Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2011
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______to______
Commission File Number 333-138989
ecoTECH Energy Group Inc.
(Exact name of registrant as specified in its charter)
Nevada 98-0479847
---------------------------------- ---------------------------------
State or other jurisdiction (I.R.S. Employer Identifica-
incoporation or organization tion No.)
800 Fifth Avenue, Suite 4100, Seattle, WA 98104
(Address of principal executive offices) (Zip Code)
206-259-7867
Registrant's telephone number, including area code.
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes |_| No |X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes |_| No |X|
As of August 15, 2011, the registrant had 196,814,495 shares of its common stock
issued and outstanding.
Documents incorporated by reference: None
1
ECOTECH ENERGY GROUP INC.
FORM 10-Q
June 30, 2011
TABLE OF CONTENTS
Page
PART I-- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4T Control and Procedures 19
PART II -- OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 1A Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. (Removed and Reserved) 20
Item 5. Other Information 21
Item 6. Exhibits 21
SIGNATURES 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
JUNE 30, 2011
Financial Statements
Page
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive
Loss F-5
Consolidated Statements of Cash Flows F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-13
F-3
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2011 2010
---------------------- --------------------
ASSETS
Current Assets
Cash and cash equivalents $ 7,879 $ 12,262
Due from related parties 3,123 7,311
Prepaid expenses 7,474 3,055
---------------------- --------------------
Total Current Assets 18,476 22,628
---------------------- --------------------
Deposits 23,032 60,033
Property, plant and equipment, net (Note 4) 399,781 180,039
---------------------- --------------------
TOTAL ASSETS $ 441,289 $ 262,700
====================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 631,780 $ 503,883
Accounts payable - related parties 111,604 110,542
Accrued liabilities (Notes 5 and 9) 2,094,251 1,596,213
Note payable to related parties (Note 6) 118,912 85,193
---------------------- --------------------
Total Current Liabilities 2,956,547 2,295,831
---------------------- --------------------
Notes payable (Note 4) 204,760 -
---------------------- --------------------
TOTAL LIABILITIES 3,161,307 2,295,831
Commitments and contingencies (Note 7)
STOCKHOLDERS' DEFICIT
Common Stock
Common stock, $0.001 par value 675,000,000 shares authorized;
196,809,384, and 195,233,427 common shares issued at
June 30, 2011 and December 31, 2010, respectively. 196,809 195,233
Additional paid-in capital 30,099,469 29,392,934
Accumulated other comprehensive income 2,499 2,499
Cumulative foreign currency translation adjustment (Note 9) (167,954) (125,745)
Deficit accumulated during the development stage (32,850,841) (31,498,052)
---------------------- --------------------
Total Stockholders' Deficit (2,720,018) (2,033,131)
---------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 441,289 $ 262,700
====================== ====================
The accompanying notes are an integral part of these statements.
F-4
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
November 28,
For the For the For the For the 2007
three-months three-months six-months six-months (Inception)
ended ended ended ended to June 30,
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010 2011
--------------- --------------- --------------- -------------- ---------------
Revenues $ - $ - $ - $ - $ -
Operating Expenses
General and administration 898,769 256,647 1,327,354 15,372,879 29,370,084
Research and development 4,927 - 17,443 - 420,956
--------------- --------------- --------------- -------------- ---------------
Total operating expenses 903,696 256,647 1,344,797 15,372,879 29,791,040
--------------- --------------- --------------- -------------- ---------------
Operating Loss (903,696) (256,647) (1,344,797) (15,372,879) (29,791,040)
Other (Income) and Expenses
Loss on disposal of fixed
assets - - - - 5,704
Interest expense 13,299 11,032 22,730 19,014 2,254,161
Extinguishment of
convertible debt - - - - 700,535
Other income (5) - (5) - (83,222)
--------------- --------------- --------------- -------------- ---------------
Net loss before income tax
benefit (916,990) (267,679) (1,367,522) (15,391,893) (32,668,218)
Income tax benefit (Note 2) (3,151) (122) (14,733) (17,411) (52,805)
--------------- --------------- --------------- -------------- ---------------
Net Loss (913,839) (267,557) (1,352,789) (15,374,482) (32,615,413)
=============== =============== =============== ============== ===============
Changes in cumulative foreign
currency translation
adjustment (14,377) (42,973) 42,209 (5,835) 167,954
--------------- --------------- --------------- -------------- ---------------
Comprehensive Loss $ (899,462) $ (224,584) $ (1,394,998) $ (15,368,647) $ (32,783,367)
=============== =============== =============== ============== ===============
Basic and diluted loss per
common share $ (0.00) $ (0.00) $ (0.01) $ (0.16)
=============== =============== =============== ==============
Weighted Average Number of
Shares Outstanding 196,282,418 103,066,253 195,791,761 98,719,282
=============== =============== =============== ==============
The accompanying notes are an integral part of these statements.
