945,526 | 7,504,736 | |||||||||
Directors'
fees
|
- | 250,000 | 430,000 | |||||||||
Administrator
fees
|
- | 258,000 | 258,000 | |||||||||
(Loss)
from operations
|
(5,771,980 | ) | (6,443,127 | ) | (15,654,132 | ) | ||||||
Other
income and expense:
|
||||||||||||
Interest
expense
|
(537,836 | ) | (151,653 | ) | (813,466 | ) | ||||||
Derivative
income (expense) – Note 8
|
3,581,773 | (3,526,591 | ) | 55,182 | ||||||||
Deferred
financing amortization costs
|
(92,500 | ) | (13,500 | ) | (106,000 | ) | ||||||
Total
other expense:
|
2,951,437 | (3,691,744 | ) | (864,284 | ) | |||||||
Net
income (loss) for the period
|
(2,820,543 | ) | (10,134,871 | ) | ( 16,518,416 | ) | ||||||
Other
comprehensive loss:
|
||||||||||||
Unrealized
foreign exchange on transactions
|
(6,553 | ) | (6,470 | ) | (58,221 | ) | ||||||
Comprehensive
gain (loss) for the period
|
$ | (2,827,096 | ) | $ | (10,141,341 | ) | $ | (16,576,637 | ) | |||
Basic
and diluted loss per share
|
$ | (0.04 | ) | $ | (0.17 | ) | ||||||
Basic
and diluted weighted average number of shares
|
68,595,057 | 60,446,890 |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-4
CLEAN POWER TECHNOLOGIES
INC.
(A
Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’ DEFICIENCY
For the
years ended August 31, 2009 and 2008 and for the period from May 12, 2006 (Date
of Inception) to August 31, 2009
(Stated in U.S.
Dollars)
Common
Stock
|
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||||||
Number
of Shares
|
Amount
|
Additional Paid-in
Capital |
Accumulated
Other Comprehensive Loss |
During
the Development Stage
|
Stockholders'
Deficiency
|
|||||||||||||||||||
Balance
at May 12, 2006
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||
Issuance
of common stock:for cash at $.001
|
28,765,477 | 28,766 | 28,766 | |||||||||||||||||||||
Issuance
of common stock:pursuant to technology acquisition agreement at
$0.001
|
2,000,000 | 2,000 | 2,000 | |||||||||||||||||||||
Clean
Energy and Power Solutions Inc.:common shares prior to reverse
acquisition
|
(30,765,477 | ) | (30,766 | ) | 30,766 | - | ||||||||||||||||||
Clean
Power Technologies Inc. common shares prior to reverse
acquisition
|
14,680,000 | 14,680 | (14,680 | ) | - | |||||||||||||||||||
Issuance
of common stock pursuant to share exchange agreements
|
30,765,377 | 30,766 | 9,579 | 40,345 | ||||||||||||||||||||
Imputed
interest
|
5,748 | 5,748 | ||||||||||||||||||||||
Stock-based
compensation
|
32,333 | 32,333 | ||||||||||||||||||||||
Unrealized
foreign exchange on transaction
|
(12,404 | ) | (12,404 | ) | ||||||||||||||||||||
Net
loss for the period
|
(311,435 | ) | (311,435 | ) | ||||||||||||||||||||
Balance
at August 31, 2006
|
45,445,377 | 45,446 | 63,746 | (12,404 | ) | (311,435 | ) | (214,647 | ) | |||||||||||||||
Issuance
of common stock: for cash
|
3,600,000 | 3,600 | 896,400 | 900,000 | ||||||||||||||||||||
Imputed
interest
|
41,970 | 41,970 | ||||||||||||||||||||||
Issuance
of common stock for professional services
|
408,785 | 408 | 633,201 | 633,609 | ||||||||||||||||||||
Issuance
of common stock for consulting services
|
400,000 | 400 | 611,100 | 611,500 | ||||||||||||||||||||
Issuance
of common stock for director services
|
100,000 | 100 | 179,900 | 180,000 | ||||||||||||||||||||
Issuance
of common stock for R&D
|
4,000,000 | 4,000 | 396,000 | 400,000 | ||||||||||||||||||||
Beneficial
conversion - related party note payable
|
- | 265,764 | 265,764 | |||||||||||||||||||||
Unrealized
foreign exchange on transaction
|
- | (32,794 | ) | (32,794 | ) | |||||||||||||||||||
Net
loss for the period
|
(3,251,567 | ) | (3,251,567 | ) | ||||||||||||||||||||
Balance
at August 31, 2007
|
53,954,162 | 53,954 | 3,088,081 | (45,198 | ) | (3,563,002 | ) | (466,165 | ) |
SEE ACCOMPANYING NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
F-5
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
For the
years ended August 31, 2009 and 2008 and for the period from May 12, 2006 (Date
of Inception) to August 31, 2009
(Stated in U.S.
Dollars)
Common
Stock
|
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||||||
Number
of Shares
|
Amount
|
Additional Paid-in
Capital |
Accumulated
Other Comprehensive Loss |
During
the Development Stage
|
Stockholders'
Deficiency
|
|||||||||||||||||||
Balance
at August 31, 2007
|
53,954,162 | 53,954 | 3,088,081 | (45,198 | ) | (3,563,002 | ) | (466,165 | ) | |||||||||||||||
Issuance
of common stock: for cash
|
3,260,000 | 3,260 | 811,740 | 815,000 | ||||||||||||||||||||
Issuance
of common stock for prior period salary
|
4,000,000 | 4,000 | 2,596,000 | 2,600,000 | ||||||||||||||||||||
Issuance
of common stock for consulting services
|
700,000 | 700 | 524,300 | 525,000 | ||||||||||||||||||||
Issuance
of common stock for director services
|
250,000 | 250 | 249,750 | 250,000 | ||||||||||||||||||||
Issuance
of common stock for administrator
|
600,000 | 600 | 257,400 | 258,000 | ||||||||||||||||||||
Conversion
of note payable to common stock, net unamortized discount
|
3,021,586 | 3,022 | 1,288,848 | 1,291,870 | ||||||||||||||||||||
Beneficial
conversion - related party note payable
|
366,135 | 366,135 | ||||||||||||||||||||||
Placement
agent warrants
|
221,588 | 221,588 | ||||||||||||||||||||||
Unrealized
foreign exchange on transaction
|
(6,470 | ) | (6,470 | ) | ||||||||||||||||||||
Net
loss for the period
|
(10,134,871 | ) | (10,134,871 | ) | ||||||||||||||||||||
Balance
at August 31, 2008
|
65,785,748 | 65,786 | 9,403,842 | (51,668 | ) | (13,697,873 | ) | (4,279,913 | ) | |||||||||||||||
Issuance
of common stock: for cash
|
2,222,222 | 2,222 | 274,641 | 276,863 | ||||||||||||||||||||
Issuance
of common stock for legal services
|
2,160,000 | 2,160 | 1,173,840 | 1,176,000 | ||||||||||||||||||||
Issuance
of common stock for consulting services
|
82,000 | 82 | 35,298 | 35,380 | ||||||||||||||||||||
Issuance
of common stock for interest
|
470,725 | 471 | 160,046 | 160,517 | ||||||||||||||||||||
Issuance
of common stock for stock based compensation
|
650,000 | 650 | 342,350 | 343,000 | ||||||||||||||||||||
Conversion
of note payable to common stock, net unamortized discount (Note
5(iii))
|
850,000 | 850 | 238,036 | 238,886 | ||||||||||||||||||||
Beneficial
conversion - related party note payable (Note 5(iii))
|
118,718 | 118,718 | ||||||||||||||||||||||
Stock
awards
|
508,802 | 508,802 | ||||||||||||||||||||||
Unrealized
foreign exchange on transaction
|
(6,553 | ) | (6,553 | ) | ||||||||||||||||||||
Net
loss for the period
|
(2,820,543 | ) | (2,820,543 | ) | ||||||||||||||||||||
Balance
at August 31, 2009
|
72,220,695 | $ | 72,221 | $ | 12,255,573 | $ | (58,221 | ) | $ | (16,518,416 | ) | $ | (4,248,843 | ) |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-6
CLEAN POWER TECHNOLOGIES
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
years ended August 31, 2009 and 2008 and for the period May 12, 2006 (Date of
Inception) to August 31, 2009
(Stated in U.S.
Dollars)
August
31,
|
||||||||||||
2009
|
2008
|
May
12, 2006
(Date
of Inception) to
August
31, 2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income (loss)
|
$ | (2,820,543 | ) | $ | (10,134,871 | ) | $ | (16,518,416 | ) | |||
Adjustments
to reconcile net income (loss) to cash
used
in operating activities:
|
||||||||||||
Depreciation
|
253,653 | 157,115 | 514,726 | |||||||||
Amortization
of stock option benefit
|
338,546 | 380,290 | 718,836 | |||||||||
Amortization
of debt discount
|
345,669 | 104,477 | 474,840 | |||||||||
Amortization
of deferred financing costs
|
92,500 | 15,205 | 107,705 | |||||||||
Interest
accrued on debt
|
27,268 | 11,496 | 138,172 | |||||||||
Interest
accrued on senior convertible notes
|
160,000 | 23,111 | 183,111 | |||||||||
Derivative
(income) expense
|
(3,581,773 | ) | 3,526,591 | (55,182 | ) | |||||||
Issuance
of common stock for professional services
|
1,176,000 | - | 1,809,609 | |||||||||
Issuance
of common stock for director services
|
- | 250,000 | 430,000 | |||||||||
Issuance
of common stock for consulting services
|
35,380 | 525,000 | 1,171,880 | |||||||||
Issuance
of common stock for prior period salary
|
- | 2,600,000 | 2,600,000 | |||||||||
Issuance
of common stock for administrative services
|
- | 258,000 | 258,000 | |||||||||
Issuance
of common stock for R&D
|
- | - | 402,000 | |||||||||
Issuance
of stock award for consulting services
|
13,750 | - | 13,750 | |||||||||
Stock-based
compensation
|
838,052 | - | 870,385 | |||||||||
Changes
in assets and liabilities:
|
||||||||||||
Amounts
Receivable
|
(24,213 | ) | 15,517 | (34,235 | ) | |||||||
Prepaid
expenses and other current assets
|
(74,801 | ) | 90,691 | (87,068 | ) | |||||||
Prepaid
deposit
|
84,000 | - | 84,000 | |||||||||
Accounts
payable and accrued expense
|
952,931 | 280,026 | 1,273,984 | |||||||||
Net
cash used in operating activities:
|
(2,183,581 | ) | (1,897,352 | ) | (5,643,903 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Acquisition
of plant and equipment
|
(570,166 | ) | (281,170 | ) | (1,322,464 | ) | ||||||
Cash
acquired from business combination
|
- | - | 62,070 | |||||||||
Net
cash used in investing activities:
|
(570,166 | ) | (281,170 | ) | (1,260,394 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from issuance of senior convertible notes
|
- | 1,815,000 | 1,815,000 | |||||||||
Proceeds
from issuance of common stock
|
1,000,000 | 815,000 | 2,743,766 | |||||||||
Proceeds
from short-term loan
|
84,000 | - | 84,000 | |||||||||
Due
to related party
|
508,907 | 436,060 | 2,338,077 | |||||||||
Net
cash provided by financing activities:
|
1,592,907 | 3,066,060 | 6,980,843 | |||||||||
Effect
of foreign exchange on transactions
|
(12,844 | ) | (15,787 | ) | (47,200 | ) | ||||||
Net
increase (decrease) in cash
|
(1,173,684 | ) | 871,751 | 29,346 | ||||||||
Cash
at beginning of period
|
1,203,030 | 331,279 | - | |||||||||
Cash
and cash equivalents at end of period
|
$ | 29,346 | $ | 1,203,030 | $ | 29,346 |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-7
CLEAN POWER TECHNOLOGIES
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
years ended August 31, 2009 and 2008 and for the period May 12, 2006 (Date of
Inception) to August 31, 2009
(Stated in U.S.
Dollars)
August
31,
|
||||||||||||
2009
|
2008
|
May
12, 2006
(Date
of Inception) to
August
31, 2009
|
||||||||||
Supplemental
schedule of cash flows:
|
||||||||||||
Cash
paid during the period for interest
|
$ | - | $ | - | $ | - | ||||||
Supplemental
schedule of non-cash financing
and
investing activities:
|
||||||||||||
Conversion
of note payable to common stock
|
$ | 238,886 | $ | 1,291,870 | $ | 1,530,756 | ||||||
Total:
|
$ | 238,886 | $ | 1,291,870 | $ | 1,530,756 |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-8
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2009
(Stated in U.S.
Dollars)
Note
1 Nature and Continuance of
Operations
(a)
|
Organization
|
Clean
Power Technologies Inc. (the “Company”) was incorporated in the State of Nevada,
United States of America on October 30, 2003 as Sphere of
Language. On June 13, 2006, the Company changed its name to Clean
Power Technologies Inc.
|
The
Company incorporated Clean Energy and Power Solutions Inc. (“CEPS”) on
May 12, 2006 in the State of Nevada as a wholly-owned
subsidiary.
|
|
By
agreement dated May 22, 2006, the Company agreed to issue 30,765,377
common shares for all the issued and outstanding common shares of Clean
Power Technologies Inc. (“CPTI private”), a privately held company,
incorporated on March 14, 2006 in the State of Nevada. CPTI
private is developing a gas/steam or diesel/steam hybrid
technology. CPTI private has incorporated a wholly-owned subsidiary, Clean
Power Technologies Limited, (“CPTL-UK”) a company based in, and
incorporated under the laws of the United Kingdom on May 10, 2006, to
carry on all its research and development. On April 24, 2006,
CPTI private entered a research and development agreement to fund all
future costs for research, development, patenting, licensing and marketing
for an alternative hybrid fuel technology that combines diesel and steam
and gas (petrol) and steam technologies for a 100% ownership of the
technology and any associated intellectual rights (see Note
6). CPTI private and CEPS merged on June 20, 2006 with CEPS
being the surviving entity. On July 10, 2006 CEPS became a wholly-owned
subsidiary of the Company when the stockholders of CPTI private tendered
their remaining shares.
|
|
The
Company’s fiscal year-end is August
31.
|
(b) Development Stage Activities
The
Company is in the development stage and has not yet realized any revenues from
its planned operations.
The
primary operations of the Company are presently undertaken by CPTL-UK.
Initially, the primary focus of the Company was to develop two vehicles in order
to prove their concept. The first vehicle was to be a prototype to
demonstrate the technology and the second vehicle was to be an engineered
vehicle to be unveiled to the auto industry. In November 2007, the
Company decided to re-prioritize its development program. While
development on the automobiles continued, it was decided that the fastest route
to market was to focus on the development of refrigeration units for grocery
trucks.
|
These
audited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles applicable to a going
concern, which assumes that the Company will be able to meet its
obligations and continue its operations for its next fiscal
year. Realization values may be substantially different from
carrying values as shown and these financial statements do not give effect
to adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be unable to
continue as a going concern. At August 31, 2009, the Company
had not yet achieved profitable operations, has accumulated losses of
$16,518,416 since inception, has negative working capital of $2,000,352
and expects to incur further losses in the development of its business,
all of which casts substantial doubt about the Company’s ability to
continue as a going concern. The Company’s ability to continue
as a going concern is dependent upon its ability to generate future
profitable operations and/or to obtain the necessary financing to meet its
obligations and repay its liabilities arising from normal business
operations when they come due. Management has
no
|
F-9
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
1 Nature and Continuance of
Operations – (Cont’d)
(b)
|
Development
Stage Activities – Continued
|
|
formal
plan in place to address this concern but considers that the Company will
be able to obtain additional funds by equity financing and/or related
party advances; however there is no assurance of additional funding being
available.
|
Note
2 Summary of Significant
Accounting Policies
|
These
audited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America and are stated in US dollars except where disclosed
otherwise. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for a period necessarily involves the use of estimates, which
have been made using careful judgments. Actual results may vary
from these estimates.
|
|
The
audited consolidated financial statements have, in management’s opinion,
been properly prepared within the framework of the significant accounting
policies summarized below:
|
Principles of
Consolidation
The
audited consolidated financial statements include the accounts of the Company,
and its wholly-owned subsidiaries CEPS and CPTL-UK. All inter-company
transactions have been eliminated.
Development Stage
Company
The
Company is a development stage company as defined in Statement of Financial
Accounting Standards No. 7. The Company is devoting substantially all
of its present efforts to establish a new business and none of its planned
principal operations have commenced. All losses accumulated since
inception have been considered as part of the Company’s development stage
activities.
