Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2011
Commission File Number 333-138989
ecoTECH Energy Group Inc.
(Exact name of registrant as specified in its charter)
Nevada 98-0479847
------------------------------------------------- ---------------------------------------------
State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization
800 Fifth Avenue, Suite 4100, Seattle, Washington 98104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 259-7867
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [x]
Indicate by check mark if the Registrant is not required to file reports
pursuant to Rule 13 or Section 15(d) of the Exchange Act. Yes [ ] No [x]
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 [ ].
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]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 30, 2012 was approximately $ 48,504,861. The aggregate
market value was computed by using the closing price of the common stock as of
that date on the Over-the-Counter Bulletin Board ("OTCBB") and the issued and
outstanding and to be issued common shares as noted below. (For purposes of
calculating this amount only, all directors and executive officers of the
registrant have been treated as affiliates.)
As of March 30, 2012, the registrant had 195,490,599 shares of its common shares
issued and outstanding. In addition, there are 7,944,041 common shares that have
been approved to be issued by the Board of Directors, but have not yet been
issued.
Documents incorporated by reference: None
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TABLE OF CONTENTS
PART I
ITEM 1A. Risk Factors 8
ITEM 1B. Unresolved Staff Comments 12
ITEM 2. Properties 12
ITEM 3. Legal Proceedings 12
ITEM 4. Mine Safety Disclosures 12
PART II
ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters 13
ITEM 6. Selected Financial Data 14
ITEM 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operation 14
ITEM 7A Quantitative And Qualitative Disclosures About Market Risk 16
ITEM 8. Financial Statements 17
ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure 44
ITEM 9A. Controls And Procedures 44
ITEM 9B. Other Information 45
PART III
ITEM 10. Directors, Executive Officers And Corporate Governance 45
ITEM 11. Executive Compensation 47
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 49
ITEM 13. Certain Relationships And Related Transactions, And Director Independence 49
ITEM 14. Principal Accounting Fees And Services 49
PART IV
ITEM 15. Exhibits, Financial Statements Schedules 50
SIGNATURES 51
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ITEM 1. DESCRIPTION OF BUSINESS
ecoTECH Energy Group Inc., including all its subsidiaries, are collectively
referred to herein as "ecoTECH," "the Company," "us," or "we."
As applicable for clarity, ecoTECH Energy Group Inc is specifically defined as
ecoTECH Inc and ecoTECH Energy Group (Canada) Inc.is specifically defined as
ecoTECH (Canada).
CORPORATE OVERVIEW
This company was initially incorporated under the name Sea 2 Sky Corporation
("Sea2Sky"), under the laws of the State of Nevada on November 16, 2005. Sea2Sky
was initially established to provide travel related services to tourists in
Canada and other countries. Due to an economic downturn, Sea2Sky abandoned its
travel service business in the first half of fiscal 2009. Accordingly, results
from its operations related to the travel business were reclassified from
current operations to that of discontinued operations. Effective March 1, 2009,
the business of Sea2Sky was transitioned to focus to that of a world-wide
renewable energy provider. Prior to the acquisition of ecoTECH Energy Group
(Canada) Inc. ("ecoTECH (Canada)") as noted below, Sea2Sky became a development
stage company that intended to obtain sources of biomass supply and convert them
into green or alternative energy products.
On November 12, 2010, Sea2Sky completed the acquisition (the "Acquisition") of
all of the issued and outstanding shares of ecoTECH (Canada), pursuant to a
Business Combination Agreement (the "Agreement") by and among Sea2Sky, 7697112
Canada Corp. and ecoTECH (Canada) pursuant to which ecoTECH (Canada) amalgamated
with and into 7697112 Canada Corp. ("Subco"), our wholly owned subsidiary.
Under the terms of the Agreement, at closing, each Class A common share of
ecoTECH (Canada) was exchanged for one new share of Sea2Sky common stock,
requiring the issuance of 110,606,239 shares of Sea2Sky common stock. ecoTECH
(Canada) was then combined with Subco, resulting in our 100% ownership of
ecoTECH (Canada).
On December 10, 2010, a certificate of amendment to our articles of
incorporation was filed with the Nevada Secretary of State to: (i) change the
name of Sea2Sky Inc to "ecoTECH Energy Group Inc ("ecoTech Inc")." and (ii)
increase the authorized common stock from 225,000,000 shares to 675,000,000
shares. This amendment was unanimously approved by the Board of Directors and by
a majority of our stockholders by written consent.
On December 16, 2010, FINRA/OTC Corporate Actions provided notice that the name
change would take effect at the opening of business on December 20, 2010 with a
new trading symbol of "ECTH." At that time the Company changed its fiscal year
end from October 31st to December 31st.
Depending on the country in which our future operations will be located, we
intend to conduct business through either ecoTECH Inc., ecoTECH (Canada) and/or
other subsidiaries or joint ventures as appropriate.
ecoTECH Inc's office is located 800 Fifth Avenue, Suite 4100, Seattle,
Washington 98104, telephone (206) 259-7867.
ecoTECH (Canada)'s office is located at 29020 Fraser Highway, Abbotsford,
British Columbia,V4X 1G4, telephone 604 288 8263.
Our website is www.ecotechenergygroup.com. , which is not incorporated in, and
is not part of this report
OUR BUSINESS
Overview
ecoTech is a development-stage renewable energy company which plans to
manufacture, construct and/or operate bio-mass-fuelled power stations that not
only provide electrical power from bio-mass and/or waste but that can also be
augmented with various operational facilities that utilize waste energy from
these power plants.
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During the past 30 years, ecoTECH has developed and refined its proprietary
ecoPHASER thermal gasification technology. The ecoPHASER enables various
configurations of clean-burning of bio-mass and /or that provides optimal
revenue performance, correct volumetric fuel flow systems and minimum
environmental impact.
In addition, ecoTECH has developed the expertise and/or acquired the licensing
rights for combined heat and power technologies including: Torrefaction,
Aqua-culture, Hydroponics, Aquaponics, Cold Storage Heat exchange technologies
and other environmental related processes.
The use of these various components can be combined to produce renewable and
sustainable "green" energy facilities and completely organic products.
Industry Overview
Renewable Energy Industry
According to US Energy Information Services, the worldwide growth in the
renewable energy industry is projected to exceed $250 billion by the year 2017.
In 2007, the biofuels market reached $25 billion globally, 40% of which occurred
in the United States. Accordingly, we believe there is approximately $200
billion of market opportunity in the next few years.
In the United States, it is projected that 250 gigawatts of new generating
capacity will be required by 2035; of this capacity, approximately 40% is
estimated to be provided by non-hydro electric renewable energy sources.
The US Energy Information Services also states that power generated from
biomass, which we believe is the most non-hydro renewable energy source in the
world, is expected to grow from approximately 1% in 2008 to approximately 6% by
2035.
The U.S. Energy Information Administration ("EIA") projects that by 2035, the
role of fossil fuel in providing energy will decrease by approximately 80%, and
renewable energy sources are expected to provide approximately 15%
Our Business Plan
Using our ecoPHASER thermal gasification technology, we plan to manufacture,
construct and /or operate bio-mass-fuelled combined heat and power ("CHP")
stations that not only provide electrical power from bio-mass and/or waste
burning facilities, which are combined with waste heat utilization from these
power plants.
The ecoTECH team has developed and refined the proprietary ecoPHASER thermal
gasification technology which enables very clean-burning of bio-mass and wastes.
EcoTECH's combined heat and power (CHP) technology produces: (i) electricity,
which can be channeled to utilities and end-users via the local electrical
distribution system and (ii) heat which can be used to fuel a variety of "Green"
operating facilities.
We are currently attempting to develop plans for several strategically
positioned CHP power stations in order to: (i) reduce the reliance on fossil
fuels by providing a sustainable and environmentally friendly source of energy
and fuel products manufactured from local biomass feedstocks; (ii) meet specific
local needs for decentralized power, while reducing the cost of biomass
transportation; (iii) assist communities meet federal and state renewable energy
and reduced emissions mandates; and, (iv) provide local jobs and community
development for the project communities.