F-5
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the
For the six-months six-months Cumulative from
ended ended November 28, 2007
June 30, June 30, (Inception) to
2011 2010 June 30, 2011
--------------------- ---------------- ---------------------
Cash Flows From in Operating Activities
Net loss $ (1,352,789) $ (15,374,482) $ (32,615,413)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 33,713 28,326 180,858
Stock-based compensation 585,000 14,929,920 25,406,952
Accretion of beneficial conversion features - - 541,131
Loss on extinguishment of convertible debt - - 700,535
Financing costs - - 1,389,908
Income tax benefit on flow-through shares (14,733) - (14,733)
Changes in operating assets and liabilities
Prepaid expenses - (9,493) (9,455)
Deposits 38,320 (15,852) (18,649)
Accounts payable 150,468 75,604 979,105
Accrued liabilities 472,696 173,088 1,654,537
--------------------- ---------------- ---------------------
Net Cash Used in Operating Activities (87,325) (192,889) (1,805,224)
Cash Flows From Investing Activities
Cash received in reverse acquisition - - 8,510
Purchase of property, plant and equipment (51,415) - (391,390)
--------------------- ---------------- ---------------------
Net Cash Used in Investing Activities (51,415) - (382,880)
Cash Flows From Financing Activities
Proceeds from notes payable to related parties 49,246 - 202,196
Proceeds from sale of common stock 8,046 160,792 641,707
Proceeds from sale of flow-through shares 94,584 - 204,223
Proceeds from sale of convertible debentures - - 1,137,581
Loans from related parties - 34,636 39,482
Payments on convertible debentures - (4,836) (24,071)
Payments on notes payable to related parties (17,438) - (27,121)
--------------------- ---------------- ---------------------
Net Cash Provided by Financing Activities 134,438 190,592 2,174,997
Foreign currency effect on cash (81) 2,102 20,986
Net Increase (Decrease) in Cash and Cash (4,383) (195) 7,879
Cash and Cash Equivalents, beginning balance 12,262 195 -
--------------------- ---------------- ---------------------
Cash and Cash Equivalents, ending balance $ 7,879 $ - $ 7,879
===================== ================ =====================
The accompanying notes are an integral part of these statements.
F-6
ECOTECH ENERGY GROUP INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest $ - $ - $ 4,771
==================== ================ =====================
Income taxes $ - $ - $ -
==================== ================ =====================
Supplemental Disclosure of Non-cash Investing and
Financing Activities
Fair value of beneficial conversion feature of
convertible debentures $ - $ - $ 544,307
==================== ================ =====================
Conversion of debentures into common stock $ - $ - $ 1,116,391
==================== ================ =====================
Premium on flow-through shares $ - $ - $ 36,306
==================== ================ =====================
Shares issued to extinguish debt $ - $ - $ 99,138
==================== ================ =====================
Accounts payable settled through the issuance
of stock $ 34,878 $ - $ 133,291
==================== ================ =====================
Note payable issued to acquire land $ 204,760 $ - $ 204,760
==================== ================ =====================
The accompanying notes are an integral part of these statements.
F-7
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
1. BUSINESS
We are a development-stage renewable energy company which plans to
manufacture biomass-fuelled combined heat and power (CHP) stations that
produce renewable and sustainable "green" energy products. Over the
past 30 years, ecoTECH Energy Group, Inc. ("ecoTECH") executives have
developed and refined a "proprietary thermal gasification" technology
to create clean-burning waste-to-energy cogeneration Power Stations.
This combined heat and power (CHP) technology produces: (i)
electricity, which can be channeled to utilities and end-users via the
electrical infrastructure grid (the "Grid"); and (ii) heat which can be
used to fuel a torrefied biomass briquette manufacturing facility,
allowing for a "green-fuel" offering and related revenue stream.
ecoTECH will specialize in the development and operation of CHP Power
Stations and intends to build five CHP Power Stations in North American
in the next five to seven years. In March 2011, the Company acquired
land which it intends to utilize to build its first production plant if
construction and equity capital is raised by management.
During April 2011, the Company established an operating division in
Montana to engage in operations across the state to manufacture biomass
energy and grow / distribute our horticulture products. We have hired
three new members to ecoTECH's management team to head-up the Montana
division.
Also during April 2011, we entered into a Memorandum of Understanding
("MOU") with Wayzata Investment Partners, LLC ("Wayzata") to negotiate
a purchase agreement with Thompson River Power, LLC ("TRP") and its
manager, Wayzata, for the acquisition of 100% of the equity interests
in TRP. The Company has entered into a Due Diligence Phase related to
this MOU, and hopes to solidify it into a binding agreement once
completed.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of
ecoTECH have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction
with the audited consolidated financial statements and notes thereto
contained in the Form 10-K filed with the SEC. In the opinion of
Management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position
and results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
Notes to our consolidated financial statements which substantially
duplicate the disclosures contained in our Annual Report on Form 10-K
for the year ended December 31, 2010 have been omitted.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
These estimates are based on management's best knowledge of current
events and actions the Company may undertake in the future. Actual
results may ultimately differ from those estimates. The significant
estimates made by management relate to the estimation of the value of
the Company's common stock. Changes in estimates are reported in
earnings in the period in which they become known.