Plant, Equipment and
Depreciation
|
Plant
and equipment is recorded at cost. Depreciation has been
provided in amounts sufficient to relate the costs of depreciable assets
to operations over their estimated useful lives on a straight-line basis
over four years for vehicle and machinery, five years for office
equipment, two years for computers and three years for leasehold
improvements.
|
Impairment of Long-lived
Assets
|
The
Company reports the impairment of long-lived assets and certain
intangibles in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-lived
Assets”. Certain long-lived assets and identifiable intangibles
held by the Company are reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Accordingly, the impairment loss is recognized in
the period it is determined.
|
F-10
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Foreign Currency
Translation
|
The
functional currency of the Company and CEPS is the US Dollar. The
functional currency of CPTL-UK is the British
Pound. Accordingly, assets and liabilities of CPTL-UK are
translated into US dollars at the exchange rate in effect at the balance
sheet date and capital accounts are translated at historical
rates. Income statement accounts are translated at the average
rates of exchange prevailing during the period. Translation
adjustments arising from the use of differing exchange rates from period
to period are included in the accumulated other comprehensive gain (loss)
account in Stockholders’
Deficiency.
|
|
Transactions
undertaken in currencies other than the functional currency of the entity
are translated using the exchange rate in effect as of the transaction
date. Any exchange gains and losses are included in the
Statement of Operations.
|
Basic Loss Per
Share
|
The
Company reports basic loss per share in accordance with SFAS No. 128,
“Earnings Per Share”. Basic loss per share is computed using
the weighted average number of shares outstanding during the
period. Fully diluted earnings per share are not presented
because they are anti-dilutive. At the end of the period
presented, the Company had no other common stock equivalents, save a
convertible debenture between the Company and an officer and director
whereby amounts advanced are convertible to shares of common stock at
$0.50 per share over the term of the loan at the election of the Board of
Directors and a convertible debenture discussed in detail in Note 7
below.
|
Financial
Instruments
Financial
instruments, as defined in Financial Accounting Standards No. 107 Disclosures about Fair Value
of Financial Instruments (FAS 107), consist of cash, evidence of
ownership in an entity, and contracts that both (i) impose on one entity a
contractual obligation to deliver cash or another financial instrument to a
second entity, or to exchange other financial instruments on potentially
unfavorable terms with the second entity, and (ii) conveys to that second entity
a contractual right (a) to receive cash or another financial instrument from the
first entity, or (b) to exchange other financial instruments on potentially
favorable terms with the first entity. Accordingly, our financial instruments
consist of cash and cash equivalents, amounts receivable, accounts payable,
accrued liabilities, notes payable, derivative financial instruments, and
convertible notes payable.
We carry
cash and cash equivalents, amounts receivable, accounts payable and accrued
liabilities at historical costs; their respective estimated fair values
approximate carrying values due to their current nature. We also carry notes
payable and convertible debt at historical cost; however, fair values of debt
instruments are estimated for disclosure purposes (below) based upon the present
value of the estimated cash flows at market interest rates applicable to similar
instruments.
As of
August 31, 2009, the estimated fair value and carrying value of our secured
convertible notes payable is as follows:
Secured
Convertible Notes Payable:
|
Carrying
Value
|
Fair
Value
|
||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
$ | (242,304 | ) | $ | (2,005,361 | ) | ||
F-11
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Financial Instruments
- Continued
Derivative
financial instruments, as defined in Financial Accounting Standard No. 133,
Accounting for
Derivative Financial Instruments and Hedging Activities (FAS 133),
consist of financial instruments or other contracts that contain a notional
amount and one or more underlying (e.g. interest rate, security price or other
variable), require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other
financial instruments. Further, derivative financial instruments are initially,
and subsequently, measured at fair value and recorded as liabilities or, in rare
instances, assets.
We
generally do not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks. However, we have entered into
certain other financial instruments and contracts, such as debt financing
arrangements, and freestanding warrants with features that are either (i) not
afforded equity classification, (ii) embody risks not clearly and closely
related to host contracts, or (iii) may be net-cash settled by the counterparty.
As required by FAS 133, these instruments are required to be carried as
derivative liabilities, at fair value, in our financial statements.
The
following table summarizes the components of derivative liabilities as of August
31, 2009:
Our
financing arrangements giving rise to
derivative
financial instruments:
|
Compound
Embedded
Derivative
|
Warrant
Derivatives
|
Total
Derivatives
|
|||||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
$ | (779,193 | ) | $ | (1,666,429 | ) | $ | (2,445,622 | ) | |||
$1,000,000
common stock purchase agreement
|
- | (744 | ) | (744 | ) | |||||||
$ | (779,193 | ) | $ | (1,667,173 | ) | $ | (2,446,366 | ) |
We
measure the fair values of derivative financial instruments using various
techniques (and combinations thereof) that are considered to be consistent with
the objective measuring fair values. In selecting the appropriate technique, we
consider, among other factors, the nature of the instrument, the market risks
that it embodies and the expected means of settlement. For less complex
derivative instruments, such as free-standing warrants, we generally use the
Black-Scholes-Merton option valuation technique, adjusted for the effect of
dilution, because it embodies all of the requisite assumptions (including
trading volatility, estimated terms, and risk free rates) necessary to fair
value these instruments. For complex derivative instruments, such as embedded
conversion options, puts and redemption features embedded in hybrid debt
instruments, we generally use the Monte Carlo Simulation valuation technique
because it embodies all of the requisite assumptions (including credit risk,
interest-rate risk and exercise/conversion behaviors) that are necessary to fair
value these more complex instruments. For forward contracts that contingently
require net-cash settlement as the principal means of settlement, we project and
discount future cash flows applying probability-weightage to multiple possible
outcomes. Estimating fair values of derivative financial instruments requires
the development of significant and subjective estimates that may, and are likely
to, change over the duration of the instrument with related changes in internal
and external market factors. In addition, option-based techniques are highly
volatile and sensitive to changes in the trading market price of our common
stock, which has a high-historical volatility. Since derivative financial
instruments are initially and subsequently carried at fair values, our income
will reflect the volatility in these estimate and assumption
changes.
F-12
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Financial Instruments
- Continued
The
following table summarizes the effects on our income (expense) associated with
changes in the fair values of our derivative financial instruments by type of
financing for the three months ended August 31, 2009.
Our
financing arrangement giving rise to
derivative
financial instruments and the income effects:
|
Compound
Embedded
Derivative
|
Warrant
Derivatives
|
Total
Derivatives
|
|||||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
$ | 183,540 | $ | 946,428 | $ | 1,129,968 | ||||||
$1,000,000
common stock purchase agreement
|
- | 721,536 | 721,536 | |||||||||
$ | 183,540 | $ | 1,667,964 | $ | 1,851,504 |
The
following table summarizes the effects on our income (expense) associated with
changes in the fair values of our derivative financial instruments by type of
financing for the twelve months ended August 31, 2009.
Our
financing arrangement giving rise to
derivative
financial instruments and the income effects:
|
Compound
Embedded
Derivative
|
Warrant
Derivatives
|
Total
Derivatives
|
|||||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
$ | 1,153,808 | $ | 1,705,572 | $ | 2,859,380 | ||||||
$1,000,000
common stock purchase agreement
|
- | 722,393 | 722,393 | |||||||||
$ | 1,153,808 | $ | 2,427,965 | $ | 3,581,773 |
The
following table summarizes the effects on our income (expense) associated with
changes in the fair values of our derivative financial instruments from
inception through the year ended August 31, 2009.
Our
financing arrangement giving rise to
derivative
financial instruments and the income effects:
|
Compound
Embedded
Derivative
|
Warrant
Derivatives
|
Total
Derivatives
|
|||||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
$ | 770,552 | $ | 1,103,428 | $ | 1,873,980 | ||||||
$1,000,000
common stock purchase agreement
|
- | 743,496 | 743,496 | |||||||||
$ | 770,552 | $ | 1,846,924 | 2,617,476 | ||||||||
Day-one
derivative losses:
|
||||||||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
(2,541,191 | ) | ||||||||||
$1,000,000
common stock purchase agreement
|
(21,103 | ) | ||||||||||
Total
derivative income (expense):
|
$ | 55,182 |
F-13
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Financial Instruments
- Continued
Our
derivative liabilities as of August 31, 2009, our derivative gains during the
quarterly period August 31, 2009 and our derivative losses from inception
through August 31, 2009 are significant to our consolidated financial
statements. The magnitude of derivative income (expense) reflects the
following:
· The
market price of our common stock, which significantly affects the fair value of
our derivative financial instruments, experienced material price fluctuations.
To illustrate, the closing price of our common stock decreased from $0.55 on
July 10, 2008 to $0.45 on August 31, 2009. The lower stock price on August 31,
2009 had the effect of significantly decreasing the fair value of our derivative
liabilities and, accordingly, we were required to adjust the derivatives to
these lower values with charges to derivative income.
· In
connection with our accounting for the secured convertible note financing we
encountered the unusual circumstance of a day-one derivative loss related to the
recognition of derivative instruments arising from the arrangement. That means
that the fair value of the bifurcated compound derivative and warrants exceeded
the proceeds that we received from the arrangement and we were required to
record a loss to record the derivative financial instruments at fair value. The
loss that we recorded amounted to $2,541,191. We did not enter into any other
financing arrangements during the periods reported that reflected day-one
loss.
The
following table summarizes the number of common shares indexed to the derivative
financial instruments as of August 31, 2009:
Our
financing arrangement giving rise to derivative
financial
instruments and indexed shares:
|
Compound
Embedded
Derivatives
|
Warrant
Derivatives
|
Total
Derivatives
|
|||||||||
$2,000,000
face value secured convertible notes due July 10, 2010
|
5,714,286 | 7,142,858 | 12,857,144 | |||||||||
$1,000,000
common stock purchase agreement
|
-- | 2,777,778 | 2,777,778 | |||||||||
5,714,286 | 9,920,636 | 15,634,922 |
ASC
825‐20
Registration Payment Arrangements (pre‐Codification FASB
Staff Position No. EITF 00‐19‐2 Accounting for
Registration Payment Arrangements) provides for the exclusion of registration
payment arrangements, such as the liquidated damage provisions that are included
in the financing contracts
underlying the convertible debt financing arrangements, from the consideration
of classification of financial instruments. Rather, such registration payments
are accounted for pursuant to ASC 450‐20 Loss
Contingencies (pre‐Codification FAS
No. 5 Accounting for Contingencies), which is our current accounting practice.
That is, all registration payments will require recognition when they are both
probable and reasonably estimable. As of August 31, 2009, our management
concluded that registration payments are not probable.
F-14
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Income
taxes
|
The
Company is subject to United States income taxes. The Company’s
subsidiary, CPTL-UK, is subject to taxes in the United
Kingdom. Income taxes are accounted for under the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss
and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date. The
measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits for which future realization is
uncertain.
|
Research and Development
Costs
Research and development costs are
expensed in the year in which they are incurred.
Stock-based Compensation
In
December 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 148, “Accounting for Stock-Based Compensation –
Transition and Disclosure” (“SFAS No. 148”), an amendment of Financial
Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS
No. 123”). The purpose of SFAS No. 148 is to: (1) provide alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation, (2) amend the
disclosure provisions to require prominent disclosure about the effects on
reported net income of an entity’s accounting policy decisions with respect to
stock-based employee compensation, and (3) to require disclosure of those
effects in interim financial information.
The
Company has adopted SFAS No. 123 (revised 2004) (“SFAS No. 123R”),
“Share-Based Payment,” which addresses the accounting for stock-based payment
transactions in which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprise’s equity instruments or that may be settled by
the issuance of such equity instruments. In January 2005, the Securities and
Exchange Commission issued SAB No. 107, which provides supplemental
implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability
to account for stock-based compensation transactions using the intrinsic value
method under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and instead generally requires that such
transactions be accounted for using a fair-value-based method. We use the
Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of
stock-based awards under SFAS No. 123R, consistent with that used for pro forma
disclosures under SFAS No. 123. We have elected the modified
prospective transition method as permitted by SFAS No. 123R and accordingly
prior periods have not been restated to reflect the impact of SFAS No. 123R. The
modified prospective transition method requires that stock-based compensation
expense be recorded for all new and unvested stock options, restricted stock,
restricted stock units, and employee stock purchase plan shares that are
ultimately expected to vest as the requisite service is rendered beginning on
December 1, 2006.
F-15
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Stock-based Compensation
- Continued
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with SFAS No. 123 and
the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity
instruments issued for consideration other than employee services is determined
on the earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
The
Company has also adopted the provisions of the Financial Accounting Standards
Board Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation – An Interpretation of APB Opinion No. 25 (“FIN 44”), which
provides guidance as to certain applications of APB 25.
New Accounting
Standards
Recently
Issued Accounting Pronouncements
In June
2009 the FASB established the Accounting Standards Codification ("Codification"
or "ASC") as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in accordance with generally accepted accounting principles in the
United States ("GAAP"). Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") issued under authority of federal securities laws
are also sources of GAAP for SEC registrants. Existing GAAP was not intended to
be changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.
Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855),
"Subsequent Events", SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC
Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC
Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a replacement of FASB Statement No.
162" were recently issued. SFAS No. 165, 166, 167, and 168 have no current
applicability to the Company or their effect on the financial statements would
not have been significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
F-16
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
2 Summary of Significant
Accounting Policies - (Cont’d)
Use of Estimates in the
preparation of the financial statements
The
preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from those
estimates.
Note
3 Amounts
Receivable
Amounts
receivable of $38,367 consists of refundable tax credits for the Value Added Tax
(“VAT”) paid on purchases with respect to the operations of CPTL-UK in the
United Kingdom. CPTL-UK files quarterly returns with respect to the
VAT transactions.
Note
4 Plant and
Equipment
August
31, 2009
|
||||||||||||
Cost
|
Accumulated
Amortization
|
Net
Book
|
||||||||||
Vehicles
|
$ | 105,719 | $ | (53,529 | ) | $ | 52,190 | |||||
Machinery
|
761,269 | (287,157 | ) | 474,112 | ||||||||
Computer
and office equipment
|
222,500 | (107,918 | ) | 114,582 | ||||||||
Leasehold
improvements
|
252,547 | (62,263 | ) | 190,284 | ||||||||
$ | 1,342,035 | $ | (510,867 | ) | $ | 831,168 |
Note
5 Related Party
Transactions
a)
|
On
April 24, 2006 CPTI entered a research and development agreement (the
“Agreement”) to fund all future costs for research, development,
patenting, licensing and marketing for an alternative hybrid fuel
technology that combines diesel and steam and gas (petrol) and steam
technologies for a 100% ownership of the technology and any associated
intellectual rights with two directors and officers of
CPTL-UK. Under the terms of the Agreement, the Company agreed
to retain one director as the Company’s project director at a fee of
£3,000 (US$5,972) per month for a period of 36 months commencing May 2006
and the second director as the Company’s project manager at a fee of
£6,000 (US$11,945) per month for a period of 36 months commencing May
2006. During March 2008 the monthly fee for the project manager
was increased to £10,000 (US$19,908). On August 8, 2008
the project director and the project manager resigned as directors of
CPTL-UK. Concurrently, the project manager entered into a new employment
agreement (the “Employment Agreement”) with the Company for a term of four
(4) years. Under the terms of the Employment Agreement, from
March 1, 2009 and on each subsequent anniversary during the term of the
Employment Agreement, the project manager is entitled to an annual salary
increase of 10%, as well as the following performance based
compensation:
|
·
|
500,000
shares of common stock when the Refrigeration Compact Heat Exchanger (the
“Refrigeration Unit”) for the grocery truck/trailer is successfully
tested;
|
·
|
1,000,000
shares of common stock when the first Refrigeration Unit is commercially
sold;
|
·
|
1,000,000
shares each time when the heat recover system for the Marine application
or An Auxiliary Steam Engine for Trucks or similar engines based on the
Heat recovery and/or Steam technology is developed and commercially sold
to the first customer;
|
F-17
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
5 Related Party Transactions
(Cont’d)
·
|
1,000,000
shares of common stock when the first automobile which is developed on the
heat recovery system is successfully tested and verified by the E.P.A;
and
|
·
|
1,000,000
shares of common stock when the first automobile heat recovery system is
commercially sold.
|
On July
23, 2009 the Company determined it had successfully achieved the first benchmark
in its development program whereby the Refrigeration Compact Heat Exchanger (the
“Refrigeration Unit”) for the grocery truck/trailer was successfully
tested. As a result, under the terms of Mr. Burn’s employment
agreement, the Company reserved a total of 500,000 shares of the Company’s
common stock and recorded an expense totalling $275,000 to stock based
compensation during the fourth quarter of the current fiscal
year. The shares were subsequently issued on September 24,
2009.