Our Advantages:
Proprietary Technology:
Our ecoPHASER thermal gasification technology enables us to design and construct
clean-burning waste-to-energy cogeneration Power Stations which would provide
optimal revenue performance, correct volumetric fuel flow systems and minimum
environmental impact. Our power stations can combine technologies to effectively
process and convert biomass and other feedstocks, under environmentally friendly
conditions, into electricity. Our proprietary design uses multiple fuel stocks
and produces higher mass-to-energy with greatly reduced harmful emissions.
Additionally, we have acquired the licensing rights to adjunct technologies
(Aquaponic, hydroponic harvesting, cold storage, etc.) which, can be efficiently
combined with the power stations to provide cost-effective solutions for
economic development and job creation in the respective community.
Prototype Equipment:
Our technology has been developed and honed via initial prototypes by the
ecoTECH team through private funding prior to formation of ecoTECH, and have
been tested in laboratory tests. Commercial scale manufacturing equipment will
be constructed upon obtaining additional capital funding through debt and equity
financing.
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Bio-Mass Resources
We have already established agreements for sources of woody biomass with land
owners; tree farm license ("TFL") holders; First Nations bands in British
Columbia and Alberta, Canada; and Native Americans in Montana, U.S. Currently,
contracts and/or letters of intent have been secured from two other North
American sources which account for multiple-year fiber supply, in total,
approximately 1.5 million tons of biomass feedstock per year.
Organizational structure
Depending on the country in which our future operations will be located, we
intend to conduct our business through both ecoTECH Inc. and our wholly owned
subsidiary, ecoTECH (Canada).
Because our developing projects are quite site specific, it is likely that each
project will be structured as a separate subsidiary or joint venture with the
equity investor(s) for each project.
CHP Bio-Energy Production
-------------------------
The CHP Bio-Energy Production uses biomass-to-energy technology to produce and
provide renewable, clean power directly to the regional electrical power
distribution system, utility companies, power brokers, large industrial
manufacturers and other end users.
Our CHP produces heat and power by converting sustainable (closed or open loop)
bio-mass or similar biomass through a thermal gasification process into heat
(producing virtually zero harmful emissions), which is then converted into
electricity.
We have proprietary thermal power generation technology utilizing several
patented components making it arguably the cleanest and most efficient thermal
technology available in the market place today
During the electricity generation process, a heat by-product is produced which
would normally be classified as "waste heat"; however, we endeavour to utilize
all available energy from these highly efficient units, so the energy in the
by-produced heat is captured and circulated in an ecoTECH Thermax(R) site
heating high-flow hot oil systems. The oil is transferred in underground pipes
at a high temperature, which can be operated safely due to the high boiling
point of the special oil and therefore no risk of rupture in the system.
This heat can then be used in a co-generation facility such as an aquaponics
greenhouse, or to provide airless roasting chamber in a torrefaction facility.
ecoPHASER System
Our Power Station includes an "ecoPHASER", which is a Sublimation Reactor and
Sonic Standing Wave Pulsed Burner fuelled by such feedstocks as: forestry
residues, coal, lignite, leonardite, peat, chipped tires, straw, wood waste, ,
croppings, coke, bark, sawdust, paper, natural gas, landfill gas, bagasse,
pre-sorted garbage, manure, dried sewage and municipal solid waste. Any and all
of the aforementioned are viable and cost effective fuel feedstocks. The
efficiency of the ecoPHASER allows traditional fuels such as coal or natural gas
to be efficiently processed into electricity, producing emissions well below
current regulatory requirements. The ecoPHASER produces a near-zero Nox exhaust,
comprising mainly of Nitrogen and CO2.
CHP Bio-Energy Power Stations:
-----------------------------
A CHP Bio-Energy Power Station is described as a Waste-to-Energy (W2E), Combined
Heat and Power energy generating facility. It produces both the heat and
electricity in varying combinations, which can be tailored to produce desired
amounts of either. The main structure houses a variable number of modules
operating in a parallel array, each delivering 12 megawatts per hour of
electrical power and approximately 5 megawatts (15 Mbtu) of process and
sacrificial heat.
Each module consists of a traditional two-stage gasifier/burner which utilizes
proven proprietary gasification technology and "off the shelf" boilers and
turbines. The modules are built in 12 megawatts per hour for simplicity in
expansion and redundancy. This compact and scalable design provides flexibility
for various sized projects.
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Aquaponics:
----------
Aquaponics is the combination of fresh fish farming (aqua-culture) and a green
house vegetables facility (hydroponics) using 100% organic processes.
ecoTECH has acquired licensing rights for Aqua-culture and Hydroponics from
HydroNov Inc., of Montreal, Canada, and for Aquaponics from Crop Diversification
Centre, Ministry of Agriculture and Rural Development, of the Province of
Alberta, Canada along with other proprietary environmental related processes.
To supplement the CHP power stations, we intend to develop, construct and/or
operate combined Aquaponics facilities utilizing avant-garde greenhouses, indoor
food fish propagation facilities, and cold store operations that further utilize
the by-produced heat and carbon dioxide from the CHP stations. It is important
to note that combined with sustainable production facilities as noted above the
full cycle operation is carbon negative, resulting in an overall reduction of
green house gases.
These Aquaponics facilities will create profitable activities which provide new
regional socio-economic benefits by creating jobs, production of organic foods,
heat-exchange cold storage and other products which are essential elements of
our 21st century sustainable way of life. The demand for the products and
services we offer is growing with international environmental awareness and the
knowledge of the importance of sustainability across the world. We believe that
our comprehensive approach is unique in the energy sector.
Aquaponics is a sustainable food production system that combines a traditional
aquaculture (raising aquatic animals such as fish, crayfish or prawns in tanks)
with hydroponics (cultivating plants in water) in a symbiotic environment. In
the aquaculture, effluents accumulate in the water, increasing toxicity for the
fish. This water is led to a hydroponic system where the by-products from the
aquaculture are filtered out by the plants as vital nutrients, after which the
cleansed water is recirculated back to the aquatic animals.
The term aquaponics is a portmanteau of the terms aquaculture and hydroponic.
Aquaponics is based on the symbolic relationships found in nature and can be
described as the combination of aquaculture and hydroponics. Fish effluent from
traditional aquaculture systems is used to fertilize plants in a hydroponic
system.
When the two practices are combined they work in a symbiotic relationship to
create a natural growing system. The benefits of keeping fish in an indoor,
pollution and parasite free aquaponic system include maximum efficiency of
water. University trials showed that growing plants in an aquaponic system used
90% less water than soil grown crops, as the only water lost is through
evaporation and transpiration.
Our facilities will use recirculating aquaculture systems which utilize oval
tanks, each with a perimeter deepwater raceway that emulates a flowing stream.
The water temperature, salinity, flow rate and dissolved oxygen levels are
modulated to be optimal for each cultured species. Species specific organic
diets, area and tank lighting are optimized to give high "healthy" growth rates
with no carried fats, whilst the induced water current promotes healthy exercise
and flesh tone, as in nature. The central "island" houses the pumps, filtration
and oxygenation equipment that maintain the water steam in ideal conditions of
"living energy".
Instead of discharging water, aquaponics recycles the water in a recirculating
system. Water is pumped from the fish tank through grow beds where the water is
cleaned by the plants and media before being returned to the fish tank and
providing the fish with freshly oxygenated clean water. Other forms of
Horticulture rely on the addition of costly chemical nutrients that use valuable
time, energy and money. By combining the processes we can easily grow
vegetables, herbs and fruits simply by feeding the fish. Best of all there is no
need to use chemical fertilizers or pesticides.
We will use only naturally derived nutrients instead of fertilizers and use only
natural predators instead of pesticides. Plant pollination is carried out by
bees that inhabit the temperature, water and ambient air controlled environment.
In an aquaponic system the nutrients for the plants are supplied by the fish.
They produce ammonia as they breathe and when they excrete waste, this ammonia
is converted by beneficial bacteria into nutrients available to the plants.
The solids are broken down and filtered in the root matrix, effectively cleaning
the water before returning it to the fish tank. Additional water cleansing is
provided by zeolitic and activated carbon filtration, oxygen sparging and UV
treatment units. The good bacteria occur naturally in soil, air and water. They
colonise the media and a healthy population is an essential ingredient of any
aquaponic system.