Property, Plant and Equipment
Land acquired by purchase is recorded at cost. The amount recorded
includes the cost of the land, as well as any related acquisition
costs.
F-8
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
Flow-Through Shares Financing
The Company has financed a portion of its development-stage activities
through the issue of flow-through shares, which transfer the Canadian
tax deductibility of exploration expenditure to the investor. Proceeds
received from the issuance of such shares are allocated between the
offering of shares and the sale of tax benefits. The allocation is made
based on the difference between the price of the existing shares and
the amount the investor pays for the shares. A liability is recognized
for the difference. Resource expenditure deductions for income tax
purposes related to exploration and development activities funded by
flow-through share arrangements are renounced to investors in
accordance with the income tax legislation in Canada. On such
renunciation, a deferred tax liability is created and the liability
recognized at issuance reversed. The Company recognized the benefit of
tax losses (based on a combined Canadian federal and provincial rate of
13.5%) to offset the deferred tax liability resulting in an income tax
recovery. During the three months ended June 30, 2011, the flow through
shares sold generated a current income tax benefit of $14,733, as
reflected in the accompanying statements of operations and
comprehensive loss.
3 GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles in the
United States of America, which contemplates continuation of the
Company as a going concern. The Company has incurred losses from
Inception to June 30, 2011 of $32,615,413 and used cash in operating
activities of $1,805,224. At June 30, 2011, the Company had limited
available capital. These matters raise substantial doubt about the
Company's ability to continue as a going concern. In view of these
matters, realization of certain of the assets in the accompanying
balance sheets are dependent upon the Company's ability to meet its
financing requirements, raise additional capital, and the succeed of
its future operations. The Company requires additional capital of
approximately $600,000 to $1,200,000 to continue its development
activities and provide working capital for general corporate purposes
for the next 12 months. In addition, the Company needs to obtain
financing of approximately $160,000,000 for the construction of the
proposed 60 Megawatt plant. There is no assurance that our capital
raising plans will be successful in obtaining sufficient funds to
assure the eventual profitability of the Company. We believe that
actions planned and presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the
Company to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from these
uncertainties.
4 PROPERTY, PLANT AND EQUIPMENT
Acquisition of Land
On March 16, 2011 our wholly owned subsidiary, ecoTECH Energy Group
(Canada) Inc., completed its acquisition of a parcel of land located in
McBride, British Columbia. We purchased the property from Tralee
Investments Ltd for an aggregate purchase price of $257,075, of which
$51,415 was paid in cash and the remaining is subject to a mortgage
from the seller, which is included in notes payable on the accompanying
balance sheet. There is no material relationship (other than in respect
of the transaction) between us, our subsidiary purchaser and seller or
any of our affiliates, or any of our directors, officers or any
associate of any of our officers and directors.
The mortgage is for 200,000 Canadian dollars, which translates to
$204,760 as of June 30, 2011. The mortgage accrues simple interest at
8% annually, calculated monthly, but not in advance, over a two year
term expiring March 15, 2013 and is secured by the land. Interest only
payments of $1,587 are due monthly, with a balloon payment at
expiration. As of June 30, 2011, accrued interest of approximately
$4,911 has been recorded in relationship to this note.
F-9
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
Property, plant and equipment consist of the following:
June 30, 2011 December 31, 2010
------------------ ---------------------
Land $ 257,075 $ -
Computer hardware 110,458 110,458
Computer software 23,904 23,904
Furniture and fixtures 20,043 20,043
Equipment 33,463 33,463
Leasehold improvements 139,600 139,600
Website 14,463 14,463
Less accumulated depreciation (199,225) (161,892)
------------------ ---------------------
Total property, plant and equipment, net $ 399,781 $ 180,039
================== =====================
Depreciation expense for the three and six-months ended June 30, 2011
and 2010 and for the period from Inception to June 30, 2011 was
$17,017, $17.334 $33,713, $28,326, and $180,858, respectively.
5 ACCRUED LIABILITIES
Accrued liabilities by major classification are as follows:
June 30, 2011 December 31, 2010
-------------------------- ------------------------
Accrued interest $ 24,161 $ 18,832
Accrued wages and payroll taxes 1,758,490 1,302,381
Accrued consulting fees 311,600 275,000
-------------------------- ------------------------
Total accrued liabilities $ 2,094,251 $ 1,596,213
========================== ========================
Accrued liabilities balances reflected above include interest accrued
on note payable and convertible debenture balances outstanding, accrued
payroll and related payroll taxes, accrued fees due to an external
consulting firm, and the flow-through share premium liability which
represents a premium payment paid by investors for shares of common
stock purchased under a tax-advantage program. The Company must record
this premium until they comply with the provisions of the Canada
Revenue Agency ("CRA") program by submitting an annual form containing
eligible expenses submitted for tax exemption, thus renouncing the tax
benefit.
