Attached files
file | filename |
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EX-31.1 - HNO International, Inc. | v197103_ex31-1.htm |
EX-31.2 - HNO International, Inc. | v197103_ex31-2.htm |
EX-32.2 - HNO International, Inc. | v197103_ex32-2.htm |
EX-10.1 - HNO International, Inc. | v197103_ex10-1.htm |
EX-10.2 - HNO International, Inc. | v197103_ex10-2.htm |
EX-32.1 - HNO International, Inc. | v197103_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended July 31, 2010
Or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
File Number: 333-130286
Clenergen
Corporation
(Exact
name of registrant as specified in its charter)
Nevada
|
20-2781289
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
5379
Lyons Road, Suite 301
|
|
Coconut
Creek, Florida
|
33073
|
(Address
of principal executive offices)
|
(Zip
Code)
|
954-509-9830
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
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 Web site, 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 whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨
No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: As of September 3, 2010, a total of
106,511,932 shares of the common stock of the issuer were
outstanding.
Introductory
Comment - Use of Terminology
Throughout
this Quarterly Report on Form 10-Q, the terms the “Company,” “we,” “us” and
“our” refers to Clenergen Corporation and, unless the context indicates
otherwise, our subsidiaries, including Clenergen Corporation Limited (UK)
(“Limited”), Clenergen India Private Limited (“Clenergen India”) and Clenergen
Biopower Corporation (“CBC”), on a consolidated basis.
Unless
otherwise indicated, all monetary amounts are reflected in United States Dollars
and, when referenced to a specific date, converted at the currency exchange rate
as of the close of business on such date, as reported by the Wall Street
Journal.
Note
Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).
To the extent that any statements made in this Form 10-Q contain information
that is not historical, these statements are essentially forward-looking.
Forward-looking statements can be identified by the use of words such as
“expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “should,” “intend,”
“estimate,” “could,” “potential,” “continue,” and variations of such
words. Forward-looking statements are subject to risks and uncertainties
that cannot be predicted or quantified and, consequently, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Such risks and uncertainties include, without
limitation:
•
|
our
ability to raise capital to finance our growth and operations, when needed
and terms advantageous to us;
|
•
|
the
ability to manage growth, profitability and the marketability of our
products and services;
|
•
|
general
economic and business conditions;
|
•
|
the
effect on our business of recent credit-tightening throughout the
world;
|
•
|
the
impact of developments and competition within the fossil fuels and
alternative energy industries;
|
•
|
adverse
results of any legal proceedings;
|
•
|
the
impact of current, pending or future legislation and regulation on the
fossil fuels and alternative energy industries, including, but not limited
to, changes in zoning and environmental laws and
regulations;
|
•
|
our
ability to maintain and enter into relationships with suppliers, vendors
or contractors of acceptable quality of goods and services on terms
advantageous to us;
|
•
|
changes
in foreign currency exchange rates;
|
•
|
political
and government changes in the countries (including local and regional
governments) in which we operate;
|
•
|
the
volatility of our operating results and financial
condition;
|
•
|
our
ability to attract and retain qualified senior management personnel;
and
|
•
|
the
other risks and uncertainties detailed in this Form 10-Q and, from time to
time, in our other filings with the Securities and Exchange
Commission.
|
Readers
of this Quarterly Report on Form 10-Q should carefully consider such risks,
uncertainties and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could cause our actual
results to differ materially from those provided in forward-looking
statements. Readers should not place undue reliance on forward-looking
statements contained in this Form 10-Q. We do not undertake any obligation
to publicly update or revise any forward-looking statements we may make in this
Form 10-Q or elsewhere, whether as a result of new information, future events or
otherwise.
2
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
CLENERGEN
CORPORATION
(a
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
July 31, 2010
|
October 31, 2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash
|
$ | 20,784 | $ | 1,472 | ||||
Subscriptions
receivable
|
120,505 | - | ||||||
Prepaid expenses and
other
|
823,005 | 15,039 | ||||||
Total Current
Assets
|
964,294 | 16,511 | ||||||
Fixed Assets:
|
||||||||
Property and equipment,
net
|
20,120 | 12,901 | ||||||
Total Fixed
Assets
|
20,120 | 12,901 | ||||||
Other Assets:
|
||||||||
Deferred financing
costs
|
121,949 | - | ||||||
Due from UBF
|
1,661,520 | - | ||||||
Deposits
|
160,655 | 33,487 | ||||||
Total Other
Assets
|
1,944,124 | 33,487 | ||||||
TOTAL
ASSETS
|
$ | 2,928,538 | $ | 62,899 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable and accrued
expenses
|
$ | 1,499,437 | $ | 214,211 | ||||
Payroll
liabilities
|
22,622 | 6,745 | ||||||
Notes payable
|
3,046,835 | 330,302 | ||||||
Total Current
Liabilities
|
4,568,894 | 551,257 | ||||||
Total
Liabilities
|
4,568,894 | 551,257 | ||||||
Stockholders’ Deficiency:
|
||||||||
Preferred
stock, $0.001 par value; Authorized: 10,000,000 shares; Issued:
None
|
- | - | ||||||
Common
stock, $0.001 par value; Authorized: 500,000,000 shares; Issued:
105,611,932 and 86,941,013 shares, respectively
|
105,612 | 86,941 | ||||||
Additional paid in
capital
|
17,371,217 | 3,998,562 | ||||||
Accumulated other comprehensive
income/(loss)
|
577,470 | 389,956 | ||||||
Accumulated deficit during
development stage
|
(19,694,655 | ) | (4,963,818 | ) | ||||
Total Stockholders’
Deficiency
|
(1,640,356 | ) | (488,358 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
$ | 2,928,538 | $ | 62,899 |
The
accompanying notes are an integral part of these financial
statements.