We can describe this simple process as the "nitrogen cycle". By studying and
emulating nature's systems, we are encouraging natural processes that can be
monitored and recorded for integrated science, biology, horticulture, health,
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society and the environment. Symbiosis, mutuality and effectiveness of
beneficial fungi and bacteria to aid in the absorption of nutrients, is an
ongoing study to ensure optimum vegetable and fruit growth results.
Torrefied Bio-Fuels
-------------------
Torrefaction is a scientifically proven method for improving the properties of
biomass as a fuel. Torrefaction is the thermo-chemical treatment of biomass at
200 to 300(degree)C, carried out under atmospheric conditions and in the absence
of oxygen. During the process, the biomass partly decomposes, giving off various
types of volatiles. The final product is the remaining solid, which is often
referred to as torrefied biomass, or torrefied wood when produced from woody
biomass.
Torrefaction can potentially be applied to a wide variety of biomass (softwood,
hardwood, herbaceous, wastes) so that the range of biomass feedstock for
torrefied wood briquettes can be greatly increased. We plan to apply
torrefaction technology to increase the energy output in biomass products and to
provide a coal-like product with significant environmental advantages.
Torrefied biomass has also proven to have hydrophobic (resistant to or avoiding
wetting) properties which are welcome during storage. From the pelletization
viewpoint, the implementation of torrefaction within the pelletization process
offers theoretical solutions to the problems encountered with the durability and
biological degradation of wood pellets.
Our torrefied briquette plants will be powered by surplus heat and energy
provided by the CHP Power Stations. Green-fuel is a wood-based "clean fuel"
product that has been torrefied and pelletized, resulting in a highly-condensed
wood fuel product which has roughly equal calorific value as standard coal and
can be burned in the exact same manner but with greatly reduced carbon dioxide
(CO2) emissions. Biomass in general provides a low cost, low risk route to lower
CO2 emissions. When high volumes are needed, torrefied biomass is price
competitive with coal while meeting or exceeding emissions standards and may
also provide a revenue stream through carbon credit gains.
We anticipate that world-wide markets will further emerge as legislation and
emission standards follow demand from governments and constituents seeking low
carbon dioxide coal replacement products. Customers for "green-fuel" biofuels
make up two potential groups: direct end-users including current coal-fuelled
power companies, and commodities brokers.
As industries transition from coal-fired energy to more earth-friendly methods,
"green-fuel" production provides a solution for coal-fired energy manufacturers
to meet mandated percentages of sustainable fuels contents by established
regulatory deadlines. Currently, most coal-fired power generators around the
world do not have a readily available "green" fuel, and the cost of converting /
retrofitting existing combustion systems is often not practicable. Most of the
coal-fired power generators pulverize coal in ball mills and spray the ground
fuel into the combustion zones. When wood in briquette or pellet form is ground
in a ball mill, it forms stubbornly stringy mats and fibers that clog the
system, making it an unfeasible solution for long-term use. However, 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. 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 torrefaction process offers advantages for parties requiring low carbon
dioxide replacement products, including
o No modifications to firing systems needed; no capital outlay required
to burn the fuel
o No handling or storage modifications needed; can be stored in the coal
piles
o Will not deteriorate in inclement weather. Hydrophobic; hygroscopy
actually less than coal
o Even with old burners, it will produce lower NOx (Nitrogen Oxide) and
zero SOx (Sulfur Oxide) to lower emissions
o Higher energy content; (emissions reduction exceed percentage of
briquettes added).
o Carbon Credits: each ton of our briquettes that are consumed reduces
the CO2 output by 2.5 tons. Depending on the buyer and the prevailing
cap & trade spot at the time, this amounts to a rebate of at least $75
per ton of briquettes used.
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Garbage to Concrete
-------------------
Our Garbage to Concrete system utilizes our thermal gasification technology to
convert trash into reusable concrete for industrial products such as culverts,
pipes and barriers and is used where infrastructure is uneconomic or
unavailable. The final product of the combined systems is pozzolanic ash for
high strength; low mass cast concrete products manufacture.
Our system can process up to 40 tons of waste per hour, depending on the
residual municipal solid waste (MSW) content and the energy content of the fuel
used in the sublimation reactor section. The system can be combined with large
or small cement mixing systems.
Due to the action of the tumble kiln, the ash is produced and kept below its
natural fusion temperature, which will vary according to the kiln feed mixture.
Ash from the sublimation reactor is augured to the inlet conveyor of the kiln,
to become part of the ash yield. A separate exhaust feed pipe is used to convey
carbon dioxide rich flue gas to heat the casting moulds for hardening cement.
Employees
As of December 31, 2011, we employed eight people, seven of whom are full time
and one of whom is part time. We believe that our employee and labor relations
are good.
Recent Developments
The Company is continuing to work to develop and bring several proposed projects
to fruition. Due to Government and financing delays, we have no finalized
agreements and have not been able to commence construction on any of our
projects at this time.
Where You Can Find More Information
We are required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission ("SEC"). These
filings are not deemed to be incorporated by reference into this report.
You may read and copy any documents filed by us at the Public Reference Room of
the SEC, 100 F Street, NE, Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Our filings with the SEC are also available to the public through the SEC's
website at http://www.sec.gov.
ITEM 1A. RISK FACTORS
This annual report contains forward-looking statements that involve risks and
uncertainties. These statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "intends," "plans," "may," "will,"
"should," or "anticipation" or the negative thereof or other variations thereon
or comparable terminology. Actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this annual report. The
following risk factors should be considered carefully in addition to the other
information in this annual report, before purchasing any of the Company's
securities.
Risks Related to our Business and Our Industry:
We have no operating history on which to evaluate our potential for future
success.
We have had no material operations to date. Consequently, evaluating an
investment in us and predicting our future results based upon our past
performance is not possible, particularly with respect to our ability to develop
our products and services, to generate and sustain a revenue base sufficient to
cover operating expenses or to achieve profitability.
Based on our historical financials, there is uncertainty as to our ability to
continue as a going concern.
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In the event that we are unable to achieve or sustain profitability or are
otherwise unable to secure additional external financing, we may not be able to
meet our obligations as they come due, raising substantial doubts as to our
ability to continue as a going concern. Any such inability to continue as a
going concern may result in our security holders losing their entire investment.
Our financial statements, which have been prepared in accordance with generally
accepted accounting principles, contemplate that we will continue as a going
concern and do not contain any adjustments that might result if we were unable
to continue as a going concern. Notwithstanding the foregoing, our cash flow
deficiencies raise substantial doubt as to our ability to continue as a going
concern. Also, changes in our operating plans, our existing and anticipated
working capital needs, the acceleration or modification of our expansion plans,
lower than anticipated revenues, increased expenses, potential acquisitions or
other events may also affect our ability to continue as a going concern.
We will need additional financing for which we have no commitments and this may
jeopardize execution of our business plan.
We have limited funds, and such funds are not adequate to carry out the business
plan in the energy business. Our ultimate success depends upon our ability to
raise additional capital. We have not investigated the availability, source, or
terms that might govern the acquisition of additional capital and will not do so
until we have determined a need for additional financing. If we need additional
capital, we have no assurance that funds will be available from any source or,
if available, that they can be obtained on terms acceptable to us. If not
available, our operations will be limited to those that can be financed with the
Company's modest capital.
Torrefaction technologies are unproven on a large-scale commercial basis and
performance could fail to meet projections, which could have a detrimental
effect on the long-term capital appreciation of our stock.
While wood pellet production is a mature technology, newer technologies such as
torrefaction have not been built at large commercial scales. The technologies
being utilized by us for alternative energy production from biomass have not
been demonstrated on a commercial scale. All of the tests conducted to date by
us with respect to a specific torrefaction technology have been performed on
limited quantities of feed stocks, and we cannot assure you that the same or
similar results could be obtained at competitive costs on a large-scale
commercial basis. We have never utilized these technologies under the conditions
or in the volumes that will be required to be profitable and cannot predict all
of the difficulties that may arise. It is possible that the technologies, when
used, may require further research, development, design and testing prior to
larger-scale commercialization. Accordingly, we cannot make an assurance that
these technologies will perform successfully on a large-scale commercial basis
or at all.
Competition from large producers of torrefied biomass energy products and other
competitive renewable energy products may impact our profitability.