6 NOTES PAYABLE TO RELATED PARTIES
On February 5, 2009, the Company borrowed $99,137 from a shareholder
for operating capital, and agreed to repay the principal plus 10%
annual interest in 90 days. On September 8, 2009, the note was amended
to pay interest at 20% interest per annum and matured in 90 days. Upon
default, the note continues to earn 20% per annum. On November 1, 2010,
the note holder converted the principal balance into 312,500 shares of
private company common stock (pre-acquisition). The Company has paid
$9,707 of the $27,959 interest accrued on the note. Accrued interest of
$19,251 remains to be paid as of June 30, 2011.
The Company borrowed from a shareholder for operating capital. This
loan is non-interest bearing and does not have a specific maturity
date. Management did not impute interest as such amount was not deemed
significant.
See Note 9 for additional related party transactions.
F-10
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
7 COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space in Langley, British Columbia, Canada.
The office lease became effective on April 1, 2008 and is for a term of
five years. Basic rent for the first three years is $4,794. Basic rent
for the last two years increases approximately 7% to $5,113 per month.
In addition to basic rent and applicable taxes, the Company will also
be responsible for varying operating expenses (HVAC, assessments,
utilities and service charges, licenses and permits) as they arise.
The Company leases an automobile, under a four-year term agreement, for
use by one of its directors, with current lease payments of $1,239 per
month.
Actual office rent expense, including all applicable taxes and
operating costs, for the three and six-months ended June 30, 2011 and
2010 and the period from Inception to June 30, 2011 were $24,802,
$14,463, $48,147, $44,092, and $300,140, respectively.
Litigation
The Company is involved in claims and litigation from time to time in
the normal course of business. Management of the Company believe there
are no matters pending that are expected to have a material adverse
effect on the business of the Company, their financial condition,
results of operations or cash flows.
8 STOCKHOLDERS' DEFICIT
Issuance of Stock
On January 4, 2011, the Company satisfied a $5,037 accounts payable
balance by issuing 18,518 shares of common stock of ecoTECH Energy
Group, Inc. to a utility company, based on a stock price of
approximately $0.27 per share. These shares contain an 18 month
restriction from the date of issuance.
During February 2011, the Company raised $8,046 through the sale of
29,366 shares common stock via subscription agreements sold to three
investors, based on a stock prices between $0.25 and $0.31 per share.
During February 2011, the Company established a private equity offering
to Canadian investors to raise operating capital. The offering was for
"CRCE Flow-Through Shares" of common stock, whereas CRCE is defined
under section 1219 of the Income Tax Regulations as "Canadian Renewable
and Conservation Expense" for the purposes of subsection 66.1(6) of the
Canadian Income Tax Act..CRCE is included in calculating Canadian
Exploration Expense and is eligible to be renounced under a
flow-through share agreement. Investment in these shares allows for
specific income tax benefits for Canadian individual filers, in which
specific expenses incurred by the Company is passed through to these
investors to recognize (pro-rated) on their individual Canadian income
tax returns.
During March 2011, the Company raised $86,926 through the sale of
169,208 shares common stock via subscription agreements sold, under
guidelines of the Canadian Renewable Conservation Expense program
("CRCE") to six investors, based on a stock price of approximately
$0.51 per share, for which $13,093 in commissions were paid relative to
the sale of this stock. In accordance with the sale of CRCE "flow
through shares", the Company recognized an income tax credit of $11,582
at March 31, 2011, on the accompanying statement of operations
contained herein.
11
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
During April and May 2011, the Company raised $22,839 though the sale
of 44,000 shares of common stock via subscription agreements sold under
the guidelines of the CRCE program to six investors, based on a stock
price of approximately $0.52 per share, for which $2,088 in commissions
were paid relative to the sale of this stock. In accordance with the
sale of CRCE "flow through shares", the Company recognized an income
tax credit of $2,970 at June 30, 2011, on the accompanying statement of
operations and comprehensive loss contained herein.
On May 1, 2011 the Company issued 750,000 shares to a director of the
Company for prior services rendered. These shares were valued based on
the stock price of $0.40 per share and charged to operations. In
addition, on May 10, 2011 in connection with an employment arrangement,
the board of directors approved the issuance of 2,000,000 shares of the
Company's common stock over a period of 18 months to its Chief
Financial Officer. In connection therewith, Company issued 500,000
fully-vested shares of common stock to the officer based on a stock
price of $0.45 per share, the estimated grant-date fair value on May
10, 2011. The remaining 1,500,000 shares, valued at the grant-date fair
value of $675,000, cliff vest evenly on November 10, 2011, May 10, 2012
and November 10, 2012, and will amortized to expense over the period of
18 months. During the quarter ended June 30, 2011, the Company
recognized aggregate stock-based compensation expense in the amount
$585,000 for the above services which is included in general and
administrative expenses.
On May 31, 2011, the Company satisfied a $29,841 accounts payable
balance by issuing 64,785 shares of common stock of ecoTECH Energy
Group, Inc. to a utility company, based on a stock price of
approximately $0.45 per share. These shares contain an 18 month
restriction from the date of issuance.
Stock based compensation expense for the three and six-months ended
June 30, 2011 and 2010 and for the period from Inception to June 30,
2011 was $585,000, $0, $585,000, $14,929,920, and $25,406,952,
respectively.