3
CLENERGEN
CORPORATION
(a
Development Stage Company)
STATEMENTS
OF OPERATION
For
the Three and Nine Months Ended July 31, 2010 and 2009
and
From October 27, 2005 (inception) to July 31, 2010
Three
Months Ended
|
Nine
Months Ended
|
From
Inception
|
||||||||||||||||||
July
31,
|
July
31,
|
To
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
July
31, 2010
|
||||||||||||||||
Sales
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Cost
of sales
|
- | - | - | - | - | |||||||||||||||
Gross
profit or (loss)
|
- | - | - | - | - | |||||||||||||||
General
and administrative expenses
|
6,245,971 | 10,688 | 14,169,635 | 69,256 | 16,858,409 | |||||||||||||||
Research
and development
|
29,408 | - | 73,910 | - | 2,348,953 | |||||||||||||||
Operating
loss
|
(6,275,379 | ) | (10,688 | ) | (14,243,544 | ) | (69,256 | ) | (19,207,362 | ) | ||||||||||
Interest
expense
|
400,972 | - | 497,111 | - | 497,111 | |||||||||||||||
Other
income
|
9,267 | - | 9,818 | - | 9,818 | |||||||||||||||
Loss
before income taxes
|
(6,667,084 | ) | (10,688 | ) | (14,730,837 | ) | (69,256 | ) | (19,694,655 | ) | ||||||||||
Provision
for income taxes
|
||||||||||||||||||||
Federal
|
- | - | - | - | - | |||||||||||||||
State
|
- | - | - | - | - | |||||||||||||||
Net
loss
|
$ | (6,667,084 | ) | $ | (10,688 | ) | $ | (14,730,837 | ) | $ | (69,256 | ) | $ | (19,694,655 | ) | |||||
Loss
per share, basic and diluted
|
$ | (0.07 | ) | $ | (0.00 | ) | $ | (0.16 | ) | $ | (0.00 | ) | $ | (1.03 | ) | |||||
Weighted
average common shares outstanding
|
96,796,253 | 15,750,000 | 93,815,505 | 15,750,000 | 19,144,286 | |||||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||
Net loss
|
$ | (6,667,084 | ) | $ | (10,688 | ) | $ | (14,730,837 | ) | $ | (69,256 | ) | $ | (19,694,655 | ) | |||||
Foreign
currency translation (loss)/income
|
543,531 | - | 187,514 | - | 577,470 | |||||||||||||||
Comprehensive
loss
|
$ | (6,123,553 | ) | $ | (10,688 | ) | $ | (14,543,323 | ) | $ | (69,256 | ) | $ | (19,117,185 | ) |
The
accompanying notes are an integral part of these financial
statements.
4
CLENERGEN
CORPORATION
(a
Development Stage Company)
STATEMENTS
OF CASH FLOWS
For
the Nine Months Ended July 31, 2010 and 2009
and
From October 27, 2005 (inception) to July 31, 2010
Nine
Months Ended
|
||||||||||||
July
31,
|
From
Inception
|
|||||||||||
|
2010
|
2009
|
to
July 31, 2010
|
|||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net
income (loss)
|
$ | (14,730,837 | ) | $ | (69,256 | ) | $ | (19,694,655 | ) | |||
Adjustments
to reconcile net income to net cash used in operating
activities:
|
||||||||||||
Adjustments
for charges not requiring outlay of cash:
|
||||||||||||
Depreciation and
amortization
|
4,338 | - | 5,478 | |||||||||
Deferred financing
costs
|
536,490 | - | 536,490 | |||||||||
Common stock issued for
compensation
|
10,214,632 | - | 10,214,632 | |||||||||
Changes in operating assets and
liabilities:
|
||||||||||||
(Increase)/decrease
prepaid expenses and other current assets
|
(1,050,420 | ) | - | (1,065,459 | ) | |||||||
Deposits
|
(127,168 | ) | - | (160,655 | ) | |||||||
Increase/(decrease)
in accounts payable and accrued expenses
|
1,285,226 | 10,389 | 1,499,437 | |||||||||
Increase/(decrease)
in accrued payroll liabilities
|
15,877 | - | 22,622 | |||||||||
Total adjustments to net
income
|
10,878,975 | 10,389 | 11,052,545 | |||||||||
Net
cash used in operating activities
|
(3,851,862 | ) | (58,867 | ) | (8,642,110 | ) | ||||||
CASH FLOWS FROM INVESTING
ACTIVITIES
|
||||||||||||
UBF
advances
|
(1,661,520 | ) | (1,661,520 | ) | ||||||||
Purchase
of furniture and equipment
|
(11,558 | ) | - | (25,599 | ) | |||||||
Net
cash used in investing activities
|
(1,673,078 | ) | - | (1,687,119 | ) | |||||||
CASH FLOWS FROM FINANCING
ACTIVITIES
|
||||||||||||
Cash
received from sale of stock
|
1,194,484 | 1,244,484 | ||||||||||
Additional
paid-in capital
|
(12,750 | ) | 4,332,968 | |||||||||
Cash
received from affiliates/shareholders
|
2,383,057 | 12,750 | 2,385,068 | |||||||||
Cash
received on notes payable
|
1,779,197 | - | 1,795,779 | |||||||||
Net
cash provided by financing activities
|
5,356,738 | - | 9,758,299 | |||||||||
CASH RECONCILIATION
|
||||||||||||
Effect
of exchange rate changes on cash
|
187,514 | - | 577,470 | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
19,312 | (58,867 | ) | 6,540 | ||||||||
Cash
and cash equivalents - beginning balance
|
1,472 | 59,230 | 14,244 | |||||||||
CASH
AND CASH EQUIVALENTS BALANCE END OF PERIOD
|
$ | 20,784 | $ | 363 | $ | 20,784 | ||||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||||||
Common
stock issued for debt cancellation
|
$ | - | $ | - | $ | 4,069,085 | ||||||
Common
stock issued in recapitalization
|
$ | - | $ | - | $ | 2,175 |
The accompanying notes are an integral
part of these financial statements.
5
CLENERGEN
CORPORATION
(a
Development Stage Company)
For
the Three and Nine Months Ending July 31, 2010 and 2009
and
From October 27, 2005 (inception) to July 31, 2010
NOTES
TO FINANCIAL STATEMENTS
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Clenergen
Corporation is a company that is in the process of migrating from the advanced
development stage to an operating company that offers strategic clean energy
generation and sustainable fuel supply alternatives to address the world-wide
requirements for renewable and sustainable sources of power. The Company
has developed a unique supply of biomass for use with gasification, combustion
steam, Pyrolysis oil and pelleting technologies to generate electricity.
The Company intends to use proprietary and mixed biomass feedstock to provide
sustainable supplies of clean energy to regional, captive end users, mining
companies and, through government- or privately-owned power grid systems, other
end users, including private homes.
The
Company intends to address the needs for a cleaner, greener planet with an
environmentally sound and sustainable clean energy generation and integrated
fuel supply chain, which is in compliance with and in excess of international
standards for environmental protection, biodiversity, quality, safety and full
traceability. The Company is backed by a global management team with a
deep wealth of experience in the science, technology, finance and business
management, as well as practical experiences of managing and investing in
similar businesses in emerging and developed markets.