Although we are not aware of any large commercial operations which convert
biomass into energy via the torrefaction technology, we expect others to follow
our lead. In addition, manufacturers of other sources of alternative energy
(from wind, water, sun, etc.) are considered competitors in our industry. Our
proposed torrefaction plants will compete with all of these competitors at
varying levels.
We will be impacted by woody biomass supply.
Our Torrefied biomass energy products will be produced from woody biomass, and
currently we have agreements for sufficient woody biomass to accommodate up to
two plants. However, should these resources be affected by weather, governmental
restraints, and other conditions, we might experience a shortage of raw material
which would hinder operations.
We may not be able to obtain the funding to manufacture construct and/or operate
our planned facilities, the failure of which could adversely affect our
business, operations and financial condition.
We are currently in discussions with potential sources of financing but no
definitive agreements are in place. If we cannot achieve the requisite financing
or complete the plants as anticipated, this could adversely affect our business,
the results of our operations, prospects and financial condition.
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Risks Related to Government Regulation and Subsidization:
Federal Regulations concerning grants and tax incentives could expire or change
which could cause an erosion of the competitive strength of the biomass
renewable energy industry.
The US Congress currently provides certain federal tax credits for alternative
energy manufacturers, distributors, and end-users. The current alternative
energy industry and our business initially depend on the continuation of these
credits. The credits have supported a market for renewable energy sources
(specifically biomass) that might disappear without the credits. These credits
may not continue beyond their scheduled expiration date or, if they continue,
the incentives may not be at the same level. The revocation or amendment of any
one or more of these tax incentives could adversely affect the future use of
biomass alternative energy in a material way, and we cannot assure investors
that any of these tax incentives will be continued. The elimination or reduction
of federal tax incentives to the renewable energy industry could have a material
adverse impact on the industry as a whole.
Non-stringent enforcement of environmental and energy policy regulations may
adversely affect demand for renewable alternative energy sources such as those
provided by the conversion of woody biomass.
Our success will depend in part on effective enforcement of existing
environmental and energy policy regulations. Many of our potential customers are
unlikely to switch from the use of conventional fossil fuels unless compliance
with applicable regulatory requirements leads, directly or indirectly, to the
use of environmentally-friendly alternatives. Both additional regulations and
enforcement of such regulatory provisions are likely to be vigorously opposed by
the entities affected by such requirements. If existing emissions-reducing
standards are weakened, or if governments are not active and effective in
enforcing such standards, our business and results of operations could be
adversely affected. Even if the current trend toward more stringent emission
standards continues, we will depend on the ability of biomass alternative energy
to satisfy these emissions standards more efficiently than other alternative
technologies. Certain standards imposed by regulatory programs may limit or
preclude the use of our products to comply with environmental or energy
requirements. Any decrease in the emission standards or the failure to enforce
existing emission standards and other regulations could result in a reduced
demand for our products. A significant decrease in the demand will reduce the
price of our products, adversely affect our profitability and decrease the value
of our stock.
Our proposed plants will also be subject to federal, state and provincial laws
regarding occupational safety.
We may be subject to costs and liabilities related to worker safety and job
related injuries, some of which may be significant. Possible future
developments, including stricter safety laws for workers and other individuals,
regulations and enforcement policies and claims for personal or property damages
resulting from operation of the facilities could reduce the amount of funds that
would otherwise be available to further enhance our business.
The departure of our Chief Executive and/or other key personnel could compromise
our ability to execute our strategic plan and may result in additional severance
costs to us.
Our success largely depends on the skills, experience and efforts of our Chief
Executive Officer and other key personnel. The loss of these persons, or our
failure to retain other key personnel, would jeopardize our ability to execute
our strategic plans and materially harm our business.
We will need to recruit and retain additional qualified personnel to
successfully grow our business.
Our future success will depend in part on our ability to attract and retain
qualified operations, marketing and sales personnel as well as engineers.
Inability to attract and retain such personnel could adversely affect the growth
of our business. We expect to face competition in the recruitment of qualified
personnel, and we can provide no assurance that we will attract or retain such
personnel.
We are subject to management risks.
New ventures have substantial inherent risks including, but not limited to,
development, marketing, sales, distribution, human factors and the coordination
of any and all of these activities. Notwithstanding our due diligence and any
pre-planning, our products and services may encounter unexpected problems in
connection with any of these activities that could not be foreseen or accurately
predicted and which could have a material adverse effect on our business,
financial condition and results of operations.
10
We do not have any independent directors and we have not voluntarily implemented
various corporate governance measures, in the absence of which stockholders may
have more limited protections against interested director transactions,
conflicts of interests and similar matters.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements. Our
Board of Directors is comprised of four individuals, one of whom is also our
executive officer and the other three are officers, all of which are significant
stockholders. Our officers make decisions on all significant corporate matters
such as the approval of compensation and the oversight of the accounting
functions.
Although we have adopted a Code of Ethics and Business Conduct, we have not yet
adopted any of these other corporate governance measures and, since our
securities are not yet listed on a national securities exchange, we are not
required to do so. We have not adopted corporate governance measures such as an
audit or other independent committees of our board of directors as we presently
do not have any independent directors. If we expand our board membership in
future periods to include additional independent directors, we may seek to
establish an audit and other committees of our board of directors.
Board of Directors included independent directors and if we were to adopt some
or all of these corporate governance measures, stockholders would benefit from
somewhat greater assurances that internal corporate decisions were being made by
disinterested directors and that policies had been implemented to define
responsible conduct. For example, in the absence of audit, nominating and
compensation committees comprised of at least a majority of independent
directors, decisions concerning matters such as compensation packages to our
senior officers and recommendations for director nominees may be made by a
majority of directors who have an interest in the outcome of the matters being
decided. Prospective investors should bear in mind our current lack of corporate
governance measures in formulating their investment decisions.
Risks Related to our Stock:
Trading in our common stock is limited and the price of our common stock may be
subject to substantial volatility.
Our common stock is traded on the OTC Bulletin Board, and therefore the trading
volume is more limited and sporadic than if our common stock were traded on a
national stock exchange. Additionally, the price of our common stock may be
volatile as a result of a number of factors, including, but not limited to, the
following:
o quarterly variations in our operating results,
o large purchases or sales of our common stock,
o actual or anticipated announcements of new products or services by us
or competitors,
o general conditions in the markets in which we compete; and
o economic and financial conditions
"Penny stock" regulations may impose certain restrictions on the marketability
of our securities.
The SEC has adopted regulations which generally define a "penny stock" to be any
equity security that has a price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions (including the
issuer of the securities having net tangible assets (i.e., total assets less
intangible assets and liabilities) in excess of $2,000,000 or average revenue of
at least $6,000,000 for the last three years). As a result, our common stock
could be subject to these rules that impose additional sales practice
requirements on broker-dealers who sell our securities to persons other than
established customers and accredited investors (generally persons with a net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
"penny stock," unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
"penny stock" market. The broker-dealer must also disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
11
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the "penny stock" held in the account
and information on the limited market in "penny stocks." Consequently, although
the "penny stock" rules do not currently apply to our securities, if these rules
do become applicable in the future, this may restrict the ability of
broker-dealers to sell our securities.
Our officers and directors collectively own a substantial portion of our
outstanding common stock, and as long as they do, they may be able to control
the outcome of stockholder voting.
Our officers and directors are collectively the beneficial owners of
approximately 43% of our common stock as of March 30, 2012. As long as our
officers and directors collectively own a significant percentage of our common
stock, our other shareholders may generally be unable to affect or change the
management or the direction of our company without the support of our officers
and directors. As a result, some investors may be unwilling to purchase our
common stock. If the demand for our common stock is reduced because our officers
and directors have significant influence over our company, the price of our
common stock could be materially depressed. The officers and directors will be
able to exert significant influence over the outcome of all corporate actions
requiring stockholder approval, including the election of directors, amendments
to our certificate of incorporation and approval of significant corporate
transactions.