Foreign Currency Translation
The exchange rates used to translate amounts in Canadian Dollars
("CAD$") into U.S. Dollars ("US") for the purposes of preparing the
consolidated financial statements were as follows: As of June 30, 2011
and December 31, 2010, the Company used the period-end rates of
exchange for assets and liabilities of CAD$1 to US$1.0283 and CAD$1 to
US$1.0015, respectively.
For the six months ended June 30, 2011 and 2010, the Company used the
period's average rate of exchange to convert revenues, costs, and
expenses of CAD$1 to US$1.0233 and CAD$1 to US$0.9672, respectively.
9 RELATED PARTY TRANSATIONS
Related-Party Payables
Related party payables represent balances in accounts payable that are
owed to directors and shareholders. These payables are primarily for
unreimbursed travel and entertainment expenses incurred on behalf of
the Company. The respective parties have agreed to defer these
payables, interest-free, until a time at which the Company has raised
sufficient capital.
Accrued Wages
Due to capital restraints, management has deferred certain of their
monthly salaries until capital is available. Although there are no
employment agreements, the Chief Executive Officer earns $15,000 per
month; The Chief Operating Officer earns $10,000 per month; the
Executive Vice President of Business Development earns $8,000 per
month; the Executive Vice President of Engineering earns $8,000 per
month, and the Vice President of Administration earns $8,000 per month.
F-12
ECOTECH ENERGY GROUP INC.
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
Shareholder Loans
From time to time, the four founding directors loaned money to the
Company for general operating capital. These loans are repaid to the
respective directors when additional capital is raised. Due to the
short-term nature of these loans, the officers/directors agreed that
they would not be interest bearing, and are due upon demand.
Shareholder loans are included in notes payable to related parties on
the accompanying balance sheet. Net proceeds from shareholder loans
during the six-months ended June 30, 2011 were $42,061.
10 SUBSEQUENT EVENTS
Issuances of Stock
During July 2011, we sold 5,111 common shares of common stock to one
investor for a cash payment of $1,037.
F-13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information and discussion should be read in conjunction with such
consolidated financial statements and notes thereto. Additionally, this
Management's Discussion and Analysis of Financial Condition and Results of
Operation contains certain statements that are not strictly historical and are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a high degree of risk and uncertainty.
Actual results may differ materially from those projected in the forward-looking
statements due to other risks and uncertainties that exist in the Company's
operations, development efforts and business environment, the other risks and
uncertainties described in the section entitled "Cautionary Note Regarding
Forward-Looking Statements" at the front of this Report on Form 10-Q, and our
"Risk Factors" section herein. All forward-looking statements included herein
are based on information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statement.
CORPORATE HISTORY
We were incorporated under the laws of the State of Nevada on November 16, 2005
under the name "Sea 2 Sky Corporation". We were initially established to provide
travel related services to tourists in Canada and other countries. Due to an
economic downturn, we abandoned the travel service business in the first half of
fiscal 2009. Accordingly, results from operations related to the travel business
have been reclassified from current operations to that of discontinued
operations for proper financial presentation. Effective March 1, 2009, we
transitioned our business focus to that of a world-wide renewable energy
provider, and became a development-stage company that intended to obtain sources
of biomass supply streams and convert them into green or alternative energy
products.
On November 12, 2010, pursuant to the terms of a business combination agreement,
we acquired 100 percent of the issued and outstanding common stock of ecoTECH
(Canada), Inc. for approximately 110 million shares of our common stock, which
were distributed to the shareholders of the acquired company. ecoTECH (Canada)
was amalgamated with 7697112 Canada Corp., a federally incorporated company that
was our wholly owned subsidiary, and as a result of this amalgamation, ecoTECH
(Canada) became our wholly owned subsidiary. ecoTECH (Canada) has no
subsidiaries and is not a reporting issuer in any jurisdiction of Canada or the
United States.
This common stock transaction, which represented a majority of the then issued
and outstanding shares of Sea 2 Sky Corporation, constituted a change in control
of the Company. As such, on December 20, 2010, Sea 2 Sky Corporation changed its
name to ecoTECH Energy Group Inc. and its trading symbol to "ECTH". Furthermore,
upon close of the acquisition, the Company changed its fiscal year-end to
December 31.
We maintain our corporate headquarters at 800 Fifth Avenue, suite 4100, Seattle,
Washington, 98104, and our telephone number is (877) 732-2759.
ecoTECH (Canada) is located at 101-26633 Gloucester Way, Langley, BC V4W 3S8 and
its telephone number is (604) 288-8263.
OUR BUSINESS
Our business will encompass development activities culminating in the
construction and long-term operation of biomass energy production plants. As
such, we are currently in the stage of finding suitable locations, securing
proper financing for building plants, and deploying project opportunities for
converting woody biomass feedstock into torrefied bio-energy products such as
electricity via gasification process, activated carbon, and "green coal" via
pelletization process. As we build these plants, we intend to increase our
number of employees appropriately.