NOTE
2. BASIS OF PRESENTATION
These
interim financial statements of Clenergen Corporation have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”) for interim financial information and pursuant to the
requirements for reporting on Form 10-Q and Regulation S-X. In the opinion
of management, all adjustments, consisting solely of normal recurring accruals,
considered necessary for the fair presentation of financial statements for the
interim periods have been included. The results of operations for the
three months and nine months ended July 31, 2010 are not necessarily indicative
of results that ultimately may be achieved for any other interim period or for
the year ending October 31, 2010. These interim unaudited financial
statements and notes thereto should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the Company’s
amended Annual Report on Form 10-K/A for the year ended October 31,
2009.
The
Company has evaluated all subsequent events through date of issuance of this
Form 10-Q for appropriate accounting and financial disclosure.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of
consolidation - The consolidated financial statements of the Company
include the accounts of Clenergen Corporation Limited and its 99.99% owned
subsidiary, Clenergen India Private Limited. All significant intercompany
balances and transactions have been eliminated.
Research and
development - Research and development costs are charged to operations as
incurred and include direct costs of research scientists and materials and an
allocation of other core scientific services.
Foreign currency
translation - The Company’s assets and liabilities have been translated
using the exchange rate at the balance sheet date. The weighted average
exchange rate for the period has been used to translate expenses.
Translation adjustments are reported separately and accumulated in a separate
component of equity {comprehensive income (loss)}.
6
Comprehensive
income (loss) - Other comprehensive income refers to revenues, expenses,
gains and losses that under US GAAP are included in comprehensive income but are
excluded from net loss as these amounts are recorded directly as an adjustment
to stockholders’ equity. The Company’s other comprehensive income is
comprised of foreign currency translation adjustments. Comprehensive
income is reported by the Company in the consolidated statements of
operations.
Basic earnings
per share - Basic net loss per share amounts are computed by dividing the
net loss by the weighted average number of common shares outstanding.
Pursuant to FASC 260-10-45, options and warrants will have a dilutive effect
under the treasury stock method only when the average market price of the common
stock during the period exceeds the exercise price of the options or
warrants. As of July 31, 2010, the Company has issued one potentially
dilutive purchase warrant for 1,000,000 shares, exercisable at $0.686 per
share.
Cash
Equivalents - The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Use of Estimates
and Assumptions - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
All adjustments are normal and recurring.
Income
Taxes - A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss carry-forwards.
Deferred tax expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
NOTE
4. GOING CONCERN
The
accompanying financial statements are presented on a going concern basis.
For the period of October 27, 2005 (date of inception) through July 31, 2010,
the Company incurred an aggregate comprehensive loss of $19,117,185, inclusive
of an aggregate net loss of $19,694,655, and had a total stockholders’ deficit
of $1,640,356 at July 31, 2010. These factors raise substantial doubt
about the Company’s ability to continue as a going concern. These interim
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE
5. STOCK TRANSACTIONS
All forms
of share-based payment awards, including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights,
as well as share grants and other awards issued to employees and
non-employees under free-standing arrangements, are recorded at fair
value on grant date, based on the estimated number of awards that are
expected to vest and will result in charges to operations.
Effective
May 18, 2010, the Company issued 500,000 shares to two consultants for $460,000,
the fair value of such shares on the effective date of issuance.
On May
21, 2010, the Company issued 200,000 shares of its common stock, valued at
$90,000, which represents the fair value of such shares on the date of issuance,
as a deposit on an asset purchase.
The
Company issued 120,761 shares of its common stock to a third-party investor for
total gross consideration of $53,364.50, effective July 12, 2010.
7
During
the fiscal quarter ended July 31, 2010, the Company sold an aggregate of
2,146,274 shares of its common stock to a total of 19 third party investors for
aggregate net proceeds of $560,270 pursuant to a private placement of the
Company’s common stock conducted through a selling agent located in
Germany. The Company incurred fees and expenses relating to such private
placement equal to approximately 40% of the gross proceeds of the
placement. As of July 31, 2010, the Company received $439,765 of the
private placement’s expected net proceeds from sales made during the fiscal
quarter ended July 30, 2010, inclusive of fees charged by the selling and escrow
agents. The Company sold 1,180,188 shares through the selling agent and
received net proceeds of approximately $530,000.00 during periods prior to the
Company’s fiscal quarter ended July 31, 2010.
Effective
July 30, 2010, the Company issued to Stew Investment Management Limited
(“SIML”), as designee of Tim J.E. Bowen, chief executive officer of the Company,
a total of 7 million shares of the Company’s common stock as consideration for
Mr. Bowen having agreed to provide the Company with international strategic and
operational management consulting services and for his being retained as an
executive officer (as chief operating officer in April 2010 and as chief
executive officer in June 2010). The Company valued such shares at
$3,850,000, the fair value of the shares on the effective date of their
issuance.
SIML also
is entitled to purchase, for aggregate consideration of ₤175,000, an additional
3 million shares of common stock if certain milestones related to the services
Mr. Bowen provides to the Company are met, such milestones to be mutually agreed
upon by Mr. Bowen and the Company. SIML has irrevocably paid the Company
the sum of ₤175,000 (approximately $258,000) and such amount is to be retained
by the Company regardless of whether the milestones are met and/or such 3
million shares are issued to Mr. Bowen.
During
November and December 2009, the Company sold an aggregate of 320,000 shares of
the Company’s common stock to a total of three investors for total consideration
of $160,000. The per share market price of the Company’s common stock on
the dates of the funding of such purchases ranged from $0.59 to $0.91.
Additionally, between November 2009 and January 2010, these three investors also
made loans to the Company totaling $150,000. At the time of the stock
sales and funding of the loans, the Company and the investors assumed that the
loans would be repaid in six months and the investors assumed that their
investment in the 320,000 shares would generate a significant return on
investment due to the shares having been sold to them at a discount to
market. The proceeds of the stock sales and loans, which loans were
not evidenced by written agreements, were used in connection with the Company’s
pending acquisition of a biomass power plant in Salem, Tamilnadu, India in June
2010. The Company’s loan obligations were not satisfied six months
following the funding, although the aggregate principal amount of the loans was
reduced to $30,000 at July 31, 2010. Between February and April 2010, the
Company offered to repurchase the 320,000 shares for their original purchase
price of $160,000. Effective July 31, 2010, the Company came to an oral
agreement with the investors whereby the investors agreed to retain the 320,000
shares, with the understanding that the Company would endeavor to repay the
remaining loan principal amount by October 31, 2010. The Company and the
investors have not come to an agreement as to the rate of interest, if any, on
the loans.