We may seek to raise additional funds, finance acquisitions or develop strategic
relationships by issuing capital stock. We have financed our operations, and we
expect to continue to finance our operations, acquisitions and develop strategic
relationships, by issuing equity or convertible debt securities, which could
significantly reduce or dilute the percentage ownership of our existing
stockholders. Furthermore, any newly issued securities could have rights,
preferences and privileges senior to those of our existing stock. Moreover, any
issuances by us of equity securities may be at or below the prevailing market
price of our stock and in any event may have a dilutive impact on your ownership
interest, which could cause the market price of stock to decline.
We may also raise additional funds through the incurrence of debt, and the
holders of any debt we may issue would have rights superior to your rights in
the event we are not successful and are forced to seek the protection of the
bankruptcy laws.
We have no current intention of declaring or paying any cash dividends on our
common stock.
We do not plan to declare or pay any cash dividends on our common stock. Our
current policy is to retain all funds and any earnings for use in the operation
and expansion of our business.
ITEM 1B UNRESOLVED STAFF COMMENTS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.
ITEM 2. DESCRIPTION OF PROPERTY
ecoTECH Inc's offices in Seattle Washington are operated under a nominal a
month-to-month rental agreement with an annual rate of $540.00.
In March 2011, ecoTECH (Canada) acquired land for a planned power and
aquaponic's facility in McBride, British Columbia. The legal description of the
property is: The Fractional South east 1/4 of District Lot 5339 Cariboo District
except Parcel A (n42430) and Plans 20852, 21079 and PGP38823.
ITEM 3. LEGAL PROCEEDINGS
Management is of the opinion, based upon information presently available, that
it is unlikely that any liability, to the extent not provided for, would be
material in relation to the Company's consolidated financial position
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable
12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the OTC Bulletin Board under the symbol "ECTH." On
December 20, 2010, we changed our corporate name to "ecoTECH Energy Group Inc."
from "Sea 2 Sky Corporation" and our symbol changed to "ECTH" from "SSKY." The
following table shows the high and low bid prices for our common stock for each
quarter since January 1, 2009 as reported by the OTC Bulletin Board. All share
prices have been adjusted to provide for the 30-1 forward split effected in
February 10, 2009. We consider our stock to be "thinly traded" and any reported
sale prices may not be a true market-based valuation of its stock. Some of the
bid quotations from the OTC Bulletin Board set forth below may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Sale Prices
-------------------------
High Low
------------ ------------
Fiscal Year Ended December 31, 2012
First Quarter $0.68 $0.20
Fiscal Year Ended December 31, 2011
First Quarter $0.55 $0.18
Second Quarter 0.45 0.22
Third Quarter 0.51 0.11
Fourth Quarter 0.49 0.17
Fiscal Year Ended December 31, 2010
First Quarter $0.08 $0.04
Second Quarter 0.10 0.03
Third Quarter 0.23 0.10
Fourth Quarter 0.35 0.18
Shareholders
As of March 30, 2012 we had approximately 200 shareholders of record of our
common stock.
Dividends
We have not paid any cash dividends on our common stock, and do not anticipate
paying cash dividends in the foreseeable future. Our current policy is to retain
earnings, if any, to fund operations, and the development and growth of our
business. Any future determination to pay cash dividends will be at the
discretion of our Board of Directors and will be dependent upon our financial
condition, operation results, capital requirements, applicable contractual
restrictions including restrictions in loan agreements, restrictions in our
organizational documents, and any other factors that our Board of Directors
deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
In February 2012, the Company raised $1,006 through the sale of 3,211 common
shares for cash at $0.31 per share, less commission of $151.
13
In March 2012, the Company raised $6,263 through the sale of 25,445 common
shares for cash at $0.25 per share, less commissions of $939.
The issuance of these common shares have been approved by the Board of
Directors, however the shares are not considered to be "issued and outstanding"
until they have been formally registered and issued by our transfer agent.
Exemption From Registration Claimed
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Rule 506 of Regulation D of the Securities Act
of 1933, as amended (the "1933 Act"). All of the individuals and/or entities
that purchased the unregistered securities were primarily existing shareholders,
known to the Company and its management, through pre-existing business
relationships, as long standing business associates and employees. All
purchasers were provided access to all material information, which they
requested, and all information necessary to verify such information and were
afforded access to management of the Company in connection with their purchases.
All purchasers of the unregistered securities acquired such securities for
investment and not with a view toward distribution, acknowledging such intent to
the Company. All certificates or agreements representing such securities that
were issued contained restrictive legends, prohibiting further transfer of the
certificates or agreements representing such securities, without such securities
either being first registered or otherwise exempt from registration in any
further resale or disposition.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information and discussion should be read in conjunction with such
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 Current Report on Form 10-K, 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.
CURRENT PROJECTS
We are in various stages of project development primarily located in the U.S.
and Canada. The Company is also pursuing other international opportunities;
however, there have been no such activities to date.
McBride, British Columbia -- Aquaponics:
A combined self-contained $92 million Aquaponic Project, in addition to our
power plant and power-line projects as noted below, we have also developed a
stand-alone Aquaponics project which combines a self-contained 5 megawatts per
hour biomass power plant, together with a fresh fish farming (aqua-culture) and
a greenhouse vegetables facility hydroponics) using 100% organic processes.
The Company has entered into a 5 year supply purchase contract from one of
Canada's largest supermarket chains, to purchase a minimum $12 million of
organic fish and vegetables per year. Full commercial operations are projected
to be $55 million per year.
Land has already been purchased by the Company, near McBride, which has the
appropriate zoning and for which we have obtained the necessary water permits.
The Company has contracted out preliminary site clearing and subject to
receiving project financing, is in position to commence construction in the
summer of 2012 with commercial operations projected for 2013.
14
We have received majority debt financing offers for this project and are
currently in negotiations with equity investors. There have been no final
contracts have been signed to date.
McBride, British Columbia - Power Generation:
The Company currently is awaiting an Energy Purchase Agreement ("EPA") for the
construction and operation of a $78 million, 24 megawatts per hour bio-mass
power plant and a $52 million 138 kilovolt power-line. The electric power
produced would be sold to BC Hydro (the provincial electrical utility) under a
pending Energy Purchase Agreement ("the EPA").
The EPA has been delayed since September 2011, primarily due to the British
Columbia Government's imposed review of BC Hydro's proposed 3 year rate
increases.
In February 2012, the BC Utilities Commission authorized a 7.07% interim rate
increase to BC Hydro, rather than the BC Governments suggested rate of 3.91%.
We are optimistic, now that the review is over, that BC Hydro will be able to
move forward in the near future on issuing the EPA for our project.
Additional land for this power plant will be purchased in the McBride area, and
rights-of-ways established for the power-line once the EPA has been received.
With an additional capital investment, this CHP facility could be increased by
36 megawatts per hour to produce a total of 60 megawatts per hour. This would
allow BC Hydro the flexibility to balance the significantly variable electrical
power that would be produced by run-of-the-river independent power production in
the region.
Thompson Falls, Montana
Due to the drop in natural gas prices the company's biomass proposal is not
currently viable. Therefore the company has elected to defer this project
indefinitely.
Ambato, Ecuador
A $6 million Garbage to Concrete (Garcrete) system for Ambato, with additional
orders expected to be received for five additional Garcrete systems for other
locations in Ecuador.
In addition, an interior location is being sought by the Ecuador federal
government for a 72 megawatts per hour W2E CHP (Waste to Energy Combined Heat
and Power) facility, quoted by Excelsior Recycle Concepts Inc. (our sales and
marketing agents) on behalf of ecoTECH.
These facilities will utilize the Company's ecoPHASER thermal gasification
technology and will burn municipal waste in order to reduce the country's
reliance on landfills.
It is our understanding that these projects have been delayed due to a pending
review in Ecuador by the government in respect of certain local circumstances
which are unrelated to Excelsior or to ecoTECH. The pending government review
has delayed the completion of final contracts and receipt of purchase deposits
to ecoTECH.
Other Projects in Development
The Company has several other projects in progress, a 24 megawatts per hour
bio-mass power plant project for an operating gold mine in Fiji, a smaller
Aquaponics project in the lower mainland of British Columbia, and a hybrid
power/torrefaction facility for fiber export to Asia from Whitehall, Montana.
ecoTECH is are now a registered supplier to the US Department of Defence and are
awaiting a next stage procedure for the Fort Bliss - Net Zero Project, for which
we are a bidding contractor under their current Request for Proposal.