Using the
guidance provided in SFAS 123R the Company has not recorded compensation cost in
respect of these unearned performance-based awards as at August 31, 2009 due to
the uncertainty surrounding realization of the benefit of the
awards.
On
February 1, 2009, the Company entered into an addendum to accelerate the annual
salary increase permitted under the contract upon achieving certain development
benchmarks. As a result, starting March 1, 2009 Mr. Burn’s monthly
salary was adjusted to a base of £12,100. During the fiscal year
ended August 31, 2009, Michael Burns, the project manager who is also a member
of the Board of Directors of the Company and an officer of wholly-owned
subsidiary CPTL-UK was paid $209,160 (£133,600) under the terms of his
employment agreement.
Additionally
under the terms of the original April 24, 2006 Agreement, the Company agreed to
fund all future costs for research, development, patenting, licensing and
marketing of the technology in exchange for the transfer of all rights and
interests in technology to the Company. As payment for this
technology, the Company’s subsidiary issued 2,000,000 shares of its common stock
at $0.001, which shares were exchanged for 2,000,000 shares of the Company’s
common stock. The Company also agreed to fund up to £2,000,000
(US$4,027,800) towards the development of the technology.
b)
|
On
July 26, 2006, CPTL-UK entered into a lease agreement with an officer of
CPTL-UK to lease the office and laboratory premises for a term of three
years. (see Note 6 – (a)). Under the terms of the lease, an
expense of $29,400 (£18,778.40) was charged during the year ended August
31, 2009 by an officer of CPTL-UK as rent. Upon expiration of the lease
the officer agreed to continue to provide month to month use of the
premises at a rate of (£1,500) per month, plus certain taxes, until such
time as a long-term lease can be
negotiated.
|
c)
|
Pursuant
to an employment agreement dated May 22, 2008, between the Company and its
CEO, Mr. Abdul Mitha, Mr. Mitha invoiced the Company $533,333 with respect
to his monthly salary obligation for the twelve month period ended August
31, 2009. During the twelve month period Mr. Mitha received
payments against his accrued salary totaling $160,418, leaving $499,582
due and payable to Mr. Mitha in salary obligations as at August 31,
2009.
|
On July
23, 2009, the Company determined it had successfully achieved the first
benchmark in its development program whereby the Refrigeration Compact Heat
Exchanger (the “Refrigeration Unit”) for the grocery truck/trailer was
successfully tested. Under the terms of Mr. Mitha’s employment
contract, he is entitled to be issued 200,000 shares to be issued each time a
formal test for an industry application is successful. As a result,
the Company reserved a total of 200,000 shares of the Company’s common stock and
recorded an expense totalling $110,000 to stock based compensation during the
fourth quarter of the current fiscal year. The shares were
subsequently issued on September 24, 2009.
F-18
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
5 Related Party Transactions
(Cont’d)
During
the fiscal year ended August 31, 2009 Mr. Mitha advanced $508,907 (2008
-$436,060) for operations, under the terms of a convertible debenture approved
September 28, 2006. In respect of these advances, during the twelve
months ended August 31, 2009 the Company recorded amortization of loan discount
in the amount of $127,596 (2008 - $80,246). Unamortized
discount at August 31, 2009, which has been applied to additional paid in
capital with respect to the beneficial conversion feature associated with the
loan proceeds advanced to the Company during the twelve months ending August 31,
2009, totalled $118,718 (2008 - $366,134), which amount is being amortized
over the term of the note(s) or until conversion. During
the quarter ended February 28, 2009, the Company issued 850,000 shares of common
stock to Mr. Mitha to retire $425,000 of the cumulative loans as at that date,
including all accrued interest as at the date of settlement, at $0.50 per share,
less an unamortized discount upon conversion totaling $(186,114). As
at August 31, 2009 the balance sheet reflects notes payable to Mr. Mitha of
$445,690 which amount reflects convertible loans totaling $558,732, net an
unamortized discount of $113,042.
Note
6
|
Commitments
|
|
(a)
|
On
July 26, 2006 CPTL –UK entered into a three year lease agreement for an
office and research facility located in Newhaven, United
Kingdom. The lease expired on July 25, 2009 and is currently
operating on a month to month basis. The monthly rental payable
is total $2,441(£1,500) plus applicable taxes. During the
fiscal year 2009, the Company paid a total $29,085 (£18,578), and in 2008
a total of $33,080 (£16,616) in respect of this lease, plus applicable
taxes.
|
(b)
|
The
Company entered into a collaboration agreement dated October 11, 2006 for
the development of a steam accumulator and other related technologies in
partnership for use with the Company’s petrol (gas)/steam and diesel/steam
hybrid technologies project. The agreement called for funding
of approximately US$400,000 by the partner. As consideration,
the Company was required to issue 4,000,000 common shares of the
Company.
|
|
The
agreement further provides that within 18 months from the first vehicle
being publicly unveiled, the partner will have the option of either
seeking cash reimbursement of its development costs from the Company or
retaining the previously issued shares of common stock of the
Company. Should the partner seek cash reimbursement then
the partner shall return a total of 3,000,000 shares of common stock to
the Company. Should development costs exceed US$400,000 then
the Partner has the option to either receive cash reimbursement of the
amount in excess of US$400,000 or to receive additional shares of the
Company at a price to be negotiated. Should the Company be
unable to reimburse the partner on any call for reimbursement as allowed
under the collaboration agreement, the Company will transfer an equal
share of the intellectual property to the Partner so that the Partner and
the Company will own the intellectual property equally. On June
13, 2007,
the Company issued a total of 4,000,000 shares of restricted Common Stock
to Doosan Babcock Energy Ltd. (“Doosan”) pursuant to the terms and
conditions of a subscription agreement, received May 21, 2007 (the
“Subscription Agreement”). The Subscription Agreement was executed
pursuant to the terms and conditions of that Collaboration Agreement
entered into between the parties on October 11,
2006.
|
The
Company provided an additional 100,000 common shares to Doosan, which shall be
used at their discretion to reward any of their employees who have helped in the
development of the technologies project. The term of the agreement is
three years.
F-19
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
6 Commitments
(continued)
(c)
|
On
July 1, 2007, CPTL –UK entered into a six month renewable lease agreement
for a corporate apartment located in Surrey, United
Kingdom. The initial lease expired on December 31, 2007, and
was last renewed on July 1, 2008. The lease called for monthly
rent in the amount of $2,986 (£1,900) plus applicable
taxes. The lease expired without renewal during the quarter
ended November 30, 2008. During the fiscal year ended August
31, 2009 the Company paid $25,520 (£3,800) (2008 - $45,395 (£22,800) plus
applicable taxes and utilities.
|
(d)
|
During
the year ended August 31, 2007, the Company entered into an agreement with
Abchurch Communications Limited to provide certain integrated financial
and corporate communications services. Under the terms of the
agreement, Abchurch will provide four (4) phases of services to assist the
Company in securing a listing on the AIM Exchange in
London. Fees payable under the agreement include a project fee
of £40,000 (approximately U.S. $80,000), of which, the Company has
remitted a total of £35,000 (approximately U.S. $70,000). The
agreement also provided for quarterly consulting fees of £12,000
(approximately U.S. $24,400). The Company renegotiated the quarterly
payments required under the contract effective April 1, 2008 whereby
quarterly fees were reduced to £3,000 per month for the period January to
March 2008, and thereafter to £2,000 per month for the remaining term of
the contract. During the fiscal year ended August 31, 2009 the
Company has remitted a total of $21,038 in respect of these fees, with
$16,275 remaining due and payable at the end of August 31,
2009.
|
(e)
|
On
March 17, 2008, the Company entered into an agreement with steam
technology specialist Dampflokomotiv-und Maschinenfabrik DLM AG ("DLM") to
act as a consultant for the further development of the Company's Clean
Energy Separation and Recovery (“CESAR”) technology. Under the terms of
the agreement DLM was to provide a preliminary study to the Company at a
cost of 34,375 Euros (approximately U.S. $52,000) payable in 3
installments as follows:
|
· 25% of
the total sum upon signing of the engagement;
·
|
25%
of the total sum upon presentation of the first results but not later than
three (3) months after engagement date;
and
|
· Balance
upon completion of work scope payable within 30 days of delivery of final
invoice
|
During
the first quarter ended November 30, 2008, the Company received the
preliminary study report and remitted all remaining payments under the
terms of the engagement and entered into a further agreement regarding
prototype specifications for a Heat Exchanger at a total cost of 12,340
Euros (then approximately US$15,680), which amount was remitted at the
time of the engagement.
|
(f)
|
On
July 28, 2008, the Company entered into an agreement with Mr. George
McLaine whereby Mr. McLaine agreed to serve as a consultant to assist the
Company with introductions to transportation companies in the Province of
Alberta, Canada, and abroad with a purpose of locating collaborative
partners to test the Company’s heat recovery systems in trucks and
trailers. In consideration for this service, Mr. McLaine shall
receive 32,000 shares of the Company’s common stock for each introduction
that results in a collaboration agreement. Further, Mr. McLaine
shall receive 25,000 shares of the Company’s common stock per annum for
serving as a consultant to the Company. The contract is for a
period of two (2) years and may be renewed by mutual
consent. Mr. McLaine is to also receive a 30% commission for
any advance purchase orders received on the advance deposit required of 1%
of the total purchase or $100 per unit ordered. 32,000 shares were issued
under the Company’s 2007 Stock Option and Stock Award Plan as of September
8, 2008. On July 28, 2009 under
the
|
F-20
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
6 Commitments
(continued)
|
terms
of the agreement, Mr. McLaine reached his first service related benchmark
and the Company expensed a total of $13,750 to stock based compensation in
respect of an annual award of 25,000 shares of common
stock. The shares were subsequently issued on September 24,
2009.
|
(g)
|
On
June 1, 2008, the Company’s subsidiary CPTL-UK entered into an employment
contract with an IT specialist whereunder the employee will receive 25,000
shares of the Company’s common stock after the initial three (3) months,
and 25,000 shares of the Company’s common stock each year on the
anniversary of the completion of certain work projects up to a maximum of
100,000 shares. 25,000 shares were issued under the Company’s
2007 Stock Option and Award Plan as of September 8, 2008. As to the
remaining 75,000 shares of common stock available for issue under the
above-noted contract, due to the fact that they are service based awards,
the Company has recognized a stock-based compensation expense which is
being amortized over the period of service. On June 30, 2009
the Company issued the second service related award of 25,000 common
shares and expensed an additional amount of $1,750 as stock based
compensation to record the discrepancy between the market value of the
common shares on the date of the original expense, and the market value of
the shares on the issuance date. Refer to Note 9(ii) –
Restricted Stock Awards for additional
details.
|
(h)
|
On
October 27, 2008 the Company’s subsidiary CPTL-UK entered into an
employment agreement with Marco Cucinotta whereby Mr. Cucinotta will
receive an annual salary of $146,475 (£90,000) as well as the following
performance based compensation:
|
·
|
200,000
shares of the Company’s common stock on commencement of
employment;
|
·
|
100,000
shares of the Company’s common stock on completion of the first complete
system in test cell;
|
·
|
100,000
shares of the Company’s common stock on completion of the first truck
based system;
|
·
|
100,000 shares of the Company’s common
stock on sale of the first system;
and
|
·
|
100,000
shares of the Company’s common stock upon establishing a UK consultancy
firm and generating £100,000 in gross
revenue.
|
|
The
Company issued a total of 200,000 shares in respect of the above agreement
under its 2007 Stock Option and Award Plan as to 100,000 shares on January
9, 2009 and 100,000 shares on March 3, 2009, respectively. On
July 23, 2009 the Company determined it had successfully achieved the
first benchmark in its development program whereby the Refrigeration
Compact Heat Exchanger (the “Refrigeration Unit”) for the grocery
truck/trailer was successfully tested. As a result, under the
terms of Mr. Cucinotta’s employment agreement, whereby he is entitled to
receive 100,000 shares of the Company’s common stock on completion of the
first complete system in test cell, the Company reserved 100,000 shares of
the Company’s common stock and recorded an expense totalling $55,000 to
stock based compensation during the fourth quarter of the current fiscal
year. The shares were subsequently issued on September 24,
2009.
|
|
Using
the guidance provided in SFAS 123R the Company has not recorded
compensation cost in respect of the unearned performance-based awards as
at August 31, 2009 due to the uncertainty surrounding realization of the
benefit of the awards.
|
(i)
|
In
August 2008, the Company entered into a collaboration agreement with Voith
Turbo Gmbh& Co. KG (the “VTG”) to develop steam and heat energy
recovery engines for Clean Power's proprietary heat recovery technology
for refrigeration trailers for the grocery market. Under the terms of the
collaboration agreement, Clean Power and Voith Turbo GmbH & Co. KG
will analyse data from the testing of an existing refrigeration engine,
results from which will be used to build and test a new engine that
incorporates Clean Power's proprietary heat recovery technology. Voith is
a multi-national company with significant interest in
the
|
F-21
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2009
(Stated in U.S.
Dollars)
Note
6 Commitments
(continued)
|
development
of expanders in engine and braking systems. As part of its own drive
systems and components development programme Voith Turbo GmbH & Co. KG
has already developed hybrid systems, waste recovery systems and expansion
engines based on the internal combustion engine which is used on the road,
on rail, on water and in other industries. Under the collaboration
agreement, the VTG invoiced the Company USD $255,398 (EUR 178,500). On
October 27, 2009, the Company paid off the invoiced
amount.
|
(j)
|
During
the fiscal year ended August 31, 2009 and prior, the Company’s
wholly-owned subsidiary CPTL-UK entered into various employment contracts
which call for a total of 5,150,000 shares of the Company’s common stock
to be issued as stock awards upon completion of certain technology
development benchmarks. On July 23, 2009, the first of these
benchmarks was reached and the Company has recorded a stock based
compensation expense totalling $330,000 as it relates to the issuance of
600,000 common shares. Using the guidance provided in SFAS 123R the
Company has not recorded compensation cost in respect of the remaining
unearned performance-based awards as at August 31, 2009. The
Company has determined it is currently doubtful that employees will earn
the right to benefit from the remaining awards. Additionally, under the
above noted contracts the Company agreed to certain service based awards
which shall be earned annually. In total the Company granted
450,000 service-based awards, in respect of which the Company has
recognized a stock-based compensation expense. Refer to Note 9
(ii) – Restricted Stock Awards for additional
details.
|
|
(k)
|
Effective
November 13, 2008 the Company entered into a five (5) year lease for
office and warehouse space in a property located in New Haven, East
Sussex, U.K., adjacent to its current leased facilities at an annual rate
of $24,412 (£15,000) payable quarterly commencing March
2009. Concurrently the Company entered into an option to
purchase the aforementioned property, exercisable March through August
2010, for a purchase price the greater of (i) the price stated in an
Independent Valuation or (ii) £425,000 less any reductions previously
specified and agreed in a former option agreement. During the
fiscal year 2009, the Company paid total $21,987 (£14,044) plus applicable
taxes.
|
|
The
lease payments for each of the five succeeding fiscal years are as
follows:
|
2010
|
$ |
24,412
|
2011
|
24,412
|
|
2012
|
24,412
|
|
2013
|
24,412
|
|
2014
|
12,206
|
|
Total:
|
$ |
109,854
|
(l)
|
On
November 18, 2008 CPTL–UK entered into a six month renewable lease
agreement for a corporate housing facility located in Surrey, United
Kingdom for use by the Company’s CEO, Abdul Mitha. The lease
called for monthly rent in the amount of $2,034 (£1,250) plus applicable
taxes and expired May 17, 2009. The lease was renewed
subsequent to the quarter for a term of 12 months, expiring in May,
2010. During the fiscal year 2009, the Company paid total
$19,570 (£12,500) plus applicable taxes and utilities. The lease payments
for each of the two succeeding fiscal years are as
follows:
|
2010
|
18,309 | |||
Total:
|
$ | 18,309 |
F-22
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2009
(Stated in U.S.