Effective
May 14, 2010, the Company issued a promissory note in the principal amount of
$250,000 and warrants to purchase 1 million common shares, exercisable at $0.686
per share. The Company valued such warrants, for accounting purposes, at
$614,926. Pursuant to FASC 260-10-45, options and warrants will have a
dilutive effect under the treasury stock method only when the average market
price of the common stock during the period exceeds the exercise price of the
options or warrants. The Company has purchase warrants that were not
included in calculations of Basic or Diluted Earnings per Share due to the
current loss incurred by of the Company.
NOTE
6. NOTES PAYABLE
On March
25, 2010, the Company received $100,000 on a note payable bearing a 50% interest
rate and maturing on March 25, 2011. Through July 31, 2010, the Company
has accrued $17,534 in interest on this note.
On May
14, 2010, the Company received $250,000 in connection with a note payable.
The note bears an interest rate of 24% and is payable in full at August 14,
2010. In the event the Company fails to satisfy the note, the Company is
obligated to issue to the lender warrants to purchase 100,000 shares of common
stock for each month following the maturity date that the note is not fully
paid. The note was not fully satisfied as of August 14, 2010 and the
Company is in the process of preparing and physically delivering a warrant
certificate evidencing the 100,000 warrants issuable with respect to the
Company’s failure to satisfy the note in full on or prior to such
date.
During
the nine months ended July 2010, the Company borrowed an additional
approximately $2,700,000 from related parties and shareholders. These
borrowings were in the forms of informal loans with no formal written agreements
stipulating their terms.
8
NOTE
9. DUE FROM UBF
The
Company has a receivable from UBF in the amount of $1,661,520 representing
advances the Company has made to a unit of the Government of India (IREDA) in
relation to the acquisition of a biomass power generation plant in Salem,
Tamilnadu, India.
NOTE
8. SUBSEQUENT EVENTS
The
Company issued 300,000 shares of its common stock to a third-party investor for
total gross consideration of $105,000, effective August 19, 2010.
The
Company issued an aggregate of 600,000 shares of its common stock to a total of
three consultants for services rendered or to be rendered by such consultants,
effective August 23, 2010. The Company valued such shares for accounting
purposes at an aggregate of $258,000, the fair value of the shares on the
effective date of their issuance.
Effective
August 5, 2010, we obtained a loan in the amount of $607,461 from Rootchange
Limited (“Rootchange”). Rootchange is a corporation organized under the
laws of Great Britain. Rootchange is owned by two of our directors and
officers, Mark L.M. Quinn, the executive chairman of our board of directors, and
Jessica Hatfield, our executive vice president. The loan is evidenced by
two promissory notes, each in the principal amount equal to one-half of the loan
amount, $303,730.50. The maturity date of each of the promissory notes is
November 1, 2011, with acceleration of such maturity date limited to non-payment
and bankruptcy events. The promissory notes each provide for interest at
the below-market rate of 1.00% per annum (20.00% following an acceleration
event), payable semi-annually, commencing on February 1, 2011. The
principal amount (but not accrued and unpaid interest) is convertible into our
common stock at the rate of one share for each $0.50 of principal
converted. The closing market price of our common stock on the date we
received the loan proceeds was $0.50 per share.
9
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Results
of Operations
We
believe the following selected sales and expense data, the percentage
relationship between sales and major categories in our condensed consolidated
statements of operations and the percentage change in the dollar amounts of each
of the items presented is important in evaluating the performance of our
business operations.
($ in
Thousands)
Three Months Ended July 31,
|
||||||||||||||||||||||||
2010
|
2009
|
2010 vs 2009
|
||||||||||||||||||||||
Amount
|
Percentage
of Revenues
|
Amount
|
Percentage
of Revenues
|
Amount of
Increase
(Decrease)
|
Percentage
Increase
(Decrease)
|
|||||||||||||||||||
Sales
|
$ | 0 | N/A | $ | 0 | N/A | $ | 0 | N/A | |||||||||||||||
Cost
of sales
|
N/A | 0 | N/A | 0 | N/A | |||||||||||||||||||
General
and administrative expenses
|
6,275 | N/A | 11 | N/A | 6,264 | 56,945.5 | ||||||||||||||||||
Research
and development
|
0 | N/A | 0 | N/A | 0 | N/A | ||||||||||||||||||
Operating
loss
|
6,275 | N/A | 11 | N/A | 6,264 | 56,945.5 | ||||||||||||||||||
Interest
expense
|
401 | N/A | 0 | N/A | 401 | N/A | ||||||||||||||||||
Other
income
|
9 | N/A | 0 | N/A | 9 | N/A | ||||||||||||||||||
Provision
for income taxes
|
0 | N/A | 0 | N/A | 0 | N/A | ||||||||||||||||||
Net
loss
|
6,667 | N/A | 11 | N/A | 6,656 | 60,509.1 | ||||||||||||||||||
Foreign
currency translation (loss)/income
|
544 | N/A | 0 | N/A | 544 | N/A | ||||||||||||||||||
Comprehensive
loss
|
6,123 | N/A | 11 | N/A | 6,134 | 58,609.1 |
Nine Months Ended July 31,
|
||||||||||||||||||||||||
2010
|
2009
|
2010 vs 2009
|
||||||||||||||||||||||
Amount
|
Percentage
of Revenues
|
Amount
|
Percentage
of Revenues
|
Amount of
Increase
(Decrease)
|
Percentage
Increase
(Decrease)
|
|||||||||||||||||||
Sales
|
$ | 0 | N/A | $ | 0 | N/A | $ | 0 | N/A | |||||||||||||||
Cost
of sales
|
0 | N/A | 0 | N/A | 0 | N/A | ||||||||||||||||||
General
and administrative expenses
|
14,170 | N/A | 69 | N/A | 14,101 | 20,436.2 | ||||||||||||||||||
Research
and development
|
74 | N/A | 0 | N/A | 74 | N/A | ||||||||||||||||||
Operating
loss
|
14,244 | N/A | 69 | N/A | 14,175 | 20,546.4 | ||||||||||||||||||
Interest
expense
|
497 | N/A | 0 | N/A | 497 | N/A | ||||||||||||||||||
Other
income
|
9 | N/A | 0 | N/A | 9 | N/A | ||||||||||||||||||
Provision
for income taxes
|
0 | N/A | 0 | N/A | 0 | N/A | ||||||||||||||||||
Net
loss
|
14,731 | N/A | 69 | N/A | 14,662 | 21,249.3 | ||||||||||||||||||
Foreign
currency translation (loss)/income
|
187 | N/A | 0 | N/A | 187 | N/A | ||||||||||||||||||
Comprehensive
loss
|
14,543 | N/A | 69 | N/A | 14,474 | 21,460.9 |
10
Three
Months Ended July 31, 2010 and 2009
Sales
We did
not recognize any sales for the three months ended July 31, 2010 (the “2010
Third Quarter”) and 2009 (the “2009 Third Quarter”). We are in the
process of migrating from the advanced development stage to an operating company
that offers strategic clean energy generation and sustainable fuel supply
projects to address the requirement of renewable and sustainable source of
power. In December 2009, we entered into an agreement to acquire a biomass
power plant located in Salem, Tamilnadu, India (the “Salem Plant”) and, during
the 2010 Third Quarter, we entered into an agreement to acquire a second biomass
power plant located near Chennai, India (the “Chennai Plant”). We are in
the process of tendering final purchase price payments to the sellers of the
Salem Plant, which we anticipate will be completed prior to the end of our
current fiscal year, which ends on October 31, 2010 (the “2010 Fiscal
Year”).