We are pleased to advise that Lockheed Martin's M2 division has offered to be
our Engineering Procurement and Construction (EPC) contractor on US projects,
both for power and military base projects.
Results of Operations and Development Expenditures
ecoTECH is a development-stage Company, we have had no revenues or sales from
November 28, 2007 ("Inception") through December 31, 2011.
Our total operating loss decreased to $4,880,606 compared to $19,268,682 for the
years ended December 31, 2011 and 2010 respectively. The decrease is primarily
due to the reduction in our stock based compensation of $14,414,663.
Prior to November 12, 2010, common stock was issued to the Company's directors
and officers as part of their compensation. Since stock relative to the acquired
private company had no trading history, there was no available market value for
this stock. The Company had sold shares to private parties for $0.32 per share;
hence it was considered conservative to use this price as the basis for
calculating stock compensation expense relative to the shares issued to the
Company's directors. Common stock issued for compensation in 2011 has been was
valued at the current market price on the day of grant.
15
General and administrative expenditures decreased to $1,066,960 from $1,449,888
for the years ended December 31, 2011 and 2010 respectively. The decrease
reflects the increased activity in research and development expenditures in 2011
as the Company works to bring it potential projects to fruition as further
described below.
Research and development expenditures increased to $333,935 from $44,490 for the
years ended December 31, 2011 and 2010 respectively. The increase reflects a
change in the Company's business focus from CHP and torrefaction project
development, to a much more diverse integrated CHP, aquaponics, torrefaction,
and/or waste treatment projects.
The Company does not anticipate having to pay income taxes in the upcoming years
due to our accumulated net operating loss carry forwards for tax purposes of
$2,666,609.
Capital and Liquidity
The following table provides selected financial data about our Company for the
years ended December 31, 2011 and 2010:
December 31 December 31
2011 2010
Cash and cash equivalents $ 1,134 $ 12,262
Total current assets 6,453 22,628
Total assets 342,553 262,700
Total liabilities 3,673,631 2,295,831
Stockholders' deficit (3,331,078) (2,033,131)
During the years ended December 31, 2011 and 2010, the Company received $155,724
and $513,508, respectively, in net cash from the sale of its common stock. These
proceeds are being used for operating and general and administrative expenses to
sustain the Company through its development stage until it establishes
profitable operations or receives cash from the issuance of additional common
stock.
Net cash used in operating activities for the period from Inception to December
31, 2011, was $1,849,781, consisting primarily of our net loss of $36,157,121
offset by non-cash expenses of $28,181,593 of stock compensation expense,
$212,297 in depreciation, $541,131 for accretion of beneficial conversion
feature, $700,535 of loss on extinguishment of convertible debt, financing costs
of $1,389,908, an increase in accounts payable of $1,123,720 and an increase in
accrued liabilities of $2,127,802.
Net cash used in operating activities decreased to $131,882 from $524,236 for
the years ended December 31, 2011 and 2010 respectively. The decrease is
primarily due to increases in accounts payable and accrued liabilities balances
year over year.
Net cash used in investing activities for the period from Inception to
December 31, 2011, was $382,810, which consisted of purchases of property, plant
and equipment, less $8,510 cash received in consolidation. In March 2011,
ecoTECH Canada acquired land located in McBride, British Columbia. The purchase
price was $256,725, of which approximately 20 percent was paid in a cash use of
$51,345, and the balance by a non-cash vendor financed mortgage for a term of 2
years at an interest rate of 8%.
Net cash provided by financing activities for the period from Inception to
December 31, 2011, was $2,212,841, which consisted of $201,382 in proceeds from
notes and loans payable(net of repayments) from related parties; $676,738 in
proceeds from the sale of common stock; $222,286 in proceeds from the sale of
flow-through shares; $1,137,581 in proceeds from the sale of convertible
debentures; and; less $24,071 in payments on convertible debentures; and $1,075
in principal in payments on the mortgage.
We had minimal cash on hand of $1,134 and $12,262 at December 31, 2011 and 2010,
respectively.
16
To the extent we are unable to meet our operating expenses, we may borrow funds
from our current management or other related parties, the Company has borrowed
$17,633 and $70,140 (net of repayments) from Directors, Officers and
shareholders of the Company, for the years ended December 31, 2011 and 2010
respectively. We will also attempt to raise capital from private individuals or
institutional investment equity and/or debt funds for operating purposes. Future
project revenues and/or sales, if any, which exceed operating expenses and debt
repayments, will be used to pay outstanding liabilities and expand operations.
We are continually attempting to raise project debt and equity financing
applicable to projects.
Our independent registered public accounting firm included an explanatory
paragraph raising substantial doubt about our ability to continue as a going
concern. Since we have no liquidity and have suffered losses, we depend to a
great degree on the ability to attract external financing in order to conduct
our business activities and to ensure that we have sufficient cash on hand to
expand our operations. These factors raise substantial doubt about our ability
to continue as a going concern.
If we are unable to raise additional capital from conventional sources,
including increases in related party loans and/or additional sales of additional
stock, we may be forced to curtail or cease our operations.
Even if we are able to continue our operations, the failure to obtain financing
could have a substantial adverse effect on our business and financial results.
We have no commitments to provide us with financing in the future, other than
described above. We may be required to seek additional capital by selling debt
or equity securities, selling assets, or otherwise be required to bring cash
flows in balance when it approaches a condition of cash insufficiency. The sale
of additional equity securities, if accomplished, may result in dilution to our
existing shareholders. We cannot assure you, however, that debt or equity
financing will be available in amounts or on terms acceptable to us, or at all.
In Item 8, Note 3 of the Consolidated Financial Statements, and with respect to
commitments and contingencies as disclosed in Item 8, Note 8 of the Consolidated
Financial Statements, included in this Form 10-K.
Summary of Critical Accounting Policies
Use of Estimates
----------------
Our discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. By their nature, these estimates and judgments are subject to
an inherent degree of uncertainty.
We review our estimates on an on-going basis, including those related to project
development, income taxes, and stock-based compensation, as well as lease
abandonment costs. We base our estimates on our historical experience, knowledge
of current conditions and our beliefs of what could occur in the future
considering available information. Actual results may differ from these
estimates, and material effects on our operating results and financial position
may result.
We believe the following critical accounting policies involve our more
significant judgments and estimates used in the preparation of our financial
statements.
Share-Based Payments
--------------------
The Company has used the issuance its common stock as the primary method for
compensating employees since inception. The Company accounts for stock issued to
employees and directors under ASC 718 - "Compensation - Stock Compensation".
Under ASC 718, stock-based compensation cost to employees is measured at the
grant date, based on the estimated fair value of the award, and is recognized as
expense over the employee's requisite vesting period. No stock options are
currently outstanding. The Company measures compensation expense for its
non-employee stock-based compensation under ASC 505 - Equity. The fair value of
the option issued or committed to be issued is used to measure the transaction.
The fair value is measured at the value of the Company's common stock on the
date that the commitment for performance by the counterparty has been reached or
the counterparty's performance is complete or the award is fully vested. The
fair value of the equity instrument is charged directly to stock-based
compensation expense and credited to common stock (no par). ecoTECH (Canada) is
a privately-held company, with no trading history. The fair market value of the
stock used for costing prior stock compensation transactions has been based on
the standard recurring sales price of CAD$0.32 per share, net of any tax-benefit
valued shares. Post-acquisition, the Company will generally use the closing
market price of the stock at grant date for the valuation of stock issuances to
both employees and non-employees.
Research and Development Costs
------------------------------
The Company accounts for research and development ("R&D") costs in accordance
with ASC 730, "Accounting for Research" , which requires that R&D costs be
expensed as incurred, and that each year's total R&D costs be disclosed in the
financial statements. ASC 730 views the research component of R&D as a "planned
search or critical investigation aimed at discovery of new knowledge" that could
result in a new or improved product, service, process, or technique. The
development component of R&D is translating "research findings or other
knowledge into a plan or design" for a new or improved product, service,
process, or technique. Development includes conceptual formulation, design, and
testing of product alternatives; construction of prototypes and operation of
pilot plants; but not routine alterations to existing products, processes, or
operations. The costs of materials and equipment that will be acquired or
constructed for use when beginning construction of the Company's power stations
and development of related plant sites will be capitalized classified as
property, plant and equipment and depreciated over their estimated useful lives.