The Company intends to strategically position multiple CHP Power Stations in
order to:
o Reduce the reliance on fossil fuels by providing a sustainable and
environmentally friendly source of energy and fuel products
manufactured from local biomass feed-stocks;
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o Meet specific local needs for decentralized power, while reducing the
cost of biomass transportation;
o Assist communities to meet federal and state renewable energy and
reduced emissions mandates; and,
o Provide local jobs and community development for the project
communities.
Long-term markets and goals have been identified for each of our projects,
designed to fulfill corporate, investor and shareholder requirements. These can
be summarized as follows:
Renewable Energy Production and Sales:
CHP Power Stations are modular units built in chains to meet specified power
needs of the community or communities. Combined heat and power are produced in
variable ratios, depending on the application. Local fiber availability and
transmission bandwidth are two limiting factors when determining total capacity
to construct. Hence, a Power Station is expandable and flexible to changing
environments. Each Power Station project brings baseline income for two to three
decades. Power supply purchase agreements run from five to thirty years, and we
generally expect a return on investment circa 25%, being unaffected by market
trends.
Green Fuel Production:
Torrefied Briquettes, "Green-fuel", production allows an alternative to
coal-fired energy manufacturers in order to meet renewable energy mandates by
established deadlines. When wood is roasted ("torrefied"), it becomes brittle at
a certain temperature and takes on the attributes of coal, with the exceptions
that it provides greater heat energy by weight, is sustainably renewable, and
meets the mandated criteria. We intend to use surplus heat generated by the
Power Stations to provide this torrefaction process to woody biomass, which is
then formed into briquettes to be sold at respectable margins on long-term fuel
supply contracts with coal-fired power stations. This allies our efforts with
the existing coal power giants, where helping them gives access to transmission
facilities that would not be afforded a competitor. Our projections indicate
this business segment offers a return on investment (ROI) of approximately 20%.
Ancillary Operations:
Food Production Projects are interrelated self-contained businesses that can
evolve around the Power Stations, utilizing the surfeit of energy by-products to
support local hydroponic greenhouses and aquaculture fish facilities.
PLAN OF OPERATIONS
Currently, our development stage operations have been funded through the sale of
our common stock. We plan to raise additional funds through Federal and State
grants, loan guarantees, and project debt financings or through future sales of
our common stock, until such time as our revenues are sufficient to meet our
cost structure, and ultimately achieve profitable operations. There is no
assurance that we will be successful in raising additional capital or achieving
profitable operations. Our consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
McBride, British Columbia, Canada
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On March 16, 2011, we finalized the purchase of land for the planned first plant
location in McBride, British Columbia. The land will be used for one of the
Company's biomass energy production plants along with hydroponic greenhouses and
fish propagation facilities, scheduled for start of construction late spring
2012. Additionally, this land is adjacent to another similar sized parcel of
land, which the Company is in negotiations with, for a second project which it
hopes to announce in the near future. However, no definitive agreement is in
place as of the date of filing.
During the following months, the Company plans to fund the construction of its
first CHP Power Station projects in McBride, British Columbia, Canada, through
debt financing (acquired, subject to successful due diligence) and private
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placement equity funding, obtaining the estimated $160 million in capital
required for completion of this two-phase project. Through proprietary thermal
gasification technology, this plant is expected to create a total of 60 MW/hour
of electricity which can be channeled via the Grid to utilities and end-users;
and heat which can be used to fuel ancillary operations such as large scale
(four-hectare) hydroponic greenhouses, and food fish propagation facilities. The
Company has already secured long-term large-tonnage biomass fuel source
agreements to fuel the plants. Once completed, projected combined revenue is
estimated to be in excess of $106 million annually, with a corresponding return
on investment ("ROI") of between 26-28%.
Montana
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During April 2011, after receiving endorsement by the Governor's office of
Economic Development, the Company established an operating division in Montana
to engage in operations across the state to manufacture biomass energy and grow
/ distribute our horticulture products
Also during April 2011, we entered into a Memorandum of Understanding ("MOU")
with Wayzata Investment Partners, LLC ("Wayzata") to negotiate a purchase
agreement with Thompson River Power, LLC ("TRP") and its manager, Wayzata, for
the acquisition of 100% of the equity interests in TRP. The Company has entered
into a Due Diligence Phase related to this MOU, and hopes to solidify it into a
binding agreement once completed.
During fiscal 2010, we signed a letter of intent agreement with the Northern
Cheyenne Tribe of Montana to negotiate and enter into definitive agreements for
the location and operating of a 36MW biomass fuelled power-plant on certain fee
lands adjacent to the Northern Cheyenne Reservation. The agreement would provide
for political and economic support, reservation biomass, labor contracting, land
and water rights and many other mutual benefits.
COMPARISON OF OPERATING RESULTS
RESULTS OF OPERATION FOR THE THREE MONTHS ENDED JUNE 30, 2011 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2010
Revenues
We had no revenue for the three months ended June 30, 2011 and 2010. The lack of
revenue in both periods is a direct reflection of the change of control and
introducing a new focus and business plan. We don't intend to generate revenue
in the near future until our business plan goals have been met..