Dollars)
Note
6 Commitments
(continued)
(m)
|
Effective
February 1, 2009 the Company entered into a six (6) year lease for office
and warehouse space in a property located in New Haven, East Sussex, U.K.,
adjacent to its current leased facilities at an annual rate of $26,032
(£16,000) plus taxes and expenses, payable monthly in advance, commencing
January 30, 2009. Concurrently the Company entered into an
option to purchase the aforementioned property during the period April 30,
2014 through January 29, 2015, for a purchase price of £230,000. During
the fiscal year 2009, the Company paid total $16,700 (£10,667) plus
applicable taxes.
|
|
The
lease payments for each of the five succeeding fiscal years are as
follows:
|
2010
|
$ | 26,040 | |||
2011
|
26,040 | ||||
2012
|
26,040 | ||||
2013
|
26,040 | ||||
After
2013
|
36,890 | ||||
Total:
|
$ | 141,050 |
|
(n)
|
On
March 12, 2009 and May 5, 2009 the Company entered into two agreements
with Gersten Savage LLP, the Company’s attorneys, in connection with the
filing and prosecution of certain foreign patent applications with respect
to the Unitary Engine and Reservoir Engine Inventions as well as
additional refrigeration types; and, prosecution and filing of additional
United States applications for the Reefer Control System, In-line
Automotive Auxiliary Power System and Land-fill/Waste Heat Auxiliary Power
Generation System. Under the terms of the retainer agreements,
the Company agreed to pay fixed fees as
follows:
|
§
|
$810,000
worth of the Company’s restricted common shares with a deemed value of
$0.375 per share. The Company issued a total of 2,160,000 shares in full
and final settlement of this provision and a total
of $1,176,000, [$600,000 as to 1,200,000 common shares with a
market value of $0.50 on the date of the agreement, and $576,000 as to
960,000 common shares with a market value of $0.60 on the date of the
agreement], has been expensed in respect of the issuance of these shares
on the Company’s income statement during the
year;
|
§
|
$450,000
in cash payments due under the March 12, 2009 agreement and $240,000 in
cash payments due under the May 5, 2009 retainer agreement for a total of
$690,000 in cash payments, which amount is payable as follows: $35,000 and
$10,000, respectively, due upon signing of the individual
retainer agreements; $15,000 per month commencing 120 days from March 12,
2009 and $7,500 per month commencing 120 days from May 5, 2009 until such
time as the balance of the required cash amounts are settled in
full. During the quarter the Company did not make any cash
payments in respect of the two retainer
agreements;
|
§
|
In
the event the Company should obtain additional financing in an amount of
$3 million US Dollars, there shall be an acceleration as to monthly
amounts to be invoiced under the May 5, 2009 retainer agreement such that
there will be an immediate settlement of $200,000 in outstanding fees,
with a further settlement of $100,000 in fees with each subsequent
$1,000,000 raised.
|
§
|
Under
the terms of the retainer agreements the Company further agrees to grant
piggyback registration and/or S-8 rights and shall include the
Designees’ shares of restricted common stock in its next registration
statement.
|
F-23
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
August
31, 2009
(Stated in U.S.
Dollars)
Note
6 Commitments
(continued)
(o)
|
On
April 29, 2009 the Company’s wholly-owned subsidiary CPTL-UK entered into
an employment contract which calls for a total of 25,000 shares of the
Company’s common stock to be issued as stock awards upon completion of
certain technology development benchmarks. Using
the guidance provided in SFAS 123R the Company has not recorded
compensation cost in respect of this performance-based award as at August
31, 2009. The Company has determined it is currently doubtful
that employees will earn the right to benefit from the performance based
awards. Concurrently under this employment contract the employee is
entitled to receive a total of 50,000 service-based awards which are
granted over a three year period on the anniversary date of the
contract. In respect of these awards, the Company has
recognized a stock-based compensation expense. Refer to Note
9(ii) – Restricted Stock Awards for additional
details.
|
(p)
|
On
June 29, 2009 the Company entered into a five (5) year lease for
additional office and warehouse space in a property located in New Haven,
East Sussex, U.K., adjacent to its current leased facilities at an annual
rate of $24,412 (£15,000) payable quarterly commencing June
2009. Concurrently the Company entered into an option to
purchase the aforementioned property, exercisable June 2009 through
December 2010, for a purchase price the greater of (i) the price stated in
an Independent Valuation or (ii) £425,000 less any reductions previously
specified and agreed in a former option agreement. During the
fiscal year 2009, the Company paid total $4,150 (£2,650) plus applicable
taxes.
|
|
The
lease payments for each of the five succeeding fiscal years are as
follows:
|
2010
|
$ | 24,412 | ||
2011
|
24,412 | |||
2012
|
24,412 | |||
2013
|
24,412 | |||
2014
|
12,206 | |||
Total:
|
$ | 109,854 |
(q)
|
On
July 17, 2009, the Company entered into a four months loan agreement (the
“Note”) with an unrelated third party for the amount $84,000. The loan had
an interest rate of 1% per month, payable in advance for the
duration of the Note and deducted from the proceeds of the Note on
funding. The Note was subsequently paid in full on November 10,
2009.
|
Note
7 Secured Convertible Note
Financings
Secured
Convertible Notes consist of the following financings as of August 31,
2009:
Carrying
Value
|
||||
8%
face value $2,000,000 secured convertible notes issued July 10, 2008 and
due on July 10, 2010
|
$ | (242,304 | ) |
On July
10, 2008 we entered into a financing arrangement with The Quercus
Trust. The financing arrangement involved the issuance of $2,000,000
of 8.0% secured convertible notes payable, due July 10, 2010 plus warrants to
purchase 4,285,715 (Class A Warrants) and 2,857,143 (Class B Warrants) shares of
our common stock with strike prices of $0.60 and $0.80, respectively, for a
period of five years from the date of issuance. The secured convertible notes
are convertible into our common shares based upon a fixed conversion price of
$0.35 and provide for customary conversion price adjustments. The holder has the
option to redeem the secured
F-24
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
7 Secured Convertible Note
Financings (Continued)
convertible
notes for cash in the event of defaults and certain other contingent events,
including a change in control event and events related to the common stock into
which the instrument was convertible, registration and listing (and maintenance
thereof) of our common stock and filing of reports with the Securities and
Exchange Commission (the “Default Put”). Further, the Company may, at its
option, choose to redeem the convertible notes at any time prior to the one (1)
year anniversary of issuance. Any such redemption shall be at one
hundred & twenty percent (120%) of the principal amount of the Note.
Moreover, interest on the convertible note is payable at the option of the
Company to the holder annually either in cash or in common stock. In addition,
we granted registration rights to the holder that requires registration and
continuing effectiveness thereof; we would be required to pay monthly
liquidating damages of 1.0% for defaults under this provision.
We
received net proceeds of $1,815,000 from the July 10, 2008 financing
arrangement. Incremental, direct financing costs of $185,000 (including
placement agent warrants valued at $221,588 using the Black-Scholes-Merton
valuation technique) are included in deferred financing costs and are subject to
amortization using the effective method. Accumulated amortization of deferred
financing costs, which is included in interest expense, during the current
quarterly period, amounted to $23,315.
In our
evaluation of the financing arrangement, we concluded that the conversion
features were not afforded the exemption as a conventional convertible
instrument due to the anti-dilution protection; and it did not otherwise meet
the conditions set forth in current accounting standards for equity
classification. Since equity classification is not available for the conversion
feature, we were required to bifurcate the embedded conversion feature and carry
it as a derivative liability, at fair value. We also concluded that the Default
Put required bifurcation because, while puts on debt instruments are generally
considered clearly and closely related to the host, the Default Put is indexed
to certain events, noted above, that are not associated debt instruments. We
combined all embedded features that required bifurcation into one compound
instrument that is carried as a component of derivative liabilities. We
determined that placement agent warrants met the conditions for equity
classification. However, the investor warrants did not meet the
conditions for equity classification. Therefore, the investor warrants are also
required to be carried as a derivative liability, at fair value. Derivative
financial instruments are carried initially and subsequently at their fair
values.
We
estimated the fair value of the compound derivative on the inception dates, and
subsequently, using the Monte Carlo valuation technique, because that technique
embodies all of the assumptions (including credit risk, interest risk, stock
price volatility and conversion behavior estimates) that are necessary to fair
value complex, compound derivative instruments. We estimated the fair value of
the warrants on the inception dates, and subsequently, using the
Black-Scholes-Merton valuation technique, adjusted for the effect of dilution
because that technique embodies all of the assumptions (including, volatility,
expected terms, and risk free rates) that are necessary to fair value
freestanding warrants.
The
following tabular presentation sets forth the derivative fair values as of the
inception date of the financing transaction, year ended August 31, 2008 and
August 31, 2009:
Compound
Embedded
Derivatives
|
Warrant
Derivative
|
Total
Derivatives
|
||||||||||
Inception
date (July 10, 2008)
|
$ | (1,549,746 | ) | $ | (2,769,857 | ) | $ | (4,319,603 | ) | |||
August
31, 2008
|
$ | (1,933,002 | ) | $ | (3,372,000 | ) | $ | (5,305,002 | ) | |||
August
31, 2009
|
$ | (779,193 | ) | $ | (1,667,173 | ) | $ | (2,446,366 | ) |
F-25
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
7 Secured Convertible Note
Financings (Continued)
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of the inception date of the financing are illustrated in the
following tables:
Compound
Embedded
Derivative
|
||||
$2,000,000
face value secured convertible notes due July 10, 2010:
|
||||
Conversion
price
|
$ | 0.35 | ||
Volatility
|
78.96 | % | ||
Equivalent
term (years)
|
1.82 | |||
Credit-risk
adjusted yield
|
8.50 | % | ||
Interest-risk
adjusted rate
|
9.48 | % | ||
Dividends
|
- |
Class
A Warrant
Derivative
|
Class
B Warrant
Derivative
|
|||||||
Warrants
to purchase common stock:
|
||||||||
Strike
price
|
$ | 0.60 | $ | 0.80 | ||||
Volatility
|
98.83 | % | 98.83 | % | ||||
Term
(years)
|
5.00 | 5.00 | ||||||
Risk-free
rate
|
3.10 | % | 3.10 | % | ||||
Dividends
|
- | - |
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of August 31, 2008 are illustrated in the following
tables:
Compound
Embedded
Derivative
|
|
$2,000,000
face value secured convertible notes due July 10, 2010:
|
|
Conversion
price
|
$0.35
|
Volatility
|
77.12%
|
Equivalent
term (years)
|
1.63
|
Credit-risk
adjusted yield
|
9.21%
|
Interest-risk
adjusted rate
|
9.49%
|
Dividends
|
-
|
Class
A Warrant
Derivative
|
Class
B Warrant
Derivative
|
|||||||
Warrants
to purchase common stock:
|
||||||||
Strike
price
|
$ | 0.60 | $ | 0.80 | ||||
Volatility
|
100.83 | % | 100.83 | % | ||||
Term
(years)
|
4.86 | 4.86 | ||||||
Risk-free
rate
|
3.10 | % | 3.10 | % | ||||
Dividends
|
- | - |
F-26
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
7 Secured Convertible Note
Financings (Continued)
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of August 31, 2009 are illustrated in the following
tables:
$2,000,000
face value secured convertible notes due July 10, 2010:
|
Compound
Embedded Derivative
|
|||
Conversion
price
|
$ | 0.35 | ||
Volatility
|
63.88 | % | ||
Equivalent
term (years)
|
0.855 | |||
Credit-risk
adjusted yield
|
9.28 | % | ||
Interest-risk
adjusted rate
|
7.14 | % | ||
Dividends
|
- |
Class
A Warrant
Derivative
|
Class
B Warrant
Derivative
|
|||||||
Warrants
to purchase common stock:
|
||||||||
Strike
price (1)
|
$ | 0.45 | $ | 0.45 | ||||
Volatility
|
88.39 | % | 88.39 | % | ||||
Term
(years)
|
3.86 | 3.86 | ||||||
Risk-free
rate
|
2.39 | % | 2.39 | % | ||||
Dividends
|
- | - | ||||||
(1)
The strike price of the Class A and Class B Warrants were reduced from
their contractual exercise price of $0.60 and $0.80, respectively, because
the warrant agreements contain down-round protection features and we
subsequently issued warrants with a strike price of $0.45.
|
Note
8 Stock Purchase
Agreement
On
February 10, 2009 we entered into a stock purchase agreement with The Quercus
Trust. The stock purchase agreement involved the issuance of 2,222,222 shares of
common stock plus warrants to purchase 1,666,667 (Investor Series A Warrants)
and 1,111,111 (Investor Series B Warrants) shares of our common stock with
strike prices of $0.60 and $0.85, respectively, for a period of one year from
the date of issuance. The stock purchase agreement resulted in gross proceeds of
$1,000,000. In connection with the purchase agreement, the placement agent
received warrants to purchase 133,333 (Agent Series A Warrants) and 88,889
(Agent Series B Warrants) shares of our common stock with strike prices of $0.60
and $0.85, respectively, for a period of one year from the date of issuance.
Incremental, direct financing costs (placement agent warrants valued at $55,129)
were allocated to the common stock and warrants based on their relative fair
values in accordance with Accounting Principles Board Opinion No. 14 Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants (APB 14). In connection
with our accounting for the Common Stock Purchase Agreement we recorded a
day-one derivative loss related to the portion of the placement agent costs that
were allocated to the warrants.
F-27
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
8
|
Stock Purchase
Agreement (Continued)
|
The
following table illustrates how the proceeds arising from the stock purchase
agreement were allocated on the inception date:
Classification
|
Allocation
|
|||
Day-one
derivative loss
|
$ | (21,103 | ) | |
Common
Stock (par value)
|
2,222 | |||
Paid-in
Capital (Common Stock)
|
274,641 | |||
Derivative
Liabilities (Warrants)
|
744,240 | |||
Proceeds
|
$ | 1,000,000 |
In our
evaluation of the purchase transaction, we concluded that the Common Stock
issued met equity classification. There were no terms and conditions associated
with the Common Stock that warranted classification outside of stockholders’
equity pursuant to either Statement of Financial Accounting Standards No. 150
Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
(FAS 150) or Emerging Issues Task Force Consensus No. D-98 Classification and
Measurement of Redeemable Securities (EITF D-98). However, the investor
warrants and agent warrants did not meet the conditions for equity
classification. The warrant contracts embody a provision whereby the placement
warrants fall within the scope of FAS 150. Although the redemption event is
conditional in nature, the standards require liability classification as a
written put warrant under FAS 150 and must be recorded at fair value each
reporting period.
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of the inception date is illustrated in the following
tables:
Series
A
Warrant
Derivative
|
Series
B
Warrant
Derivative
|
|
Warrants
to purchase common stock:
|
||
Strike
price
|
$0.60
|
$0.85
|
Volatility
|
161.85%
|
161.85%
|
Term
(years)
|
1.00
|
1.00
|
Risk-free
rate
|
0.60%
|
0.60%
|
Dividends
|
-
|
-
|
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of August 31, 2009 are illustrated in the following
tables:
Series
A
Warrant
Derivative
|
Series
B
Warrant
Derivative
|
|||||||
Warrants
to purchase common stock:
|
||||||||
Strike
price
|
$ | 0.60 | $ | 0.85 | ||||
Volatility
|
38.45 | % | 38.45 | % | ||||
Term
(years)
|
0.45 | 0.45 | ||||||
Risk-free
rate
|
0.24 | % | 0.24 | % | ||||
Dividends
|
- | - |
F-28
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
8
|
Stock Purchase
Agreement (Continued)
|
ASC
820‐10‐55‐62 Fair Value
Measurements and Disclosures (pre Codification FAS No. 157 Fair
Value
Measurements)
provides that for assets and liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) during the period, a
reconciliation is required of the beginning and ending balances.