The Salem
Plant has a current capacity to generate 1.5 megawatts per hour (“MWe”) of
electrical power from the use of anaerobic digestive biomass (in the case of the
Salem Plant, chicken litter). We have been refurbishing the Salem Plant in
anticipation of commencing power generation operations. Such refurbishing
efforts are expected to be completed prior to the end of the 2010 Fiscal Year
and we anticipate commencing power generation operations at the Salem Plant also
prior to the end of the 2010 Fiscal Year. We believe the Salem Plant will
generate gross revenues of approximately $150,000 per month when operating at
its current full capacity.
We are in
the process of completing the necessary steps in order to secure the bank
financing necessary to consummate the acquisition of the Chennai Plant.
The Chennai Plant has the capacity to generate 18 MWe of power utilizing biomass
as a feedstock (in the case of the Chennai Plant, dry agricultural wood
waste). We anticipate consummating the acquisition prior to the end of the
2010 Fiscal Year, after which we anticipate the commencement of power generation
operations at the Chennai Plant. We believe the Chennai Plant will generate
gross revenues of approximately $1.2 million per month when operating at its
anticipated initial power generation rate of 80% of plant capacity.
Cost of
Sales
We had no
cost of sales during both the 2010 Third Quarter and 2009 Third Quarter, as we
had no operations during either of such fiscal periods. We anticipate that
our cost of sales for our two anticipated plant operations will primarily relate
to the costs of purchasing feedstock chicken litter for the Salem Plant and dry
agricultural waste for the Chennai Plant. We anticipate that cost of
[services] for the Salem Plant and Chennai Plant will be approximately 50% of
anticipated gross revenues, based on operations at current anticipated
capacities and typical cost of [sales] within the biomass power generation
industry.
General and Administrative
Expenses
General
and administrative expenses for the 2010 Third Quarter increased by
approximately $6,265,000, or 56,945.5%, as compared to the 2009 Third Quarter,
primarily as a result of incurring increased commissions consulting fees,
finance costs and share-based compensation of $3,039,000 in the 2010 Third
Quarter. There were no share-based compensation expenses incurred in the
2009 Third Fiscal Quarter. The 2010 Third Quarter share-based compensation
was incurred in connection with our retention of three consultants to perform
business development and capital raising services. We do not intend to
continue to rely upon compensating our directors, officers, consultants,
employees and other service providers with share-based compensation to the
extent we have done so over the prior twelve month period; but do anticipate
increased compensation charges in future fiscal periods as we commence
operations at the Salem Plant and Chennai Plant. We anticipate employment
costs and other operating expenses for each of the Salem Plant and Chennai
Plant, once operating at anticipated capacities, will be between 10% and 15% of
the sales generated by such plant.
Research and
Development
We
incurred $29,408 in research and development expenses during our 2010 Third
Quarter and zero for the 2009 Third Quarter. From inception on October
2005 through March 2009, we incurred a total of approximately $2,349,000 of
research and development expenses relating to the development of certain
genetically-engineered feedstocks which we intend to utilize at our biomass
power generating plants and for sale to third parties, including the Paulownia
species of tree which we license on an exclusive basis from Star Biotechnology
Limited and Arbour Technologies Pty Ltd.
11
We intend
to continue to conduct research on the genetical engineering of a species of
tree (Melia dubia) and bamboo (Beema Bamboo) in view of increasing its growth
rate by up to 40% per annum. We further intend to allocate funds to the
cultivation of improved strains (clones) of Melia dubia as well as conducting
research into organic fertilizers and pesticides to complement the species of
tree and grass we have selected for use as biomass feedstocks. In
addition, we also intend to conduct research into the conversion to liquid
fertilizer of the by-product that will be generated by the Salem Plant during
the processing of chicken litter as the feedstock for power generation at the
plant, with the view of increasing the value and application of such for use as
organic fertilizer for biomass feedstock plantations.
Interest Expense and Other
Income
Interest
expense increased between the comparable three-month periods due to the costs of
servicing debt in the 2010 Third Quarter, which aggregated in principal amount
to $497,111 at July 31, 2010, while there was nominal or no debt serviced in the
2009 Third Quarter.
We will
require further borrowings as we commence operations of the Salem Plant and
Chennai Plant. These loans are anticipated to be approximately $1.5
million for the Salem Plant and $15 million for the Chennai Plant. We are
in discussions with banks on the terms of such loans, although no assurance can
be given that such borrowings will be consummated on terms favorable to us, or
at all, nor whether the borrowings will be sufficient for the commencement and
continued operations of the two plants.
We
further anticipate that we will incur additional debt as we continue to expand
by purchasing existing biomass power generating plants or build such type of
plants on our own. Any increase in debt will result in our debt servicing
obligations. No assurance can be given that we will be able to obtain
additional debt financing (or equity financing) for our maintenance and
expansion needs on terms advantageous to us or at all.