General and Administrative Expense
Our general and administrative expenses increased to $898,769 for the three
months ended June 30, 2011, from $256,647 for the comparable period in 2010. The
increase during the three months ended June 30, 2011 was primarily attributable
to increasing the general and administrative expenses for increase staff, costs
relative to pursuing its business focus and costs relating to legal and audit
costs inherent to public companies.
Interest Expense
Our interest expense increased to $13,299 for the three month period ended June
30, 2011, from $11,032 for the comparable period during 2010. This increase is
attributable to increased borrowings during the period.
Loss from Operations
Our net loss from operations increased to $903,696 for the three months ended
June 30, 2011, from $256,647 for the comparable period in 2010. The increase was
primarily attributable to the increase in stock compensation expense of
$585,000.
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RESULTS OF OPERATION FOR THE SIX MONTHS ENDED JUNE 30, 2011 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2010
Revenues
We had no revenue for the six months ended June 30, 2011 and 2010. The lack of
revenue in both periods is a direct reflection of the change of control and
introducing a new focus and business plan. We don't intend to generate revenue
in the near future until our business plan goals have been met.
General and Administrative Expenses
Our general and administrative expenses decreased to $1,327,354 for the six
months ended June 30, 2011, from $15,372,879 for the comparable period in 2010.
The decrease during the six months ended June 30, 2011 was primarily
attributable to a decrease in stock-based compensation of $14,344,920, offset by
an increase of $47,743 in engineering and consulting costs preparing the
business plan for BC Hydro Phase II call on the McBride British Columbia
project, an increase of $188,243 in wages for an increase of four employees
relative to pursuing the new business focus, and an increase of $76,084 in legal
and audit costs inherent to public companies.
Interest Expense
Our interest expense increased to $22,730 for the six month period ended June
30, 2011, from $19,014 for the comparable period during 2010. This increase is
attributable to increased borrowings during the period.
Loss from Operations
Our net loss from operations decreased to $1,344,797 for the six months ended
June 30, 2011, from $15,372,879 for the comparable period in 2010. The decrease
during the six months ended June 30, 2011 was primarily attributable to the
reduction of share based compensation of $14,344,920 between the two periods.
Absent of stock compensation, current period's general and administrative
expenses actually increased by $299,395, as described above.
LIQUIDITY AND CAPITAL RESOURCES
We had total assets of $441,289 as of June 30, 2011, consisting of $7,879 in
cash, $399,781 in net fixed assets, $23,032 in deposits, $7,474 in prepaid
expenses, and $3,123 in other receivables. We had a working capital deficit of
$2,938,071.
We had total liabilities of $3,161,307 as of June 30, 2011, consisting of
$2,956,547 in current liabilities, which included $631,780 of accounts payable;
accrued wages of $1,758,490; $311,600 in accrued consulting fees; $24,161 in
accrued interest; and short term debt of $230,516 to related parties. We had
long term liabilities consisting of a land mortgage for $204,760.
We had a total stockholders' deficit of $2,720,018 as of June 30, 2011, and an
accumulated deficit as of June 30, 2011 of $32,850,841.
We had $87,325 in net cash used in operating activities for the six months ended
June 30, 2011, which included $1,352,789 in net loss and $14,733 income tax
benefit on flow-through shares which was offset by $33,713 in depreciation;
$585,000 in stock-based compensation; $150,468 in accounts payable; $472,696 in
accrued liabilities; and $38,320 in deposits. This represents a decrease in cash
used of $105,564 over prior year's comparable period, which is primarily
attributable to the increase in accounts payable balances and accrued salaries
due to limited funds being available in the current period.
We had $51,145 in net cash used by investment activities, to purchase land,
during the six months ended June 30, 2011.
We had 134,438 of net cash provided by financing activities for the six months
ended June 30, 2011, which included $8,046 in proceeds from the sale of common
stock and $94,584 in proceeds from the sale of flow-through shares; and $31,808
in net proceeds from notes payable by related parties.
On March 16, 2011, we acquired land of which $204,760 was financed through a two
year note at 8%.
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Since we have no liquidity and have suffered losses, we depend to a great degree
on the ability to attract external financing in order to conduct our business
activities and in order that we have sufficient cash on hand to expand our
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern. If we are unable to raise additional capital from
conventional sources, including increases in related party loans and/or
additional sales of additional stock, we may be forced to curtail or cease our
operations. Even if we are able to continue our operations, the failure to
obtain financing could have a substantial adverse effect on our business and
financial results. We have no commitments to provide us with financing in the
future, other than described above. Our independent registered public accounting
firm included an explanatory paragraph raising substantial doubt about the
Company's ability to continue as a going concern.
In the future, we may be required to seek additional capital by selling debt or
equity securities, selling assets, or otherwise be required to bring cash flows
in balance when it approaches a condition of cash insufficiency. The sale of
additional equity securities, if accomplished, may result in dilution to our
shareholders. We cannot assure you, however, that financing will be available in
amounts or on terms acceptable to us, or at all.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make assumptions and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses as well as the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
following is a summary of the significant accounting policies and related
estimates that affect the Company's financial disclosures.