The
reconciliation of our derivative liabilities measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) as of August 31,
2009 is as follows:
Fair
Value Measurements
Using
Significant Unobservable Inputs
(Level
3)
|
||||||||||||
Compound
Embedded
Derivative
|
Warrant
Derivative
|
Total
|
||||||||||
Beginning
balance
|
$ | (962,733 | ) | $ | (3,335,137 | ) | $ | (4,297,870 | ) | |||
Total
(gains) or losses including in earnings
|
183,540 | 1,667,964 | 1,851,504 | |||||||||
Ending
balance
|
$ | (779,193 | ) | $ | (1,667,173 | ) | $ | (2,446,366 | ) |
Note
9 Common
Stock
(a)
|
During
the fiscal year ended August 31, 2009, the Company issued shares of common
stock as follows:
|
(i) | 850,000 shares with respect to the conversion of certain outstanding related party debt due to the Company’s CEO, Abdul Mitha. Refer to Note 5 – Related Party Transactions, above. | |
(ii) | 2,222,222 shares in respect of a stock purchase agreement. Refer to Note 8 – Stock Purchase Agreement, above. | |
(iii) | 2,160,000 shares with respect to a retainer agreement with the law firm of Gersten Savage LLP, the Company’s attorneys. Refer to Note 6 – Commitments, above. | |
(iv) | 732,000 shares to employees and consultants under its 2007 Stock Option and Award Plan as compensation for services rendered. | |
(v) | 470,725 shares in respect of an annual interest payment due with respect to a certain Secured Convertible Note Financing. Refer to Note 7 – Secured Convertible Note Financing above. | |
(vi) | 25,000 shares reserved for issuance to a consultant as compensation for services rendered up to July 28, 2009 (shares issued on September 24, 2009); | |
(vii) | 800,000 shares reserved for issuance to employees, officers and consultants as stock based awards for achieving the first benchmark in the Company’s development program on July 23, 2009 (shares isued on September 24, 2009). | |
F-29
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
9 Common Stock
(Continued)
(b)
|
Stock-based
compensation:
|
(i)
|
Executive
Stock Options
|
|
|
On May
22, 2008, the Board of Directors approved an Employment Agreement (the
“Agreement”) with Mr. Abdul Mitha, a director and executive officer of the
Company. Under the terms of the Agreement, the Company has agreed to
enter into a stock option agreement with Mr. Mitha, granting Mr. Mitha the
option to purchase on each anniversary of the Agreement 1,000,000 shares of the
Company’s common stock at an exercise price of the average 90 days trading price
immediately preceding the anniversary date of the Agreement. The
options vest immediately upon issuance of the underlying agreement at each
anniversary date, and the option shares shall be exercisable by Mr. Mitha within
5 years from the date of grant. Further under the terms of the
Agreement, all options issued to Mr. Mitha in accordance with the Agreement
shall become immediately exercisable as to 100% of the shares of Common Stock
not otherwise vested upon any termination of employment.
Following
is a table outlining the number of options required to be granted as fully
vested under the Agreement at each anniversary date and the term of said
options:
Date
|
Number
of options
|
Expiry
date
|
|||
May
1, 2009
|
1,000,000 |
April
30, 2014
|
|||
May
1, 2010
|
1,000,000 |
April
30, 2015
|
|||
May
1, 2011
|
1,000,000 |
April
30, 2016
|
|||
May
1, 2012
|
1,000,000 |
April
30, 2017
|
|||
May
1, 2013
|
1,000,000 |
April
30, 2018
|
|||
May
1, 2014
|
1,000,000 |
April
30, 2019
|
|||
6,000,000 |
For
financial reporting purposes, the Company has relied on the guidance provided in
FASB 123R and has valued the options over 1,2,3,4,5 and 6 years at inception
(May 1, 2008) applying variable accounting. The fair value of the shares will be
recalculated at each reporting date using an exercise price of the preceding 90
days applying Volume Weighted Average Pricing (VWAP). The value attributable to
the vested portion of each tranche will be amortized over its requisite period,
with a final value being calculated on the grant date for each tranche applying
the 90 day VWAP immediately preceding the actual date of grant. Additionally, we
have not applied a forfeiture rate to these shares as under the terms of the
Agreement the shares are guaranteed to become fully vested.
F-30
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
9 Common Stock
(Continued)
(b)
|
Stock-based
compensation - Continued
|
(i) Executive
Stock Options – continued
The fair
value of each option granted was computed using the Black-Scholes method using
the following weighted-average assumptions:
Stock
Price
(Issue
date)
|
Exercise
price
|
Risk
Free interest rate
|
Date
of issue
|
Expiration
date
|
Term
(years)
|
Volatility
|
Value
|
|||||||||||||||||
$ | 0.50 | $ | 0.548 | 2.34 | % |
5/1/2008
|
5/1/2014
|
2.4260 | 82.83 | % | $ | 0.27 | ||||||||||||
$ | 0.50 | $ | 0.555 | 2.39 | % |
5/1/2008
|
5/1/2015
|
2.7959 | 79.92 | % | $ | 0.21 | ||||||||||||
$ | 0.50 | $ | 0.555 | 2.39 | % |
5/1/2008
|
5/1/2016
|
3.2801 | 79.92 | % | $ | 0.22 | ||||||||||||
$ | 0.50 | $ | 0.555 | 2.39 | % |
5/1/2008
|
5/1/2017
|
3.7822 | 79.92 | % | $ | 0.24 | ||||||||||||
$ | 0.50 | $ | 0.555 | 2.39 | % |
5/1/2008
|
5/1/2018
|
4.2753 | 79.92 | % | $ | 0.26 | ||||||||||||
$ | 0.50 | $ | 0.555 | 2.39 | % |
5/1/2008
|
5/1/2019
|
4.7685 | 79.92 | % | $ | 0.27 |
The fair
value of the vested portion of options granted during the fiscal year ended
August 31, 2008 totals $380,290 which amount has been expensed and recorded
as a current liability on the Company’s balance sheet. The fair value
of the vested portion of options during the year ended August 31, 2009 totals
$338,545 which amount has also been expensed and recorded as a current
liability on the Company’s balance sheet. The following table summarizes details
of the vesting schedule and associated fair value calculations:
Option
Grant
date
|
Option
Qty
|
Fair
Market Value as at May 31, 2008
$
|
Amortization
Term
(In
months)
|
Amortized
value as at August 31, 2009
$
|
||||||||||||
May
1, 2009
|
1,000,000 | 273,038 | 12 | 273,038 | ||||||||||||
May
1, 2010
|
1,000,000 | 206,630 | 24 | 137,754 | ||||||||||||
May
1, 2011
|
1,000,000 | 224,523 | 36 | 99,788 | ||||||||||||
May
1, 2012
|
1,000,000 | 241,052 | 48 | 80,351 | ||||||||||||
May
1, 2013
|
1,000,000 | 255,627 | 60 | 68,167 | ||||||||||||
May
1, 2104
|
1,000,000 | 268,821 | 72 | 59,738 | ||||||||||||
6,000,000 | 1,469,691 | 718,836 |
(ii) Restricted stock
awards
The Board
of Directors approved a stock option and stock award plan on February 10, 2007
(the “2007 Plan”). Under the 2007 Plan, a maximum of 2,000,000 shares of the
common stock, par value $0.001 per share, may be awarded to directors, officers,
employees and consultants of the Company. The duration of the 2007 Plan has been
set at 10 years from the time of adoption thereof by the Board of
Directors. The Board of Directors approved a further stock
option and stock award plan on February 10, 2008 (the “2008 Plan”). Under the
2008 Plan, a maximum of 2,500,000 shares of the common stock, par value $0.001
per share, may be awarded to directors, officers, employees and consultants of
the Company. The duration of the 2008 Plan has been set at 10 years from the
time of adoption thereof by the Board of Directors. The Board of Directors
approved a further stock option and stock award plan on April 30, 2009 (the
“2009 Plan”). Under the 2009 Plan, a maximum of ,000,000 shares of the common
stock, par value $0.001 per share, may be awarded to directors, officers,
employees and consultants of the Company. The duration of the 2009 Plan has been
set at 10 years from the time of adoption thereof by the Board of
Directors.
F-31
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
9 Common Stock
(Continued)
(b)
|
Stock-based
compensation - Continued
|
(ii) Restricted stock awards
- continued
During
the fiscal year ended August 31, 2009, the Company issued and reserved for
issuance fully vested stock awards totaling 1,557,000 shares to employees and
consultants under its Stock Option and Award plans as compensation for services
rendered. The shares were valued at the closing price of the
Company’s common stock on the respective issue and/or reservation
dates:
(a)
|
On
September 8, 2008, $0.59 per share with respect to 225,000 common shares
issued to employees of wholly-owned subsidiary CPTL-UK, for a total of
$132,750; and
|
(b)
|
On
September 8, 2008, $0.59 per share with respect to 32,000 common shares,
for a total of $18,800.
|
(c)
|
On
January 9, 2009, $0.50 per share with respect to 350,000 common shares
issued to an officer of the Company and an employee of the Company’s
wholly-owned subsidiary CPTL-UK for a total of
$175,000.
|
(d)
|
On
March 3, 2009, $0.50 per share with respect to 100,000 common shares
issued to an employee of the Company’s wholly-owned subsidiary CPTL-UK for
a total of $50,000.
|
(e)
|
On
June 30, 2009, $0.55 per share with respect to 25,000 common shares issued
to an employee of the Company’s wholly-owned subsidiary CPTL-UK for a
total of $13,750.
|
(f)
|
On
July 23, 2009, $0.55 per share with respect to 800,000 common shares
reserved for issuance to certain officers and employees of the Company’s
wholly-owned subsidiary CPTL-UK upon reaching the first benchmark in the
Company’s development program for a total of $440,000. The
shares were subsequently issued on September 24,
2009.
|
(g)
|
On
July 28, 2009, $0.55 per share with respect to 25,000 common shares
reserved for issuance to an employee of the Company’s wholly-owned
subsidiary CPTL-UK for a total of $13,750. The shares were
subsequently issued on September 24,
2009.
|
All
amounts have been expensed during the respective periods.
Under
SFAS 123R, restricted stock awards are granted subject to certain restrictions,
including in some cases service conditions. The grant-date fair value of
restricted stock awards, which has been determined based upon the market value
of the Company’s shares on the grant date, is expensed over the vesting
period. During fiscal year ended August 31, 2009, the Company has
granted 1,032,000 stock awards to certain employees which are subject to certain
service conditions, including term of employment. 275,000 stock
awards remain unvested as at August 31, 2009. In respect of
these awards, the Company has recognized stock-based compensation of $55,052
with respect to the vested portion at August 31, 2009, and unrecognized
compensation expense totaling $81,948 is expected to be recognized over fiscal
2010, 2011 and 2012 as to $51,704, $23,760, $6,484,
respectively.
F-32
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
9 Common Stock
(Continued)
(b)
|
Stock-based
compensation - Continued
|
(iii) Restricted stock awards
- continued
The
following table summarizes information on the Company’s restricted stock
awards.
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
Unvested,
at August 31, 2008
|
- | - | ||||||
Granted
|
1,032,000 | $ | 0.53 | |||||
Vested
|
757,000 | 0.57 | ||||||
Forfeited
|
- | |||||||
Unvested,
end of August 31, 2009
|
275,000 | $ | 0.50 |
Note
10 Warrants
The
Company had outstanding warrants to purchase 10,714,286 and 7,714,286 shares of
its common stock at August 31, 2009 and August 31, 2008, respectively, at prices
ranging from $0.60 to $0.85 per share.
The
following schedule shows the warrants outstanding and changes made during the
fiscal year ended August 31, 2009:
Number
|
Weighted
Average
Exercise
Price
|
|||||||
Warrants
outstanding, August 31, 2008
|
7,714,286 | $ | 0.70 | |||||
Changes
during the fiscal year ended August 31, 2009
|
||||||||
Granted
|
3,000,000 | $ | 0.70 | |||||
Exercised
|
- | - | ||||||
Expired
|
- | - | ||||||
Warrants
outstanding, August 31, 2009
|
10,714,286 | $ | 0.70 |
Warrants
outstanding at August 31, 2009 expire as follow:
Year
|
Number
of Shares
|
|||
2010
|
3,000,000 | |||
2013
|
7,714,286 |
Detailed
terms of the valuations of the above noted warrants are discussed above in Note
7 – Secured Convertible Note Financings and Note 8 – Stock Purchase
Agreement.
F-33
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
11 Deferred Tax
Assets
|
At
August 31, 2009, the Company has incurred non-capital losses in the United
States totaling approximately $9,601,127 (2008-$7,018,000) and non-capital
losses in the U.K. totaling £2,294,416 (2008 - £1,109,000) which can be
carried forward and applied against future taxable income. The
losses in the U.K. may be carried forward indefinitely and the losses in
the United States expire in 2029.
|
At August
31, 2009 and 2008, the significant components of future income tax assets are as
follows:
2009
|
2008
|
|||||||
Deferred
tax assets
|
||||||||
Non-capital losses
carryforward
|
$ | 7,669,971 | $ | 3,229,000 | ||||
Valuation
allowance for deferred tax asset
|
(7,669,971 | ) | (3,229,000 | ) | ||||
$ | - | $ | - |
|
The
amount taken into income as deferred tax assets must reflect that portion
of the income tax loss carryforwards that is more likely than not to be
realized from future operations. The Company has chosen to
provide an allowance of 100% against all available income tax loss
carryforwards, regardless of their time of expiry. The increase
in valuation allowance was $4,440,971 for the year ended August 31,
2009.
|
Note
12 Other
On
October 31, 2008 the Company signed a letter of intent (“LOI”) with Flukong
Enterprise Inc. (“Flukong”) for a purchase order of up to 500 of Clean Power’s
steam hybrid engines to provide fuel savings of 40 per cent or better in
refrigerated trailer (“reefer”) applications with Flukong Enterprise Inc., an
Edmonton, Alberta based corporation. The LOI grants distributorship to Flukong
for new customers in both Canada and China, and is renewable annually if Flukong
can demonstrate inter alia
its capacity to meet a sales target of a pre-agreed number of reefer
engines per year. Under the terms of the LOI, Flukong would purchase
up to 500 of Clean Power’s hybrid refrigeration engines over an 18 month period,
following their formal certification by US regulatory bodies, most notably the
Environmental Protection Agency (“EPA”). Furthermore, upon
commencement of the first delivery, Clean Power would grant an option for
Flukong to purchase an additional 1,000 reefer engines per year for two years.
To secure these terms Flukong has paid a US$84,000 deposit to Clean Power
Technologies.
During
the quarter ended November 30, 2008, the Company and Quercus agreed to extend
the date for the filing of the registration statement on Form S-1, more
particularly described under Note 8 to these financial statements to November
19, 2008, on which date the Company successfully filed its Form
S-1. The registration statement was declared effective by the SEC on
December 4, 2008.
On June
13, 2009 the Company held its 2009 Annual General Meeting of Shareholders (the
“Meeting”). At the Meeting shareholders elected directors, ratified
the appointment of the Company’s independent auditors for the current fiscal
year and approved a 2009 Stock Option and Stock Award Plan whereby the Company
may issue up to 4,000,000 shares of the Company’s common stock to directors,
officers, employees and consultants, as further described in the Definitive
Schedule 14C filed with the SEC on May 19, 2009.
F-34
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
13
|
Subsequent
events
|
On
September 3, 2009, the Company entered into a Memorandum of Understanding (the
"MOU") with NewEnco and Renewable Power Systems ("RPS"). The
MOU sets out the terms and conditions whereby the Company, NewEnco and RPS have
agreed to work together through the MOU which is referred to as a Collaboration
Agreement with the ultimate goal of making landfill site operations more energy
efficient by installing a system developed and manufactured by the Company that
utilizes the heat recovery system on a landfill gas engine and recovers the
exhaust heat which will be used to make electricity and feed this into the
national grid. The terms of the MOU call for the Company to
place a heat recovery system on a landfill gas engine on the RPS and NewEnco
site at Abingdon, U.K. which will be used to recover the exhaust heat which the
Company will use to make electricity and feed into the national
grid. The Company expects to begin field tests in early 2010. Each of
the parties to the MOU shall be responsible for their own costs in connection
with the project.
On
September 24, 2009, the Company issued 15,000 shares of the Company’s common
stock to an employee with respect to provisions of his employment contract
providing for an annually granted service based award. Subsequent to the fiscal
year end, on September 24, 2009, the Company issued a total of 100,000 shares to
an advisory board member as a stock award.
On
September 24, 2009 the Company issued a total of 200,000 shares to employees of
the Company as stock based awards.
On
September 24, 2009, the company issued a total of 825,000 shares, which had been
previously reserved for issuance, as described above in Note 9 to the
consolidated notes to the financial statements, Section (a),sub-sections (vi)
and (vii).
On
October 2, 2009, the Company entered into an Amended and Restated Stock Purchase
Agreement (the "Purchase Agreement") with The Quercus Trust ("Quercus") a
California Trust that previously (i) purchased $2,000,000 in convertible
debentures issued by the Company pursuant to an offering conducted in July 2008;
and (ii) purchased 2,222,222 shares of the Company's Common Stock at a price of
$0.45 per share. The Purchase Agreement provided for the purchase by Quercus of
2,500,000 shares of the Company's common stock at a purchase price of $0.20 per
share (the "Shares"). In addition to the Shares, the Company also
agreed to issue warrants to purchase an aggregate of 3,125,000 shares
of the Company's common stock at an exercise prices of (x) $0.27 per
share for the initial 1,875,000 warrants (the "$0.27 Warrants); and (y) $0.38
per share for the remaining 1,250,000 warrants (the "$0.38
Warrants).