Provision for Income
Taxes
We did
not make a provision for income taxes for either the 2010 Third Quarter nor the
2009 Third Quarter, as we had no tax liability for either of the comparative
periods.
Net Loss
For the
above stated reasons, our net loss increased by approximately $6,656,000, or
58,609.1%, between the 2009 Third Quarter and 2010 Third Quarter. We
expect to continue to incur quarterly net losses until such time as we are
operating a sufficient number of biomass power plants and feedstock plantations
that generate revenues in excess of the costs incurred in operating such
facilities and the administration of our Company. We expect to achieve
such level of revenues by the end of our fiscal year ending October 31, 2011
(the “2011 Fiscal Year”).
Nine
Months Ended July 31, 2010 and 2009
Sales
We did
not recognize any sales for the nine months ended July 31, 2010 (the “2010 Nine
Month Period”) and 2009 (the “2009 Nine Month Period”). As we noted in the
three month comparison above, we are in the process of migrating from the
advanced development stage to an operating company that offers strategic clean
energy generation and sustainable fuel supply projects to address the
requirement for renewable and sustainable source of power. In December
2009, we entered into an agreement to acquire the Salem Plant and, during the
2009 Third Quarter, we entered into an agreement to acquire the Chennai
Plant. We are in the process of tendering final purchase price payments to
the sellers of the Salem Plant, which we anticipate will be completed prior to
the end of the 2010 Fiscal Year.
We have
been refurbishing the Salem Plant in anticipation of commencing power generation
operations. Such refurbishing efforts are expected to be completed prior
to the end of the 2010 Fiscal Year and we anticipate commencing power generation
operations at the Salem Plant also prior to the end of the 2010 Fiscal
Year. We believe the Salem Plant will generate gross revenues of
approximately $150,000 per month when operating at its current full
capacity.
12
We are in
the process of completing the necessary steps in order to obtain the financing
necessary to consummate the acquisition of the Chennai Plant. We
anticipate consummating the acquisition prior to the end of September 2010,
after which we anticipate the commencement of power generation operations at the
Chennai Plant. We believe the Chennai Plant will generate gross revenues
of approximately $1,200,000 per month when operating at its anticipated initial
power generation rate of 80% of plant capacity.
Cost of
Sales
We had no
cost of sales during both the 2010 Nine Month Period and 2009 Nine Month Period,
as we had no operations during either of such fiscal periods. We
anticipate that our cost of sales for our two anticipated plant operations will
primarily relate to the costs of purchasing feedstock chicken litter for the
Salem Plant and dry agricultural waste for the Chennai Plant. We
anticipate that cost of sales for the Salem Plant and Chennai Plant will be
approximately 50% of anticipated gross revenues, based on operations at current
anticipated capacities and typical cost of sales within the biomass power
generation industry.
General and Administrative
Expenses
General
and administrative expenses for the 2010 Nine Month Period increased by
approximately $14,100,000, or 20,436.2%, as compared to the 2009 Nine Month
Period, primarily as a result of incurring share-based compensation of
$9,265,000 and significant commission, consulting and financing costs in the
2010 Nine Month Period. There were no share-based compensation expenses
incurred in the 2009 Nine Month Period. The share-based compensation for
the 2010 Nine Month Period was incurred at a time when we had little cash
available to pay our service providers and we were attempting to build the
necessary corporate infrastructure necessary to put our business plan into
operation. We do not intend to continue to rely upon compensating our
directors, officers, consultants, employees and other service providers with
share-based compensation to the extent we have done so over the prior twelve
month period; but do anticipate increased compensation charges in future fiscal
periods as we commence operations at the Salem Plant and Chennai Plant, as well
as expand our operations through acquisitions or internal growth. Due to
lower employment costs for operations in India, we anticipate employment costs
at each of the Salem Plant and Chennai Plant, once operating at anticipated
capacities, will be between 10% and 15%of the revenues generated by such
plant.
Research and
Development
We
incurred approximately $74,000 in research and development expenses during our
2010 Nine Month Period primarily related to agronomy research. We did not
incur any research and development expenses during our 2009 Nine Month
Period. From inception on October 2005 through October 31, 2009, we
incurred a total of approximately $2,349,000 of research and development
expenses relating to the development of certain genetically-engineered
feedstocks which we intend to utilize at our biomass power generating plants and
for sale to third parties, including the Pavlownia species of tree which we
license on an exclusive basis from Star Biotechnology Limited and Arbour
Technologies Pty Ltd.
As noted
in our discussion of our results for the 2010 Third Quarter, we intend to
conduct research and development on additional species of trees and grasses and
on uses of byproducts resulting from our power generation
operations.
Interest
Expense
During
the nine months ended July 2010, the Company incurred approximately $497,111 in
interest expense relating to notes payable that were outstanding during the
period, none of which were outstanding during the nine months ended July
2009.
We will
require further borrowings as we commence operations of the Salem Plant and
Chennai Plant. These loans are anticipated to be approximately $1.5
million for the Salem Plant and $15 million for the Chennai Plant. We are
in discussions with banks on the terms of such loans, although no assurance can
be given that such borrowings will be consummated on terms favorable to us, or
at all, nor whether the borrowings will be sufficient for the commencement and
continued operations of the two plants.
13
We
further anticipate that we will incur additional debt as we continue to expand
by purchasing existing biomass power generating plants or build such type of
plants on our own. Any increase in debt will result in our debt servicing
obligations. No assurance can be given that we will be able to obtain
additional debt financing (or equity financing) for our maintenance and
expansion needs on terms advantageous to us or at all.
Other
Income
The
Company realized approximately $580 in other income during the 2010 Nine Month
Period, relating to the forgiveness of debt incurred in a prior period of $300
and interest in the amount of $280 earned on cash balances in our bank
accounts.
Provision for Income
Taxes
We did
not make a provision for income taxes for either the 2010 Nine Month Period or
the 2009 Nine Month Period, as we had no tax liability for either of the
comparative periods. We have a loss carry-forward of approximately
$19,694,655 as of July 31, 2010. The utilization of any loss carryforward
is dependent on our ability to generate taxable income against which any
resulting tax liability can be offset by such loss carryforward, to the extent
permissible under federal and applicable state tax laws.
Net Loss
For the
above stated reasons, our net loss increased by approximately $14,662,000, or
21,249.3%, between the 2009 Nine Month Period and 2010 Nine Month Period.