Foreign Currency Translations
The functional currency is the Canadian dollar and the reporting
currency is the U.S. dollar. At each balance sheet date, assets and
liabilities that are denominated in a currency other than U.S. dollars
are adjusted to reflect the current exchange rate which may give rise
to a foreign currency translation adjustment accounted for as a
separate component of shareholders' equity and included in other
comprehensive loss.
Revenues and expenses are translated at the average daily rate for the
year covering the financial statement year to approximate the rate of
exchange on the transaction date. Exchange gains and losses are
included in the determination of net income (loss) for the period.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.
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ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this Quarterly Report on Form 10-Q (the "Evaluation Date"), have concluded that
as of the Evaluation Date, our disclosure controls and procedures were not
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In March 2011 our Independent Registered Public
Accounting firm identified a lack of a formal review process for account
reconciliations and complex accounting and reporting matters which increases the
risk that errors or omissions exist and go undetected by management. The Company
will continue to take steps to identify matters of accounting and disclosure.
(b) Changes in internal control over financial reporting. There were no changes
in our internal control over financial reporting during our most recent fiscal
quarter that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
INHERENT LIMITATIONS OF INTERNAL CONTROLS
Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purposes in accordance with
the U.S. GAAP. Our internal control over financial reporting includes those
policies and procedures that:
o pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our
assets;
o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of consolidated financial statements
in accordance with the U.S. GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations of
our management and directors; and
o provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that
could have a material effect on the consolidated financial statements.
Management does not expect that our internal controls will prevent or detect all
errors and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of internal controls
can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. Also, any evaluation of the effectiveness of
controls in future periods are subject to the risk that those internal controls
may become inadequate because of changes in business conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
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Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best of our knowledge, there are no known or pending litigation
proceedings against us.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation
S-K, we are not required to provide information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period of April 1, 2011 through June 30, 2011, the Company made the
following unregistered issuances of its equity.
During April and May 2011, the Company raised $22,839 though the sale of 44,000
shares common stock via subscription agreements sold under the guidelines of the
Canadian Renewable Conservation Expense program ("CRCE") to six investors, based
on a stock price of approximately $0.52 per share, for which $2,088 in
commissions were paid relative to the sale of this stock. In accordance with the
sale of CRCE "flow through shares", the Company recognized an income tax credit
of $2,970 at June 30, 2011, on the accompanying statement of operations
contained herein.
On May 1, 2011 the Company issued 750,000 shares to a director of the Company
based on a stock price of $0.40 per share. In addition, on May 10, 2011 in
connection with an employment arrangement, the board of directors approved the
issuance of 2,000,000 shares of the Company's common stock over a period of 18
months to its Chief Financial Officer. In connection therewith, Company issued
500,000 fully-vested shares of common stock to the officer based on a stock
price of $0.45 per share, the estimated grant-date fair value on May 10, 2011.
The remaining 1,500,000 shares, valued at the grant-date fair value of $675,000,
cliff vest evenly on November 10, 2011, May 10, 2012 and November 10, 2012, and
will amortized to expense over the period of 18 months. During the quarter ended
June 30, 2011, the Company recognized stock based compensation expense in the
amount $585,000.
On May 31, 2011, the Company satisfied a $29,841 accounts payable balance by
issuing 64,785 shares of common stock of ecoTECH Energy Group, Inc. to a utility
company, based on a stock price of approximately $0.45 per share. These shares
contain an 18 month restriction from the date of issuance.
Exemption From Registration Claimed
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). All of the individuals and/or entities that purchased
the unregistered securities were known to the Company and its management,
through pre-existing business relationships. All purchasers were provided access
to all material information, which they requested, and all information necessary
to verify such information and were afforded access to management of the Company
in connection with their purchases. All purchasers of the unregistered
securities acquired such securities for investment and not with a view toward
distribution, acknowledging such intent to the Company. All certificates or
agreements representing such securities that were issued contained restrictive
legends, prohibiting further transfer of the certificates or agreements
representing such securities, without such securities either being first
registered or otherwise exempt from registration in any further resale or
disposition.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
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ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
None
Item 6. Exhibits
(a) Pursuant to Item 601 of Regulation S-K, the following exhibits are included
herein.
Item
No. Description Method of Filing
------------------------------------------------------------------------------------------------- ------------------
31.1 Certification of Colin V. Hall pursuant to Rule 13a-14(a) Filed herewith.
31.2 Certification of Barry Sheahan pursuant to Rule 13a-14(a) Filed herewith.
32.1 Chief Executive Officer Certification pursuant to 18 U.S.C.ss.1350 adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 Filed herewith.
32.2 Chief Financial Officer Certification pursuant to 18 U.S.C.ss.1350 adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 Filed herewith.
101.INS XBRL Instance Document (1)
101.SCH XBRL Taxonomy Extension Schema Document (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (1)
(1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOTECH ENERGY GROUP INC.
August 18, 2011 /s/ Colin V. Hall
-----------------------------
Colin V. Hall
Chairman
Principal Executive Officer
August 18, 2011 /s/ Barry Sheahan
-----------------------------
Barry Sheahan
Chief Financial Officer
Principal Accounting Officer
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