On
October 16, 2009, the Company entered into Amendment No. 1 to the Amended and
Restated Stock Purchase Agreement (the "Purchase Agreement") with The Quercus
Trust ("Quercus" or the "Purchaser"), a California Trust that previously (i)
purchased $2,000,000 in convertible debentures issued by the Company pursuant to
an offering conducted in July 2008; (ii) purchased 2,222,222 shares
of the Company's Common Stock at a price of $0.45 per share; and (iii) purchased
2,500,000 shares of the Company's common stock at a purchase price of $0.20 per
share. The Purchase Agreement provided for the purchase by Quercus of an
aggregate of 3,580,247 shares of the Company's common stock (the "Shares") as
follows: (i) 1,111,111 shares of the Company's Common Stock at a purchase price
of $0.45 per share; and (ii) 2,469,136 shares of the Company's Common Stock at a
purchase price of $0.405 per share. The aggregate purchase for these
securities was $1,500,000. In addition to the Shares, the Company also agreed to
issue to Quercus warrants to purchase (i) 833,333 shares of Common Stock at an
exercise price of $0.60 per share (the "$0.60 Warrants"); (ii) 555,555 shares of
Common Stock at an exercise price of $0.85 per share (the "$0.85 Warrants");
(iii) 1,857,852 shares of Common Stock at an exercise price of $0.54 per share
(the "$0.54 Warrants"); and (iv) 1,234,568 shares of Common Stock at an exercise
price of $0.77 per share (the "$0.77 Warrants").
F-35
CLEAN
POWER TECHNOLOGIES INC.
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
August
31, 2009
(Stated in U.S.
Dollars)
Note
13
|
Subsequent
events – (Continued)
|
On
October 16, 2009 and October 19, 2009, Ms. Diane Glatfelter and Mr. Peter
Gennuso, respectively, resigned from their position as members of the Board of
Directors of the Company pursuant to the terms of the Purchase Agreement, as
amended and restated. Concurrently, Mr. David Gelbaum, the
trustee of the Quercus Trust, was appointed to the Board of Directors of the
Company. The Company's Board currently consists of four members, two of which
are affiliates of the Quercus Trust.
On
November 11, 2009, the Company fulfilled its obligation with respect to a short
term loan of $84,000 to an unrelated third party, as identified above in the
notes to the consolidated financial statements, Note 6(r).
F-36
There are
not currently and have not been any disagreements between us and our accountants
on any matter of accounting principles, practices or financial statement
disclosure.
ITEM
9A(T). CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (“Exchange Act”), as of August 31, 2009. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to our Company required
to be included in our reports filed or submitted under the Exchange
Act.
Management’s
Report On Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined under Exchange Act Rules 13a-15(f)
and 14d-14(f). Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
All
internal control systems, no matter how well designed, have inherent limitations
and may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can only provide reasonable assurance with
respect to financial reporting reliability and financial statement preparation
and presentation. In addition, projections of any evaluation of
effectiveness to future periods are subject to risk that controls become
inadequate because of changes in conditions and that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of August 31, 2009. In making the assessment, management
used the criteria issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its assessment, management concluded that,
as of August 31, 2009, the Company’s internal control over financial reporting
was effective to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
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 registered public accounting firm pursuant to the temporary 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
There
were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls over
financial reporting that occurred during the quarter ended August 31, 2009, that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
There are
no items that required disclosure in a Form 8-K during the fourth quarter of the
year covered by this Form 10-K that were not reported by the
Company.
25
PART
III
Directors,
Executive Officers Promoters and Control Persons
The
following table sets forth the name, age and position of each of the members of
our board of directors, executive officers, and certain significant employees as
of the fiscal year ending August 31, 2009.
Name
|
Age
|
Position
|
Term
|
|||
Abdul
Mitha
|
63 |
Director
|
September
28, 2006 to date
|
|||
President
/ CEO
|
June
2, 2006 to date
|
|||||
Vice
President Finance
|
July
30, 2005 to date
|
|||||
Michael
Burns
|
54 |
Director
|
May
23, 2006 to date
|
|||
Significant
Employee, Project Manager
|
August
8, 2008 to date
|
|||||
David
Anthony
|
48 |
Director
|
February
10, 2009 to date
|
|||
Diane
Glatfelter
|
43 |
Secretary-Treasurer
and Chief Financial Officer
|
May
23, 2006 to October 16, 2009
|
|||
Peter
Gennuso
|
38 |
Director
|
May
15, 2008 to October 19, 2009
|
|||
Vice
President Corporate Strategy
|
February
23, 2009 to date
|
Our Board
of Directors consists of only one class. All of the directors will serve until
the next annual meeting of stockholders and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal.
There are no family relationships among directors and executive
officers. There are no arrangements or understandings between any
director or executive officer and any other person(s) pursuant to which a
director or executive officer was selected. Our executive officers
are elected annually by our Board of Directors. Ms. Glatfelter and Mr. Gennuso
resigned from the Board of Directors as per the Purchase Agreement with the
Querucs Trust. Mr. David Gelbaum, the trustee of the Quercus Trust, was
appointed to the Board of Directors on October 16, 2009. Simultaneously with
these resignations and appointment, Mr. Gennuso and Mr. James Mason were
appointed as Board Observers.
We know
of no pending proceedings to which any director, member of senior management, or
affiliate is either a party adverse to us, or our subsidiaries, or has a
material interest adverse to us or our subsidiaries.
None of
our executive officers or directors have been involved in any bankruptcy
proceedings within the last five years, been convicted in or has pending any
criminal proceedings, been subject to any order, judgment or decree enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity or been found to have violated any federal, state
or provincial securities or commodities law.
Abdul
Mitha, President, Chief Executive Officer and Member of the Board of
Directors
Mr. Mitha
is the sole director and President of our U.K. Subsidiary and the sole director
and officer of our Nevada subsidiary. Mr. Mitha has over twenty-five
years of domestic and international experience in the management of ongoing and
start-up public and private companies. Mr. Mitha has provided consulting and
advisory services to various start-up businesses in Canada including Findex
Resources, Inc., Meritworld.Com Inc., and E-Com Interactive, Inc. From March
1991 to September 2005, Mr. Mitha was the President and shareholder of AVS 90 PV
Associates Ltd. a company which acted as an advisor and consultant to start up
companies, and was involved in the financing and negotiating of joint venture
projects. From September 2005, to present, Mr. Mitha was the President and a
director of Unicus Corporation, a company involved in the promotion of steam and
gas technologies. Mr. Mitha practiced law at the English Bar from
1972 - 1977 when he immigrated to Canada. Since 1977, Mr. Mitha has been an
entrepreneur in business and real estate investments. Mr. Mitha received his MA
in Comparative Law from Brunel University, Middlesex, England and is a
Barrister-at-Law with the English Bar. Mr. Mitha was a member of the British
Institute of Management from 1973 to 1978 and a member of the Institute of
Arbitrators (England) from 1972 to 1978.
26
Mr. Mitha
is not an officer or director of any other reporting company that files annual,
quarterly or period reports with the United States Securities and Exchange
Commission.
Michael
Burns, Member of the Board of Directors
He is the
Secretary of our U.K. Subsidiary. Mr. Burns is an engineer with
experience in the field of control systems, and project management. From
December, 2002 to the date of this filing, Mr. Burns was the managing director
for Engineering Verification Services Ltd., a company offering various
automotive design and development projects including a heat recovery steam
engine hybrid vehicle project with Mitsui Babcock. From April 2001 to December
2002, Mr. Burns held the position of Chief Engineer, Engineering Verification
Services and Business Unit Manager with TWR Engineering Worthing Technical
Centre. From October 1994 to April 2001, Mr. Burns was employed by the Daewoo
Motor Company with his final position being Chief Engineer, vehicle testing,
prototype building and executive board member. He had under management a
department of 240 people. Mr. Burns resides in the United Kingdom.
Mr. Burns
is not an officer or director of any other reporting company that files annual,
quarterly or period reports with the United States Securities and Exchange
Commission.
David
Anthony, Member of the Board of Directors
Beginning in 2006, David Anthony has
been acting as managing partner of 21 Ventures, LLC, a New York based company
that provides seed and bridge capital to early stage technology ventures.
Mr. Anthony also serves on the board of directors of Agent Video
Intelligence, Orion Solar, BioPetroClean, Cell2Bet, Juice Wireless, Visioneered
Image Systems, and VOIP Logic. He is an Adjunct Professor at the New York
Academy of Sciences and also serves as entrepreneur-in-residence at the
University of Alabama, Birmingham School of Business. Mr. Anthony received
his MBA from The Tuck School of Business at Dartmouth College in 1989 and a BA
in economics from George Washington University in 1982.
Mr.
Anthony is not an officer or director of any other reporting company that files
annual, quarterly or period reports with the United States Securities and
Exchange Commission.
Diane
Glatfelter, Secretary-Treasurer and Chief Financial Officer
Ms.
Glatfelter holds a Bachelor of Science with a major in marketing and a minor in
management, received from the University of Bridgeport in 1988. From June 1999
to the date of this filing, Ms. Glatfelter is the President and shareholder of
K2 Unlimited, Inc. a consulting company which provides consulting in all areas
of cash flow, including factoring, purchase order advances, debt management,
bounced check recovery, loans, revenue management, risk management and
collections. Ms. Glatfelter has 150 million dollars of accounts
receivable under management for various clients at any one time. Ms. Glatfelter
resides in Billerica, MA.
Ms.
Glatfelter is an officer and director of OLM Ventures Inc. a reporting company
that files annual, quarterly or period reports with the United States Securities
and Exchange Commission.
Peter
Gennuso, Vice President Corporate Strategy
Mr.
Gennuso is a partner at Gersten Savage LLP, a law firm located in New York, NY,
where he specializes in corporate and securities law including securities
offerings, venture capital, private equity, mergers, acquisitions and emerging
growth companies. He has been with Gersten Savage since May 2004, initially
starting as an associate in the firm’s corporate and securities department.
Prior to joining Gersten Savage, Peter was an associate at a New York City law
firm. Mr. Gennuso is currently legal counsel for Clean Power Technologies Inc.
and has served as legal counsel since December 27, 2006. He earned a JD and MBA
(Finance) from Pace University in 1998.
Mr.
Gennuso is not an officer or director of any other reporting company that files
annual, quarterly or period reports with the United States Securities and
Exchange Commission.
Advisory
Board
The
Company has an advisory board as detailed below:
Professor Fred Bayley: Fred
Bayley is professor emeritus in the University of Sussex, which he joined in
1966 as the founding Professor of Mechanical Engineering. He moved from
Newcastle where after a spell in marine engineering
on the
Tyne he had become lecturer and, later, reader in the University Department of
Mechanical Engineering. He has taught and researched in heat transfer and fluid
mechanics while acting also as a consultant to the process and power industries.
The experience thus gained has been applied to gas turbines and recently to
hybrid vehicles. The UK Institution of Mechanical engineers awarded him the 2001
Dugald Clerk Prize for his paper on the saturated liquid accumulator to the
Total Vehicle Conference. Professor Bayley is the principal inventor of the
CESARS technology.
27
James Mason: Mr. Jim Mason is
a career automotive engineer and strategic consultant, initially trained by
General Motors. After an early career in programme management with GM Vauxhall
and Leyland Trucks, Jim joined ENASA Pegaso, the Spanish national truck and bus
maker, as Technical Director responsible for Advanced Technology, Product
Planning and Engineering. Based in Madrid, he was intimately involved in
acquisitions, such as UK truck-maker Seddon-Atkinson, and the process of
privatising the Company -- which culminated in its acquisition by Iveco (Fiat
Commercial Group) in 1990. Jim returned to the UK,
running his own engineering consultancy, until joining Daewoo in 1995 to head up
their strategic initiative aimed at establishing a credible design and
engineering centre in Europe. Since retiring from full-time employment in 2003
he has continued acting as a consultant to auto-engineering companies and to
private equity businesses requiring technical due diligence for proposed
acquisitions. Jim is also a Chartered Engineer (CEng.), a Fellow of the
Institution of Mechanical Engineers (FIMechE), and a Member of the Society of
Automotive Engineers (MSAE).
Section 16(a) Beneficial Ownership
Reporting Compliance
Based on
a review of Forms 3, 4, and 5 and amendments thereto furnished to the registrant
during its most recent fiscal year, the following represents each person who did
not file on a timely basis reports required by Section 16(a) of the Exchange Act
during the most recent fiscal year:
Name
|
Reporting
Person
|
Form
3/# of transactions
|
Form
4/# of transactions
|
Form
5/# of transactions
|
The
Quercus Trust
|
10%
owner
|
Late/1
|
N/A
|
N/A
|
Peter
Gennuso
|
Director
|
N/A
|
Late/2
|
N/A
|
Abdul
Mitha
|
Principal
Executive Officer and Director
|
N/A
|
Late/1
|
N/A
|
Code
of Ethics
Nominating
Committee
There
have been no material changes to the procedures by which security holders may
recommend nominees to the Company’s board of directors.
Audit
Committee
At this
time, the Company is not required to have an audit committee. Further, since
there are not sufficient independent members of the Board it is not feasible at
this time to have an audit committee. The Board of Directors
performs the same functions as an audit committee. The Board of
Directors in performing its functions as an audit committee has determined that
it does not have an audit committee financial expert.
ITEM
11. EXECUTIVE COMPENSATION.
Compensation
Discussion and Analysis
The Board
of Directors approved a stock option and stock award plan on February 10, 2007
(the “2007 Plan”). Under the 2007 Plan, a maximum of 2,000,000 shares of the
common stock, par value $0.001 per share, may be awarded to
directors, officers, employees and consultants of the Company. The duration
of the 2007 Plan has been set at 10 years from the time of adoption thereof by
the Board of Directors.
28
The Board
of Directors approved a further stock option and stock award plan on February
10, 2008 (the “2008 Plan”). Under the 2008 Plan, a maximum of 2,500,000 shares
of the common stock, par value $0.001 per share, may be awarded to directors,
officers, employees and consultants of the Company. The duration of the 2008
Plan has been set at 10 years from the time of adoption thereof by the Board of
Directors.
The Board
of Directors approved a further stock option and stock award plan on April 30,
2009 (the “2009 Plan”). Under the 2009 Plan, a maximum of 4,000,000 shares of
the common stock, par value $0.001 per share, may be awarded to directors,
officers, employees and consultants of the Company. The duration of the 2009
Plan has been set at 10 years from the time of adoption thereof by the Board of
Directors.
The
Company’s 2007 Plan, 2008 Plan, and 2009 Plan (collectively the “Plans”) are to
be used to maintain the ability of the Company and its subsidiaries to attract
and retain highly qualified and experienced directors, officers, employees and
consultants (“Participants”) and to give such Participants a continued
proprietary interest in the success of the Company and its subsidiaries.
Pursuant to this Plan, eligible Participants will be provided the opportunity to
participate in the enhancement of stockholder value through the grants of
options, stock appreciation rights, awards of free trading stock and restricted
stock, bonuses and/or fees payable in stock, or any combination
thereof.
The
Company’s Plans are currently administered by its Principal Executive Officer,
Mr. Abdul Mitha under the guidelines of the plans as detailed
below:
The
Administrator shall have the authority, in its discretion:
·
|
to
determine the fair market value of the securities to be issued under these
Plans;
|
·
|
to
select the Participants to whom the Options and Stock Awards may be
granted thereunder;
|
·
|
to
determine whether and to what extent Options or Stock Awards or any
combination thereof, are granted
thereunder;
|
·
|
·
|
to
approve forms of agreement for use under these
Plans;
|
·
|
to
determine the terms and conditions, not inconsistent with the terms of
these Plans, of any Option or Stock Award granted hereunder. Such terms
and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on
performance criteria), any vesting acceleration, and any restriction or
limitation regarding any Option or Stock Award or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall
determine;
|
·
|
to
construe and interpret the terms of this Plan and Options or Stock
Awards;
|
·
|
to
prescribe, amend and rescind rules and regulations relating to the Plans,
including rules and regulations relating to sub-plans established for the
purpose of qualifying for preferred tax treatment under foreign tax
laws;
|
·
|
to
modify or amend each Option or Stock Award (subject to Section 18(c)
of the Plans);
|
·
|
to
authorize any person to execute on behalf of the Company any instrument or
treasury order required to effect the grant of an Option or Stock Award
previously granted by the Administrator;
and
|
·
|
to
make all other determinations deemed necessary or advisable for
administering these Plans.
|
The
Company’s Executive Compensation is currently approved by the Board of Directors
of the Company in the case of the Company’s Principal Executive
Officer. For all other executive compensation contracts, the
Principal Executive Officer negotiates and approves the contracts and
compensation.