We expect to continue to incur quarterly net losses until such time as we are
operating a sufficient number of biomass power plants and feedstock plantations
that generate revenues in excess of the costs incurred in operating such
facilities and the administration of our Company. We expect to achieve
such level of revenues by the end of the 2011 Fiscal Year.
Liquidity
and Financial Condition
As of
July 31, 2010, we had a working capital deficit of approximately $1,943,000,
calculated as follows:
At July 31, 2010
|
At October 31,
2009
|
Percentage
Increase/Decrease
|
||||||||||
Current
assets
|
$ | 964,294 | $ | 16,511 | 18,566.8 | |||||||
Current
liabilities
|
4,568,894 | 551,257 | 826.1 | |||||||||
Working
capital
|
$ | (3,604,600 | ) | $ | (534,746 | ) | 278.4 |
Our
working capital deficit has increased over the nine month period ending July 31,
2010 by approximately $3,070,000. Such increase is primarily due to the
increase in business development activities, including the increase in staff and
consulting costs.
We had
approximately $121,000 of subscriptions receivable at July 31, 2010. This
amount represents funds held in escrow pending our acceptance of related
subscriptions. Such amount was paid as of August 31, 2010.
On July
30, 2010, we entered into an agreement with our chief executive officer whereby
the officer has irrevocably paid to us the sum of ₤175,000, which is to be
retained by us regardless of whether milestones are met.
We have
entered into various consulting agreements pursuant to which we have issued our
common stock as share-based compensation for services rendered or to be
rendered. We are amortizing the value of the compensation over the terms
of the individual consulting agreements and are carrying the unearned portion as
prepaid expense. As of July 31, 2010, the amount of prepaid consulting
services is approximately $817,000. While the amortization of such
compensation value will impact our operating results, such amortization should
not affect cash flow or our financial position.
14
The
following summarizes our cash flows for the nine months ended July 31, 2010 and
2009:
Nine Months Ended July 31,
|
||||||||
2010
|
2009
|
|||||||
Net
cash used in operating activities
|
$ | (3,851,862 | ) | $ | (58,867 | ) | ||
Net
cash used in investing activities
|
(1,673,078 | ) | - | |||||
Net
cash provided by financing activities
|
5,356,738 | - | ||||||
Effect
of exchange rate changes on cash
|
187,514 | - | ||||||
Net
increase (decrease) in cash during the period
|
$ | 19,312 | $ | (58,867 | ) |
Net cash
used in operating activities was approximately $3,852,000 for the nine months
ended July 31, 2010, as compared to $59,000 for the nine months ended July 31,
2009. The changes in cash flows from operating activities between the
corresponding nine month periods were primarily due to increases to prepaid
consulting and finance costs.
Over the
past nine months, we have been transitioning from an advanced development stage
entity towards being an operating company. During the nine months ending
July 2010, we have primarily been financed through advances and notes payable
and use of our common stock; through sales to third parties and others and by
the issuance of stock as share-based compensation. We currently have 68
highly qualified individuals as consultants and employees, located in six
different geographic areas, providing services to our company. In part by
preserving cash flow through compensating, in whole or part, our services
providers, consisting of employees and consultants, through issuances of stock
rather than cash payments, we believe that we have acquired assets, including
what we hope to be valuable intellectual property rights, and have begun to
create the infrastructure required to generate revenues in the near
future.
Net cash
used in investing activities was approximately $1,673,000 for the nine months
ended July 31, 2010, as compared to none for the nine months ended July 31,
2009. The changes in cash flows from investing activities between the
corresponding nine month periods were primarily incurred in connection with
refurbishing and other costs relating to the Salem Plant that we are in the
process of acquiring.
Net cash
provided by financing activities was approximately $5,357,000 for the nine
months ended July 31, 2010, as compared to none for the nine months ended July
31, 2009. The changes in cash flows from financing activities between the
corresponding nine month periods include $1,194,000 in cash from the sale of
stock, $2,383,000 in cash received from affiliates and shareholders and
$1,779,000 in cash received on notes payable.
We
received a loan (the “Rootchange Loan”) in the principal amount of $607,461 from
Rootchange Limited, an affiliate of two of our directors and executive officers,
Mark L.M. Quinn and Jessica Hatfield, on August 5, 2010, subsequent to the end
of the 2010 Third Quarter. The Rootchange Loan is evidenced by two
promissory notes, each in the principal amount equal to one-half of the loan
amount, $303,730.50. The maturity date of each of the promissory notes is
November 1, 2011, with acceleration of such maturity date limited to non-payment
and bankruptcy events. The promissory notes each provide for interest at
the below-market rate of 1.00% per annum (20.00% following an acceleration
event), payable semi-annually, commencing on February 1, 2011. The
principal amount (but not accrued and unpaid interest) of one of such notes is
convertible into our common stock at the rate of one share for each $0.50 of
principal converted. The closing market price of our common stock on the
date we received the proceeds of the Rootchange Loan was $0.50 per
share.
We intend
to use the proceeds of the Rootchange Loan to fund our business and development
plan, including our planned acquisition, development, expansion and construction
of biomass power plants and biomass feedstock plantations, as well as to fund
the start-up costs operations of these plants until, if ever, the plants
generate sufficient cash flow from their operations to fund the plants’ ongoing
costs and expenses.
We intend
to seek additional capital, either through equity or debt funding, to further
fund our business and development plan. Any equity financing could result
in substantial dilution to our then current stockholders. Further, any
equity or debt financing may not be on terms favorable to us, may be on terms
onerous to us or may not be obtainable on any terms whatsoever.
15
Future
Financings
We will
require additional capital to fund our business and development plan, including
its planned acquisition, development, expansion and/or construction of biomass
power plants and biomass feedstock plantations. In addition, once the
power plants have been acquired or constructed, we will need to fund the
start-up costs of operating these plants until such time, if ever, when the
plants generate sufficient cash flow from their operations to fund the plants’
ongoing costs and expenses. We also may encounter unforeseen costs that
could also require us to seek additional capital. Accordingly, our
business plan and growth strategy anticipates that we obtain significant
additional financial resources, including resources obtained through debt and/or
equity financing. We may not be able to obtain the funding necessary to
implement its growth strategy on favorable terms or at all. An inability
to obtain such funding would prevent us from acquiring, developing, expanding
and/or constructing any plants or plantations. Furthermore, our business
development strategy may not result in significant revenues even if successfully
funded.