To date, research costs include engineering and environmental expenses related
to the Company's future waste-to-energy facilities, and all have been expensed
when incurred.
17
Business Combinations
---------------------
Effective January 1, 2009, the Company adopted ASC 805, Business Combinations
("ASC 805"), an updated accounting standard which carries forward the
requirements to account for all business combinations using the acquisition
method (formerly called the purchase method). Under ASC 805, business
combination accounting applies to a wider range of transactions and events,
including acquisitions of some development stage companies, combinations of
mutual entities, acquisitions without the exchange of consideration, or other
scenarios in which the acquirer obtains control of one or more businesses. In
general, ASC 805 requires acquisition-date fair value measurement of
identifiable assets acquired, liabilities assumed, and non-controlling interests
in the acquiree. Under ASC 805, the value of the business acquired usually is
measured as the sum of the acquisition-date values (measured at fair value, with
a few exceptions). ASC 805 applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.
The business combination of ecoTECH (Canada) and the Company was accounted for
as a reverse acquisition with ecoTECH (Canada) being treated as the acquirer for
accounting purposes. Accordingly, for all periods presented in this Report, the
financial statements of ecoTECH (Canada) have been adopted as the historical
financial statements of the Company known as a change in reporting entity. The
assets and liabilities of Sea 2 Sky Corporation acquired were recorded at their
fair values at the Acquisition Date, which approximated their carrying values.
There were no material long-lived assets acquired. The results of operations of
the parenthave been included in our operating results beginning as of the
closing of the Acquisition.
Convertible Debentures
----------------------
Convertible debt is accounted for under the guidelines established by ASC 740
"Beneficial Conversion Features". The Company records a beneficial conversion
feature ("BCF") related to the issuance of convertible debt that have conversion
features at fixed or adjustable rates that are in-the-money when issued and
records the fair value of the conversion feature with those instruments. The BCF
for the convertible instruments is recognized and measured by allocating a
portion of the proceeds to the conversion feature, and as a reduction to the
carrying amount of the convertible instrument equal to the intrinsic value of
the conversion features, both of which are credited to common stock. The Company
recognizes that misapplication could materially impact the financial condition
and interest costs associated with such debentures.
Foreign Currency Translations
-----------------------------
The Company uses the Canadian dollar as its functional currency. Unless
otherwise noted, for the purpose of this report, the financial statements of the
Company have been translated into United States dollars inaccordance with ASC
830, "Foreign Currency Matters", using year-end exchange rates in effect on the
balance sheet dates for assets and liabilities, average exchange rate in effect
for the period for revenues, costs, and expenses, and historical rates for the
equity. Translation adjustments resulting from translation of balances from
functional to reporting currency are accumulated as a separate component of
shareholders' deficit and as a component of comprehensive loss in the
accompanying statements of operations.
Off-Balance Sheet Arrangements
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a small development-stage reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
PAGE 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PAGE 19 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM
NOVEMBER 28, 2007 (INCEPTION) TO DECEMBER 31, 2011 AND FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010.
PAGE 20 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER, 2011 AND 2010
PAGE 21 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM
NOVEMBER 28, 2007 (INCEPTION) TO DECEMBER 31, 2011 AND FOR
THE YEARS ENDED DECEMBER 31, 2011 AND 2010. CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM NOVEMBER 28,
2007 (INCEPTION) TO DECEMBER 31, 2011 AND FOR THE YEARS ENDED
DECEMBER 31, 2011 AND 2010.
PAGE 22-24 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT FOR
THE PERIOD FROM NOVEMBER 28, 2007 (INCEPTION) TO
DECEMBER 31, 2011.
PAGE 25-42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
dbb mckennon
Certified Public Accountants
Registered Firm - Public Company Accounting Oversight Board
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors and Stockholders of ecoTECH Energy Group Inc. and
subsidiaries.
We have audited the accompanying consolidated balance sheets of ecoTECH Energy
Group Inc. and subsidiaries, a development-stage company (collectively the
"Company") as of December 31, 2011 and 2010, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
then ended and the period from November 28, 2007 ("Inception") through December
31, 2011. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ecoTECH Energy Group
Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their
operations and their cash flows for the years then ended and the period from
Inception through December 31, 2011, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 of the
financial statements, the Company is a development-stage company with no
revenues, has a working capital deficit and has incurred significant losses
since Inception. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with respect to these
matters are also discussed in Note 3. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ dbbmckennon
Newport Beach, California
April 16, 2012
Address: 20321 SW Birch Street, Suite 200 Newport Beach California 92660-1756
Phone: 949.203.3010 Fax: 949.203.3011
Orange County www.dbbmckennon.com San Diego
20
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Statements of Operations and Comprehensive Loss
From
November 28,
December 31, 2011 December 31, 2011 December 31 2010
Revenue $ -- $ -- $
--
Operating Expenses:
General and administration 4,287,738 1,066,960 1,449,888
Stock-based compensation (note 9) 28,181,593 3,359,641 17,774,304
Office relocation (notes 5 and 8) 120,070 120,070 --
Research and development 737,448 333,935 44,490
------------------ ------------------ -----------------
33,326,849 4,880,606 19,268,682
------------------ ------------------ -----------------
Operating loss
(33,326,849) (4,880,606) (19,268,682)
Other (Income) Expense:
Loss on fixed asset disposal 5,704 -- --
Interest expense (notes 7 and 9) 2,279,969 48,538 46,751
Extinguishment of debt (note 7) 700,535 -- --
Other income (83,217) -- (82,516)
------------------ ------------------ -----------------
Net loss before income tax benefit (36,229,840) (4,929,144) (19,232,917)
Income tax benefit (note 13) 72,719 34,647 17,473
------------------ ------------------ -----------------
Net loss (36,157,121) (4,894,497) (19,215,444)
Foreign currency translation adjustment (44,789) 80,956 (86,298)
------------------ ------------------ -----------------
Comprehensive loss $(36,201,910) $ (4,813,541) $(19,301,742)
------------------ ------------------ -----------------
Basic and diluted net loss per common share $ (0.02) $ (0.17)
Weighted average common shares outstanding 197,526,579 113,102,392
The accompanying notes are an integral part of these statements
21
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Balance Sheets
December 31, December 31,
2011 2010
ASSETS
Current assets
Cash and cash equivalents $ 1,134 $ 12,262
Prepaid expenses 3,358 7,311
Due from related parties 1,961 3,055
---------------------------------------
6,453 22,628
Deposits 4,902 60,033
Property plant and equipment, net (note 4) 331,198 180,039
---------------------------------------
Total assets $ 342,553 $ 262,700
---------------------------------------
LIABILITIES
Current liabilities
Accounts payable $ 718,130 $ 503,883
Accounts payable - related party (notes 6 and 12) 134,458 110,542
Accrued liabilities (notes 5 and 8) 2,524,273 1,596,213
Mortgage Payable (note 4) 195,038 --
Notes payable to related parties (notes 6 and 12) 101,732 85,193
---------------------------------------
3,673,631 2,295,831
---------------------------------------
Commitments and contingencies (note 3 and 8)
Stockholders' deficit:
Common stock (Note 9), 675,000,000 shares ($0.001 par value) 203,405,984
(7,915,385 are not yet issued) and 195,233,427 shares issued and outstanding