On May
22, 2008, the Board of Directors approved an Employment Agreement (the
“Agreement”) with Mr. Abdul Mitha, a director and executive officer of the
Company. Under the terms of the Agreement, the Company must employ
Mr. Mitha until July 1, 2014, unless sooner terminated, with the provision of
extending the term for an additional five (5) years upon mutual agreement
between the Company and Mr. Mitha. The Company has agreed to
compensate Mr. Mitha with an annual base salary of $500,000 during the first
year of the initial term, with annual increases of 20% per year thereafter
during the term of the Agreement, payable in consistent payroll installments.
The Company has also agreed to increase Mr. Mitha’s base salary to $750,000 when
the Company generates in excess of $1,000,000 and up to $5,000,000 in gross
revenue.
29
In the
event that the Company is unable to pay the base salary in cash to Mr. Mitha,
the Company is required to provide compensation within ninety (90) days by way
of restricted shares of common stock, issued at $0.50 per share. Mr.
Mitha is entitled to receive bonus payments or incentive compensation, as
outlined below, as may be determined by the Board of Directors of the
Company. Mr. Mitha is also entitled to participate in all stock
option plans of the Company in effect during the term of employment. The Company
shall take all action reasonably requested by the Executive to permit any
cashless exercise of the options as permitted under the Company’s Stock Option
Plan.
Under the
terms of the Agreement, Mr. Mitha shall be entitled to receive such bonus
payments or incentive compensation as may be determined at any time or from time
to time by the Board of Directors of the Company (or any authorized committee
thereof) in its discretion. Such potential bonus payments and/or
incentive compensation shall be considered at least annually by the Board or
committee and shall relate to the following:
·
|
200,000
shares when the Company raises a minimum of $3,000,000 financing for the
project. Should the amount raised be higher, additional shares on pro rata
basis.
|
·
|
200,000
shares when formal tests of the engines for each industry application are
successfully completed to the satisfaction of the first end user client in
such category.
|
·
|
150,000
shares when the Company enters into Joint Venture or Collaboration
Agreements with any company or companies which will help to accelerate the
Company’s project or help to accelerate the revenue
format.
|
·
|
100,000
share each year or pro rata thereof when the Company generates $1,000,000
in Gross Revenue during each operating year; thereafter 200,000 shares
each year or pro rata thereof when the Company generates in excess of
$1,000,000 and up to $5,000,000 in Gross Revenue during each operating
year; and 350,000 shares each year or pro rata thereof when the Company
generates $10,000,000 and up in Gross Revenue during each operating
year.
|
The first
200,000 shares, relative to formal tests in industry applications, were earned
during the fiscal year, and issued subsequent to the end of the fiscal
year.
Under the
terms of the Agreement, the Company has agreed to enter into a stock option
agreement with Mr. Mitha, granting Mr. Mitha the option to purchase at the end
of each anniversary of the Agreement 1,000,000 shares of the Company’s common
stock at an exercise price of the average 90 days trading price immediately
preceding the anniversary date of the Agreement. The options
vest immediately upon issuance of the underlying agreement at each anniversary
date, and the option shares shall be exercisable by Mr. Mitha within 5 years
from the date of grant. Further under the terms of the Agreement, all
options issued to Mr. Mitha in accordance with the Agreement shall become
immediately exercisable as to 100% of the shares of Common Stock not otherwise
vested upon any termination of employment. The stock options under this contract
were or are to be granted directly from Company treasury, as
earned. The first 1,000,000 options under this agreement were granted
in the fiscal year.
Following
is a table outlining the number of options required to be granted as fully
vested under the Agreement at each anniversary date and the term of said
options:
Date
|
Number
of Options
|
Expiry
Date
|
|||
May
1, 2009
|
1,000,000 |
April
30, 2014
|
|||
May
1, 2010
|
1,000,000 |
April
30, 2015
|
|||
May
1, 2011
|
1,000,000 |
April
30, 2016
|
|||
May
1, 2012
|
1,000,000 |
April
30, 2017
|
|||
May
1, 2013
|
1,000,000 |
April
30, 2018
|
|||
May
1, 2014
|
1,000,000 |
April
30, 2019
|
|||
TOTAL
|
6,000,000 |
On August
8, 2008, the project manager entered into a new employment agreement (the
“Employment Agreement”) with the Company for a term of four (4)
years. Under the terms of the Employment Agreement, from March 1,
2009 and on each subsequent anniversary during the term of the Employment
Agreement, the project manager is entitled to an annual salary increase of 10%
relative to a base salary of £10,000, as well as the following performance based
compensation:
30
·
|
500,000
shares of common stock when the Refrigeration Compact Heat Exchanger (the
“Refrigeration Unit”) for the grocery truck/trailer is successfully
tested;
|
·
|
1,000,000
shares of common stock when the first Refrigeration Unit is commercially
sold;
|
·
|
1,000,000
shares of common stock each time the heat recovery system for (i) the
Marine application or (ii) an Auxiliary Steam Engine for
trucks or similar engines based on steam recovery are commercially sold to
the first customer;
|
·
|
1,000,000
shares of common stock when the first automobile which is developed on the
heat recovery system is successfully tested and verified by the E.P.A;
and
|
·
|
1,000,000
shares of common stock when the first automobile heat recovery system is
commercially sold.
|
On
February 1, 2009, the Company entered into an addendum to accelerate the annual
salary increase permitted under the contract upon achieving certain development
benchmarks. As a result, starting March 1, 2009 Mr. Burn’s monthly
salary was adjusted to a base of £12,100.
The stock
awards under this contract were or are to be issued under the Company’s stock
option and stock award plans. With the achievement of the first milestone,
500,000 shares of common stock were earned under the Employment agreement in the
current fiscal year, and were issued subsequent to the fiscal year
end.
Summary
Compensation Table
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Nonqualified
Deferred Compensation Earnings ($)
|
All
Other Compensation ($)
|
Total
($)
|
Abdul
Mitha
Principal
Executive Officer
|
2009
|
533,333
|
-0-
|
110,000(1)
|
1,469,691(2)
|
-0-
|
-0-
|
-0-
|
2,113,024
|
Abdul
Mitha
Principal
Executive Officer
|
2008
|
166,667
|
-0-
|
-0-
|
2,913,061(3)
|
-0-
|
-0-
|
2,600.000
|
5,679,728
|
Diane
Glatfelter
Principal
Financial
Officer
|
2009
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Diane
Glatfelter
Principal
Financial Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Michael
Burns, Secretary CPTL-UK
|
2009
|
209,160
|
-0-
|
275,000(4)
|
-0-
|
-0-
|
-0-
|
-0-
|
484,160
|
Michael
Burns, Secretary CPTL-UK
|
2008
|
191,119
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
191,119
|
(1)
200,000 shares granted under performance incentive sections of employment
contract, which were earned in the fiscal year, and issued subsequent to
the end of the fiscal year.
|
|||||||||
(2)
Reflects the valuation of 1,000,000 issued option awards on May 1, 2009 at
the amount of $273,038 and the valuation of 5,000,000 granted option
awards at the amount of $1,196,653 which portion are revalued each quarter
until issued in blocks of 1,000,000 option awards upon the anniversary of
each May 1 until fully issued in 2014.
|
|||||||||
(3)
Reflects the valuation of 6,000,000 granted option awards at the fiscal
year ended August 31, 2008 which amount is revalued each quarter
commencing May 1, 2008 until issued in blocks of 1,000,000 upon the
anniversary of the grant date until May 1, 2014.
|
|||||||||
(4)
500,000 shares granted under performance incentive sections of employment
contract, which were earned in the fiscal year, and issued subsequent to
the end of the fiscal year.
|
31
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth for each named executive officer certain information
concerning the outstanding equity awards as of our latest fiscal year end August
31, 2009.
Option
Awards
|
Stock
Awards
|
||||||||
Name
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number
of Shares
or
Units
of
Stock
that
Have Not Vested
|
Market
Value
of
Shares
or
Units
of
Stock
that
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
Abdul
Mitha
|
1,000,000
|
Nil
|
5,000,000
|
See
(1)
below
|
See
(1)
below
|
Nil
|
Nil
|
Nil
|
Nil
|
Diane
Glatfelter
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Michael
Burns
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
4,000,000
|
See
(2)
below
|
|
(1)
Mr. Mitha has the option to purchase at the end of each anniversary of his
employment agreement, which commenced in May 2008, 1,000,000 shares of the
Company’s common stock at an exercise price of the average 90 days trading
price immediately preceding the anniversary date of the
Agreement. The options vest immediately upon issuance of
the underlying agreement at each anniversary date, and the option shares
shall be exercisable by Mr. Mitha within 5 years from the date of
grant.
|
|||||||||
(2)
Mr. Burns has the right to stock awards based on benchmarks of development
more particularly described above, from which 500,000 shares were earned
in the fiscal year. We have not valued the remaining awards as
they are not yet earned. Based on the closing price of $.45of
the Stock as at August 31, 2009 the awards would have had a value of
$1,800,000.
|
Compensation
of Directors
Name
|
Fees
Earned or Paid in Cash ($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation ($)
|
Total ($)
|
James
Mason, Advisory Board Member
|
20,183
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
20,183
|
Fred
Bayley,
Advisory
Board Member
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Other
than as detailed above, we did not pay director's fees to Company Directors and
Advisory Board Members by way of cash or other cash compensation for services
rendered as a director in the year ended August 31, 2009. We have no
present formal plan for compensating our directors for their service in their
capacity as directors, although in the future, such directors are expected to
receive compensation and options to purchase shares of common stock as awarded
by our board of directors or (as to future options) a compensation committee
which may be established in the future. Directors are entitled to
reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of our board of directors. The board of
directors may award special remuneration to any director undertaking any special
services on behalf of our company other than services ordinarily required of a
director. Other than as indicated in this Annual Report, no director
received and/or accrued any compensation for his or her services as a director,
including committee participation and/or special
assignments.
32
Compensation
Committee
We do not
currently have a compensation committee. The Company’s Executive
Compensation is currently approved by the Board of Directors of the Company in
the case of the Company’s Principal Executive Officer. For all
other executive compensation contracts, the Principal Executive Officer
negotiates and approves the contracts and compensation.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
Security
Ownership of Certain Beneficial Owners
The
following table sets forth information, as of November 17, 2009, with respect to
the beneficial ownership of the Company’s Common Stock by each person known by
the Company to be the beneficial owner of more than 5% of the outstanding common
stock. Information is also provided regarding beneficial ownership of
common stock if all outstanding options, warrants, rights and conversion
privileges (to which the applicable 5% stockholders have the right to exercise
in the next 60 days) are exercised and additional shares of common stock are
issued.
TITLE
OF CLASS
|
NAME
AND ADDRESS OF BENEFICIAL OWNER
|
AMOUNT
AND NATURE OF BENEFICIAL OWNER
|
PERCENT
OF CLASS(1)
|
Common
|
Doosan
Babcock Energy Ltd.
11
The Boulevard,
Crawley,
West Sussex, U.K.
|
4,000,000
shares held directly
|
5.20%
|
Common
|
Abdul
Mitha
32
Hawkwood Pl N.W.
Calgary,
Alberta T3G 1X6
CEO,
President, Director
|
11,538,493
common shares of which 8,538,493(2) common
shares are held directly, 2,000,000(3)
common shares are held indirectly, and 1,000,000 options held
directly(4)
|
12.24%
|
Common
|
The
Quercus Trust
1835
Newport Blvd, A109–PMB 467
Costa
Mesa, CA 92627
|
31,543,699
common shares held directly(5)
|
31.96%
|
(1)
based upon 76,940,942 issued and outstanding shares of common stock
as of November 17, 2009.
|
(2)
This amount includes 1,117,464 common shares which are available for issue
under the terms of a convertible loan with Mr. Mitha, as at August 31,
2009, and 200,000 shares granted according to performance incentive
clauses in Mr. Mitha’s employment contract.
|
(3)
These 2,000,000 common shares are owned by: Mr. Mitha’s wife, who owns
500,000 shares of common stock and Mr. Mitha’s son and daughter, who each
own 750,000 shares of common stock. Mr. Mitha disclaims any
beneficial ownership of these shares, and therefore these 2,000,000 shares
are not included in the percent of class calculation.
|
(4)
A total of 1,000,000 stock options are presently exercisable by Mr. Mitha
pursuant to his employment contract and are included in this
calculation. The options were issued on May 1, 2009, are fully
vested, and expire on April 30, 2014. The exercise price is the average 90
days trading price immediately preceding May 1, 2009. A further 5,000,000
options are required to be issued to Mr. Mitha over the period of his
contract or upon his termination. While the Company does not
anticipate a termination of Mr. Mitha’s contract these 5,000,000 options
are not included in the calculation as they have yet been earned pursuant
to the contract.
|
(5)
Consists of up to 5,714,286 shares of common stock to be issued pursuant
to a Convertible Debenture in the amount of $2,000,000, 470,725 shares of
common stock issued as interest on the Convertible Debentures, 4,285,714
shares of common stock issuable upon the exercise of Class A warrants and
2,857,143 shares of common stock issuable upon the exercise of Class B
warrants. This also includes 2,222,222 shares of common stock
issued as a result of a stock purchase agreement, which agreement also
included warrants to purchase 1,666,667 and 1,111,111 shares of common
stock at various strike prices. This includes a further 2,500,000 shares
issued in respect of an amended and restated purchase agreement as of
October 2, 2009 and 3,125,000 associated warrants available for purchase
at various strike prices. This includes further 3,580,247
shares of common stock issued in respect of Amendment No.1 to the amended
and restated purchase agreement, and 4,481,308 associated
warrants available for purchase at various strike prices. Mr. David
Gelbaum, a member of our Board of Directors of the Company, is the Trustee
of the Quercus Trust and has voting and dispositive power over the shares
beneficially owned by the Quercus Trust. Mr. David Anthony, a member of
the Board of Directors of the Company, is a consultant to the Quercus
Trust.
|
33
Security
Ownership of Management
The
following table shows, as of November 17, 2009, the shares of Clean Power Common
Stock beneficially owned by each director (including each nominee), by each of
the executive officers and by all directors and executive officers as a
group. Information is also provided regarding beneficial ownership of
common stock if all outstanding options, warrants, rights and conversion
privileges (to which the applicable officers and directors have the right to
exercise in the next 60 days) are exercised and additional shares of common
stock are issued.
TITLE
OF CLASS
|
NAME
OF BENEFICIAL OWNER
|
AMOUNT
AND NATURE OF BENEFICIAL OWNER
|
PERCENT
OF CLASS(1)
|
Common
|
Abdul
Mitha
32
Hawkwood Pl N.W.
Calgary,
Alberta T3G 1X6
CEO,
President, Director
|
11,538,493
common shares of which 8,538,493(2) common
shares are held directly, 2,000,000(3)
common shares are held indirectly, and 1,000,000 options held
directly(4)
|
12.24%
|
Common
|
Michael
Burns
Director
|
1,550,000
common shares of which 1,500,000 are held directly and 50,000(5)
common shares are held indirectly
|
1.95%
|
Common
|
Diane
Glatfelter
Chief
Financial Officer, Secretary-Treasurer and Director
|
240,000
common shares held directly
|
0.03%
|
Common
|
Peter
J. Gennuso
Vice
President Corporate Strategy and Director
|
861,839
common shares held directly
|
1.08%
|
Common
|
David
Anthony(6)
Director
|
0
common shares
|
0.00%
|
Common
|
All
Officers and Directors as a group
|
Common
shares
|
15.30%
|
(1)
based upon 76,940,942 issued and outstanding shares of common stock
as of November 17, 2009
|
(2)
This amount includes 1,117,464 common shares which are available for issue
under the terms of a convertible loan with Mr. Mitha, as at August 31,
2009, and 200,000 shares granted according to performance incentive
clauses in Mr. Mitha’s employment contract.
|
(3)
These 2,000,000 common shares are owned by: Mr. Mitha’s wife, who owns
500,000 shares of common stock and Mr. Mitha’s son and daughter, who each
own 750,000 shares of common stock. Mr. Mitha disclaims any
beneficial ownership of these shares, and therefore these 2,000,000 shares
are not included in the percent of class calculation.
|
(4)
A total of 1,000,000 stock options are presently exercisable by Mr. Mitha
pursuant to his employment contract and are included in this
calculation. The options were issued on May 1, 2009, are fully
vested, and expire on April 30, 2014. The exercise price is the average 90
days trading price immediately preceding May 1, 2009. A further 5,000,000
options are required to be issued to Mr. Mitha over the period of his
contract or upon his termination. While the Company does not
anticipate a termination of Mr. Mitha’s contract these 5,000,000 options
are not included in the calculation as they have yet been earned pursuant
to the contract.
|
(5)
The 50,000 common shares are owned by Mr. Burn’s wife. Mr.