We have
not yet identified all of the sources for the additional financing it requires,
although we have discussed possible private equity financing by institutional
and other investors located in London, Frankfurt, Munich, Dubai and Abu Dhabi
over the past three months and have, in the past, been able to raise equity
capital through the sale of our stock. Our ability to obtain additional
capital will depend on market conditions, national and global economies, demand
for electricity in countries in which we intend to operate power plants,
environmental and legal issues affecting power plant operations, weather and
other conditions affecting our biomass plantations and other factors beyond our
control.
Critical
Accounting Policies
The
Company’s significant accounting policies are described in Note 2 of the Notes
to Consolidated Financial Statements included in the Company’s amended Annual
Report on Form 10-K/A for the year ended October 31, 2009, filed with the
Securities and Exchange Commission on March 19, 2010. A discussion of the
Company’s critical accounting policies and estimates is included in the
Management’s Discussion and Analysis of Financial Condition and Results of
Operations section of such Form 10-K/A. There have no material changes to
such critical accounting policies or estimates as reported in such amended
Annual Report section.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk.
This item
is not applicable to smaller reporting companies.
Item
4T. Controls and Procedures.
Evaluation of Disclosure
Controls and Procedures
Our
management conducted an evaluation, with the participation of our then-chief
executive officer and then-chief financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of
the period covered by this Quarterly Report on Form 10-Q. Based upon that
evaluation, our chief executive officer and then-chief financial officer have
concluded that our disclosure controls and procedures were not effective in
reporting, on a timely basis, information required to be disclosed by us in the
reports we file or submit under the Exchange Act.
We failed
to file our 10-Q for the quarter ending January 31, 2010 on a timely
basis. We are attempting to resolve such ineffective disclosure controls
and procedures and, to such end, we have retained outside accountants to assist
us in revising our systems and provide financial reporting support.
16
Changes in Internal Control
over Financial Reporting
We are in
the process of adopting new internal controls over the financial reporting as we
migrate from a development stage company to an operating company. During
the 2010 Nine Month Period, we have retained two executives with substantial
experience in accounting and financial matters, Tim J.E. Bowen, our chief
executive officer, and Mike Starkie, our acting chief financial officer.
Further, subsequent to the 2010 Third Quarter, we retained two individuals with
substantial experience within our marketplace. These latter two
individuals are due to join us in October 2010 and be based at our Chennai
offices. They will be responsible for maintaining the corporate and
operational financial records for our operations in India.
17
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
Not
applicable.
Item
1A. Risk Factors.
Not
applicable.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
The
following sets forth certain information concerning securities which were sold
or issued by us within the past three years without the registration of the
securities under the Securities Act of 1933, as amended (the “Securities Act”)
in reliance on exemptions from such registration requirements and were not
previously disclosed by us in our prior Annual Reports on Forms 10-K or 10-K/A,
Quarterly Reports on Forms 10-Q or 10-Q/A or Current Reports on Form
8-K.
(a)
|
Effective
May 18, 2010, we issued 500,000 shares of our common stock to two
consultants. We valued such shares at $460,000, the fair value of
such shares on the effective date of issuance. We believe that the
issuance of such shares was exempt from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”), pursuant to
the exemption from registration available under Section 4(2) of the
Securities Act, due to the fact that such issuance did not involve any
public offering.
|
(b)
|
On
May 21, 2010, we issued 200,000 shares of our common stock as a deposit on
the purchase of certain assets, which are valued at $90,000. We
believe that the issuance of such shares was exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to the exemption from registration available under Section
4(2) of the Securities Act, due to the fact that such issuance did not
involve any public offering.
|
(c)
|
We
issued 120,761 shares of our common stock to a third-party investor for
total gross consideration of $50,000, effective July 12, 2010. We
believe that the issuance of such shares was exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to the exemption from registration available under Section
4(2) of the Securities Act, due to the fact that such issuance did not
involve any public offering.
|
(d)
|
During
the fiscal quarter ended July 31, 2010, we sold an aggregate of 2,146,274
shares of our common stock to a total of 19 third party investors for
aggregate net proceeds of $560,270, inclusive of fees charged by the
selling and escrow agents, pursuant to a private placement of our common
stock conducted through a selling agent located in Germany. We
believe that the issuances of such shares were exempt from the
registration requirements of the Securities Act, pursuant to the exemption
from registration available under Section 4(2) of the Securities Act, due
to the fact that such issuances did not involve any public
offering.
|
(e)
|
We
issued 300,000 common shares of our common stock to a third-party investor
for total gross consideration of $105,000 effective August 19,
2010. We believe that the issuance of such shares was exempt
from the registration requirements of the Securities Act, pursuant to the
exemption from registration available under Section 4(2) of the Securities
Act, due to the fact that such issuance did not involve any public
offering.
|
(f)
|
We
issued an aggregate of 600,000 shares of our common stock to a total of
three consultants for services rendered or to be rendered by such
consultants, effective August 23, 2010. We valued such shares
for accounting purposes at an aggregate of $258,000, the fair value of the
shares on the effective date of their issuance. We believe that
the issuance of such shares was exempt from the registration requirements
of the Securities Act, pursuant to the exemption from registration
available under Section 4(2) of the Securities Act, due to the fact that
such issuance did not involve any public
offering.
|
18
Item
3. Defaults upon Senior Securities.
Not
applicable.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
Item
5. Other Information.
Not
applicable.
Item
6. Exhibits.
The
following exhibits are being filed as part of this Quarterly Report on Form
10-Q:
Exhibit
|
||
Number
|
Exhibit Description
|
|
10.1
|
Consulting
Agreement, dated April 17, 2010, between Clenergen Corporation and Samuel
Kwao Gaisey.
|
|
10.2
|
Consulting
Agreement, dated April 17, 2010, between Clenergen Corporation and Edward
Osei Nsenryire.
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Executive
Officer.
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial
Officer.
|
|
32.1
|
Section
1350 Certification of Principal Executive Officer.
|
|
32.2
|
Section
1350 Certification of Principal Financial
Officer.
|
19
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.
Dated: September
20, 2010
|
Clenergen
Corporation
|
|
By:
|
/s/ Mark L.M. Quinn
|
|
Mark
L.M. Quinn
|
||
Executive
Chairman of the Board of Directors
|
||
(Duly
Authorized Officer
|
||
and
Principal Executive Officer)
|
||
By:
|
/s/ Mike Starkie
|
|
Mike
Starkie
|
||
Acting
Chief Financial Officer
|
||
(Principal
Financial and Accounting
Officer)
|
20