Burns disclaims any beneficial ownership of these
shares.
|
(6)
Mr. David Anthony is a consultant to The Quercus Trust, whose shares of
common stock are included in the Quercus Trust disclosure above under the
heading “Security
Ownership of Certain Beneficial
Owners”.
|
Changes
in Control
None.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
On July
26, 2006, CPTL-UK entered into a lease agreement with an officer of CPTL-UK to
lease the office and laboratory premises for a term of three years. (see Note 6
– (a)). Under the terms of the lease, an expense of $29,400
(£18,778.40) was charged during the year ended August 31, 2009 by an officer of
CPTL-UK as rent. Upon expiration of the lease the officer agreed to continue to
provide month to month use of the premises at a rate of (£1,500) per month, plus
certain taxes, until such time as a long-term lease can be
negotiated.
34
Pursuant
to an employment agreement dated May 22, 2008, between the Company and its CEO,
Mr. Abdul Mitha, Mr. Mitha invoiced the Company $533,333 with respect to his
monthly salary obligation for the twelve month period ended August 31,
2009. During the twelve month period Mr. Mitha received payments
against his accrued salary totaling $160,418, leaving $499,582 due and payable
to Mr. Mitha in salary obligations as at August 31, 2009.
During
the fiscal year ended August 31, 2009 Mr. Mitha advanced $508,907 (2008
-$436,060) for operations, under the terms of a convertible debenture approved
September 28, 2006. In respect of these advances, during the twelve
months ended August 31, 2009 the Company recorded amortization of loan discount
in the amount of $127,596 (2008 - $80,246). Unamortized
discount at August 31, 2009, which has been applied to additional paid in
capital with respect to the beneficial conversion feature associated with the
loan proceeds advanced to the Company during the twelve months ending August 31,
2009, totalled $118,718 (2008 - $366,134), which amount is being amortized
over the term of the note(s) or until conversion. During
the quarter ended February 28, 2009, the Company issued 850,000 shares of common
stock to Mr. Mitha to retire $425,000 of the cumulative loans as at that date,
including all accrued interest as at the date of settlement, at $0.50 per share,
less an unamortized discount upon conversion totaling $(186,114). As
at August 31, 2009 the balance sheet reflects notes payable to Mr. Mitha of
$445,690 which amount reflects convertible loans totaling $558,732, net an
unamortized discount of $113,042.
Review,
Approval or Ratification of Transactions With Related
Persons
The
Company does not currently have any written policies and procedures for the
review, approval or ratification of any transactions with related
persons.
Promoters
and Certain Control Persons
None
Parents
There are
no parents of the Company
Director
Independence
As of the
date of this Annual Report, we do not have any independent
directors.
The
Company has developed the following categorical standards for determining the
materiality of relationships that the Directors may have with the Company. A
Director shall not be deemed to have a material relationship with the Company
that impairs the Director's independence as a result of any of the following
relationships:
1.
|
the
Director is an officer or other person holding a salaried position of an
entity (other than a principal, equity partner or member of such entity)
that provides professional services to the Company and the amount of all
payments from the Company to such entity during the most recently
completed fiscal year was less than two percent of such entity’s
consolidated gross revenues;
|
2.
|
the
Director is the beneficial owner of less than five (5%) per cent of the
outstanding equity interests of an entity that does business with the
Company;
|
3.
|
the
Director is an executive officer of a civic, charitable or cultural
institution that received less than the greater of one million
($1,000,000) dollars or two (2%) per cent of its consolidated gross
revenues, as such term is construed by the New York Stock Exchange for
purposes of Section 303A.02(b)(v) of the Corporate Governance Standards,
from the Company or any of its subsidiaries for each of the last three (3)
fiscal years;
|
4.
|
the
Director is an officer of an entity that is indebted to the Company, or to
which the Company is indebted, and the total amount of either the
Company's or the business entity's indebtedness is less than three (3%)
per cent of the total consolidated assets of such entity as of the end of
the previous fiscal year; and
|
5.
|
the
Director obtained products or services from the Company on terms generally
available to customers of the Company for such products or services. The
Board retains the sole right to interpret and apply the foregoing
standards in determining the materiality of any
relationship.
|
35
The Board
shall undertake an annual review of the independence of all non-management
Directors. To enable the Board to evaluate each non-management Director, in
advance of the meeting at which the review occurs, each non-management Director
shall provide the Board with full information regarding the Director’s business
and other relationships with the Company, its affiliates and senior
management.
Directors
must inform the Board whenever there are any material changes in their
circumstances or relationships that could affect their independence, including
all business relationships between a Director and the Company, its affiliates,
or members of senior management, whether or not such business relationships
would be deemed not to be material under any of the categorical standards set
forth above. Following the receipt of such information, the Board shall
re-evaluate the Director's independence.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth the fees billed to the Company for professional
services rendered by the Company's principal accountant, for the year ended
August 31, 2009 and August 31, 2008:
Services
|
2009
|
2008
|
||||||
Audit
fees
|
27,000 | 25,000 | ||||||
Audit
related fees
|
15,500 | 10,500 | ||||||
Tax
fees
|
3,700 | 0 | ||||||
Total
fees
|
$ | 46,200 | $ | 35,500 |
Audit
fees consist of fees for the audit of the Company's annual financial statements
or the financial statements of the Company’s subsidiaries or services that are
normally provided in connection with the statutory and regulatory filings of the
annual financial statements.
Audit-related
services include the review of the Company's financial statements and quarterly
reports that are not reported as Audit fees, in addition to auditor review of
the Company’s two S-1 filings during the fiscal period.
Tax fees
included tax planning and various taxation matters.
36
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial
Statements
The
following consolidated financial statements of the Company are filed as part of
this Annual Report on Form 10-K as follows:
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets
|
F-3
|
Consolidated
Statements of Operations and Comprehensive Loss
|
F-4
|
Consolidated
Statement of Changes in Stockholders’ Deficiency
|
F-5
to F-6
|
Consolidated
Statements of Cash Flows
|
F-7
to F-8
|
Notes
to the Consolidated Financial Statements
|
F-9
to F-36
|
All other
schedules have been omitted because they are not applicable, not required under
the instructions, or the information requested is set forth in the consolidated
financial statements or related notes there to.
Exhibits
EXHIBIT
NO.
|
IDENTIFICATION
OF EXHIBIT
|
|
3.1
|
Articles
of Incorporation
|
Incorporated
by reference to our SB-2 registration statement filed with the
Securities and Exchange Commission on March 15, 2004
|
3.1
(i)
|
Amendment
to Articles of Incorporation dated June 12, 2006
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 21, 2006
|
3.1(ii)
|
Amendment
to Articles of Incorporation dated June 13, 2006
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 21, 2006
|
3.2
|
Bylaws
|
Incorporated
by reference to our SB-2 registration statement filed with the Securities
and Exchange Commission on March 15, 2004
|
3.2(i)
|
Amended
and Restated Bylaws
|
Incorporated
by reference to our Form 10-QSB filed with the Securities and Exchange
Commission on January 22, 2007
|
10.1
|
Agreement
and Plan of Merger between the Company, Clean Energy and Power Solutions
Inc. and the shareholders of Clean Power Technologies Inc.
executed
on
May 22, 2006.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 21, 2006
|
10.2
|
Memorandum
of Understanding between the Company and Mitsui Babcock Energy Limited
dated September 11, 2006
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on September 12, 2006
|
10.3
|
Collaboration
Agreement between the Company and Mitsui Babcock Limited dated October 11,
2006
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on October 19, 2006
|
10.4
|
2007
Stock Option and Stock Award Plan approved by the Board of Directors and
the Shareholders
|
Incorporated
by reference to our Form SB-2 registration statement filed with the
Securities and Exchange Commission on March 23,
2007
|
37
10.5
|
Subscription
Agreement from Doosan Babcock Energy Ltd., executed pursuant to the
Collaboration Agreement between the Company and Doosan Babcock Energy Ltd.
dated October 11, 2006
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on June 20, 2007
|
10.6
|
2008 Stock
Option and Stock Award Plan approved by the Board of Directors and the
Shareholders
|
Incorporated
by reference to our Definitive 14-C filed with the Securities and Exchange
Commission on April 17, 2008
|
10.7
|
Employment
Agreement between Abdul Mitha and the Company effective May 1, 2008,
approved by the Board of Directors on May 22, 2008.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on May 28, 2008
|
10.8
|
Stock
Purchase Agreement dated July 10, 2008, by and between the Company and The
Quercus Trust
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 16, 2008
|
10.9
|
Promissory
Note issued by the Company to The Quercus Trust
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 16, 2008
|
10.10
|
Registration
Rights Agreement by and between the Company and The Quercus
Trust
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 16, 2008
|
10.11
|
Pledge
Agreement by and between the Company and The Quercus Trust
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 16, 2008
|
10.12
|
Class
A Warrant issued by the Company to the Quercus Trust pursuant to the Stock
Purchase Agreement dated July 10, 2008
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on July 16, 2008
|
10.13
|
Class
B Warrant issued by the Company to the Quercus Trust pursuant to the Stock
Purchase Agreement dated July 10, 2008
|
Incorporated
by reference to our Form 8-K filed with the Securities and
Exchange Commission on July 16, 2008
|
10.14
|
Cooperation
Agreement between the Company and Voith Turbo GmbH & Co., KG dated
August 5, 2008
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on August 8, 2008
|
10.15
|
Memorandum
of Understanding between the Company and Farm Fresh Marketing Inc. dated
December 12, 2008
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on December 16, 2008
|
10.16
|
Lease
Agreement between Quentin King and Clean Power Technologies Limited
effective November 13, 2008
|
Incorporated
by reference to our Form 10-Q filed with the Securities and Exchange
Commission on April 10, 2009.
|
10.17
|
Option
Agreement between Quentin King and Clean Power Technologies
Limited effective November 13, 2008
|
Incorporated
by reference to our Form 10-Q filed with the Securities and Exchange
Commission on April 10, 2009.
|
10.18
|
Lease
Agreement between Mr. Andrew Leaver and Mrs. Hilary Leaver and
Clean Power Technologies Limited effective November 18,
2008
|
Incorporated
by reference to our Form 10-Q filed with the Securities and Exchange
Commission on April 10, 2009.
|
10.19
|
Stock
Purchase Agreement dated February 10, 2009, by and between the Company and
The Quercus Trust
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on February 13, 2009
|
38
10.20
|
Form
of Registration Rights Agreement dated February 10, 2009, by and between
the Company and The Quercus Trust
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on February 13, 2009
|
10.21
|
Form
of Warrant issued by the Company to the Quercus Trust pursuant to the
Stock Purchase Agreement dated February 10, 2009
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on February 13, 2009
|
10.22
|
Form
of Warrant issued by the Company to the Quecus Trust pursuant to the Stock
Purchase Agreement dated February 10, 2009
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on February 13, 2009
|
10.23
|
Binding
Letter of Intent between the Company and the University of
Sussex dated March 13, 2009
|
Incorporated
by reference to our Form 10-Q filed with the Securities and Exchange
Commission on April 10, 2009.
|
10.24
|
Assignment
of Patent between the Company and the University of Sussex, Richard
Stobart and Mudalige Weerasinghe dated March 13,
2009
|
Incorporated
by reference to our Form 10-Q filed with the Securities and Exchange
Commission on April 10, 2009.
|
10.25
|
2009
Stock Option and Stock Award Plan approved by the Board of Directors and
the Shareholders
|
Incorporated
by reference to our Definitive 14-C filed with the Securities and Exchange
Commission on May 19, 2008
|
10.26
|
Amendment
to the Articles of Incorporation and Bylaws of the
Company.
|
Incorporated
by reference to our Definitive Schedule 14C filed with the Securities and
Exchange Commission on June 8, 2009.
|
10.27
|
Option
Agreement between Quentin King and Clean Power Technologies Limited
effective June 29, 2009
|
Incorporated
by reference to our Form 10-Q filed with the Securities and Exchange
Commission on July 13, 2009.
|
10.28 | Lease Agreement between Quentin King and Clean Power Technologies Limited effective June 29, 2009 | Incorporated by reference to our Form 10-Q filed with the Securities and Exchange Commission on July 13, 2009. |
10.29 | Memorandum of Understanding between NewEnco, Renewable Power Systems and the Company dated September 3, 2009. | Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on September 9, 2009. |
10.30 | Form of Amended and Restated Stock Purchase Agreement dated October 2, 2009 between the Company and The Quercus Trust. | Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on October 7, 2009. |
10.31 | Form of Registration Rights Agreement between the Company and The Quercus Trust dated October 2, 2009. | Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on October 7, 2009. |
10.32 | Form of $0.27 Warrant issued by the Company to the Quecus Trust pursuant to the Amended and Restated Stock Purchase Agreement dated October 2, 2009. | Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on October 7, 2009. |
10.33 | Form of $0.38 Warrant issued by the Company to the Quecus Trust pursuant to the Amended and Restated Stock Purchase Agreement dated October 2, 2009. | Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on October 7, 2009. |
10.34 | Amendment No.1 to Amended and Restated Stock Purchase Agreement dated October 16, 2009 between the Company and The Quercus Trust. | Incorporated by reference to our Form 8-K filed with the Securities and Exchange Commission on October 20, 2009. |
39
10.35
|
Form
of Registration Rights Agreement dated October 16, 2009 between the
Company and The Quercus Trust.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on October 20, 2009
|
10.36
|
Form
of $0.54 Warrant issued by the Company to the Quecus Trust pursuant to
Amendment No. 1 to Amended and Restated Stock Purchase Agreement dated
October 16, 2009.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on October 20, 2009
|
10.37
|
Form
of $0.60 Warrant issued by the Company to the Quecus Trust pursuant to
Amendment No. 1 to Amended and Restated Stock Purchase Agreement dated
October 16, 2009.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on October 20, 2009
|
10.38
|
Form
of $0.77 Warrant issued by the Company to the Quecus Trust pursuant to
Amendment No. 1 to Amended and Restated Stock Purchase Agreement dated
October 16, 2009.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on October 20, 2009
|
10.39
|
Form
of $0.85 Warrant issued by the Company to the Quecus Trust pursuant to
Amendment No. 1 to Amended and Restated Stock Purchase Agreement dated
October 16, 2009.
|
Incorporated
by reference to our Form 8-K filed with the Securities and Exchange
Commission on October 20, 2009
|
14.1
|
Code
of Ethics
|
Incorporated
by reference to our Form 10-K filed with the Securities and Exchange
Commission on November 19, 2008.
|
21.1
|
Subsidiaries
of the Registrant
|
Incorporated
by reference to our Form 10-K filed with the Securities and Exchange
Commission on November 19, 2008.
|
22.1
|
Notice
of majority shareholder approval to increase authorized capital and
establish two series of preferred shares.
|
Incorporated
by reference to our Definitive Schedule 14C filed on July 2,
2008.
|
31.1
|
Section
302 Certification- Principal Executive Officer
|
Filed
herewith
|
31.2
|
Section
302 Certification Principal Financial Officer
|
Filed
herewith
|
32.1
|
Certification
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
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
40
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.
CLEAN
POWER TECHNOLOGIES INC.
Date:
|
November 30
, 2009
|
By:
|
/s/
Abdul Mitha
|
Name:
|
Abdul
Mitha
|
||
Title:
|
President,
Principal Executive Officer
|
Date:
|
November
30, 2009
|
By:
|
/s/
Diane Glatfelter
|
Name:
|
Diane
Glatfelter
|
||
Title:
|
Secretary,
Treasurer, Principal Financial
Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated, who constitute the entire board of directors:
Date:
|
November 30,
2009
|
By:
|
/s/
Abdul Mitha
|
|
Name:
|
Abdul
Mitha
|
|||
Title:
|
Director
|
|||
Date:
|
November 30,
2009
|
By:
|
/s/
Michael Burns
|
|
Name:
|
Michael
Burns
|
|||
Title:
|
Director
|
|||
Date:
|
November 30,
2009
|
By:
|
/s/
David Gelbaum
|
|
Name:
|
David
Gelbaum
|
|||
Title:
|
Director
|
|||
Date:
|
November 30,
2009
|
By:
|
/s/
David Anthony
|
|
Name:
|
David
Anthony
|
|||
Title:
|
Director
|
41