at
December 31, 2011 and 2010, respectively. 203,406 195,233
Additional paid-in capital 32,900,355 29,392,934
Accumulated comprehensive income 2,499 2,499
Cumulative foreign currency translation adjustment (note 10) (44,789) (125,745)
Deficit accumulated during the development stage (36,392,549) (31,498,052)
---------------------------------------
Total stockholders' deficit (3,331,078) (2,033,131)
---------------------------------------
Total liabilities and stockholders' deficit $ 342,553 $ 262,700
---------------------------------------
The accompanying notes are an integral part of these statements
22
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Statements of Cash Flows
From
November 28,
2007
(Inception) to Year Ended Year Ended
December 31, December 31, December 31,
2011 2011 2010
Operating activities
Net loss $(36,157,121) $ (4,894,497) $(19,215,444)
Add (deduct) items to reconcile to net cash
used in operating activities
Stock-based compensation 28,181,593 3,359,641 17,774,304
Office relocation (notes 5 and 8) 120,070 120,070 --
Depreciation 212,297 65,152 57,577
Income tax benefit (note 13) (72,719) (34,647) (17,473)
Accretion of beneficial conversion features 541,131 -- --
Loss on extinguishment of convertible debt 700,535 -- --
Financing costs 1,389,908 -- --
Changes in operating assets and liabilities:
Prepaid expenses (5,245) 4,210 (7,087)
Deposits (11,752) 45,217 (31,562)
Accounts payable 1,123,720 295,083 117,584
Accrued liabilities 2,127,802 907,889 797,865
------------------ ------------------ -----------------
Net cash used in operating activities (note 3) (1,849,781) (131,882) (524,236)
------------------ ------------------ -----------------
Investing activities
Purchase of property, plant and equipment (note 4) (391,320) (51,345) (27,123)
Cash received in reverse acquisition 8,510 -- 8,510
------------------ ------------------ -----------------
Net cash used in investing activities (382,810) (51,345) (18,613)
------------------ ------------------ -----------------
Financing activities
Sale of common stock net of commissions 676,738 43,077 513,508
Sale of flow-through shares net of commissions 222,286 112,647 --
Sale of convertible debentures 1,137,581 -- --
Payments on vendor financed mortgage (1,075) (1,075) --
Payments on convertible debentures (24,071) -- (24,071)
Net proceeds (payments) on related party notes 201,382 17,633 70,140
------------------ ------------------ -----------------
Net cash provided by financing activities 2,212,841 172,282 559,577
------------------ ------------------ -----------------
Foreign currency effect on cash 20,884 (183) (4,661)
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash equivalents 1,134 (11,128) 12,067
Cash and cash equivalents - beginning of year -- 12,262 195
------------------ ------------------ -----------------
Cash and cash equivalents - end of year $ 1,134 $ 1,134 $ 12,262
------------------ ------------------ -----------------
Supplemental cash flow disclosure (note 11)
The accompanying notes are an integral part of these statements
23
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Changes in Stockholders' Deficit
Cumulative Deficit
Foreign Accumulated
Additional Currency Accumulated during the
Number Common Paid in Translation Comprehensive Development
of Shares Stock Capital Adjustment Income Stage Total
----------------------------------------------------------------------------------------------------
Nov 2007, shares
issued at Inception
to Founders 13,000,000 $ 13,000 $ (12,906) $ - $ - $ - $ 94
Beneficial conversion
feature of Debentures
in 2007 - - 88,791 - - - 88,791
Aug 2008, sale of flow
-through shares for cash
at $0.49 per share, net
of $19,148, premium 130,000 130 44,234 - - - 44,364
2008 Debenture conversions
- at $0.21 per share 4,967,000 4,967 1,055,910 - - - 1,060,877
Nov 2008, stock to WPC
(broker) related to capital
raise at $0.26 per share 5,474,429 5,474 1,411,746 - - - 1,417,220
Dec 2008, Stock issued
for extinguishment 2,553,860 2,554 765,912 - - - 768,466
Equity portion of WPC
(broker) shares - - (80,130) - - - (80,130)
Beneficial conversion feature
of debentures in 2008 - - 430,565 - - - 430,565
Foreign currency translation - - - 106,988 - - 106,988
Net loss - Inception through
December 31, 2008 - - - - - (4,128,927) (4,128,927)
----------------------------------------------------------------------------------------------------
Balances, December 31, 2008 26,125,289 26,125 3,704,122 106,988 - (4,128,927) (291,692)
Jan 2009, stock based
compensation at $0.26
per share 27,000,000 27,000 7,020,648 - - - 7,047,648
2009 Debenture conversions
- at $0.17 per share 23,437 23 3,966 - - - 3,989
June 2009, stock for debt
extinguishment at $0.26
per share 11,774 12 3,107 - - - 3,119
Beneficial conversion feature
of debentures in 2009 - - 24,950 - - - 24,950
Jul - Dec 2009, stock for
cash $0.30 per share 448,440 449 133,256 - - - 133,705
2009 Sale of flow-through
shares for cash at $0.46
per share, net of $17,158
premium 100,000 100 28,869 - - - 28,969
Commissions paid on equity
raise - - (179,581) - - - (179,581)
2009 Debenture conversions
- at $0.18 per share 281,250 281 51,244 - - - 51,525
Dec 2009,stock for debt
extinguishment at $0.26
per share 141,286 141 37,051 - - - 37,192
Foreign currency translation - - - (146,435) - - (146,435)
Net loss - year ended
December 31, 2009 - - - - - (7,918,253) (7,918,253)
----------------------------------------------------------------------------------------------------
Balances, December 31, 2009 54,131,476 54,131 10,827,632 (39,447) - (12,047,180) (1,204,864)
24
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Changes in Stockholders' Deficit
Cumulative Deficit
Foreign Accumulated
Additional Currency Accumulated during the
Number Common Paid in Translation Comprehensive Development
of Shares Stock Capital Adjustment Income Stage Total
--------------------------------------------------------------------------------------------------
Balances, December 31, 2009 54,131,476 54,131 10,827,632 (39,447) - (12,047,180) (1,204,864)
Jan 2010, stock based compen-
sation at $0.31 per share 48,000,000 48,000 14,881,920 - - - 14,929,920
Feb and Oct 2010,stock to WPC
(broker) related to capital
raise at $0.30 to $0.32
per share 776,575 777 238,095 - - - 238,872
Mar to Nov 12,2010, stock for
cash at $0.31 and $0.32 per
share, net of commissions
of $39,909 1,735,688 1,735 498,889 - - - 500,624
Nov 2010, stock based compen-
sation at $0.32 per share 5,650,000 5,650 1,798,734 - - - 1,804,384
Nov 2010, stock for note ex-
tinguishment at $0.32
per share 312,500 313 98,825 - - - 99,138
November 12, 2010, reverse
acquisition between ecoTECH
Energy Group (Canada)
and Sea2Sky Corporation (note 1)
Shares retained and liabilities
assumed - reverse acquisition 80,583,239 80,583 - - - (235,428) (154,845)
Accumulated comprehensive income - - - - 2,499 - 2,499
Nov 2010, stock for consulting
services at $0.26 per share 4,000,000 4,000 1,036,000 - - - 1,040,000
Nov and Dec 2010, stock for
cash at $0.31 per share
net of commissions of $880 43,949 44 12,839 - - - 12,883
Foreign currency translation
(note10) - - - (86,298) - - (86,298)
Net loss - year ended
December 31, 2010 - - - - - (19,215,444) (19,215,444)
--------------------------------------------------------------------------------------------------
Balances, December 31, 2010 195,233,427 195,233 29,392,934 (125,745) 2,499 (31,498,052) (2,033,131)
25
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Consolidated Changes in Stockholders' Deficit
Cumulative Deficit
Foreign Accumulated
Additional Currency Accumulated during the
Number Common Paid in Translation Comprehensive Development
of Shares Stock Capital Adjustment Income Stage Total
--------------------------------------------------------------------------------------------------
Balances, December 31, 2010 195,233,427 195,233 29,392,934 (125,745) 2,499 (31,498,052) (2,033,131)
Jan 2011, stock for debt
extinguishment at $0.27
per share 18,518 19 5,017 - - - 5,036
Jan to Feb 2011, stock for
cash ranging from $0.25
to $0.32 net of
commissions of $1,203 29,366 29 6,789 - - - 6,818
Mar and Apr 2011, sale of
flow-through shares for cash
ranging from $0.51 to
$0.52 per share net of $16,122
in commissions and $28,484 in
tax benefit 209,288 209 62,671 - - - 62,880
Shares to be issued (note 9)
May 2011, stock for debt
extinguishment at $0.46
per share 64,785 65 29,776 - - - 29,841
May 2011, stock based
compensation at $0.40 and
$0.45 per share 1,250,000 1,250 523,750 - - - 525,000
May to Sep 2011, sale of
flow-through shares for
cash ranging from $0.48
to $0.51 per share includ-
ing 2,840 shares for
commission, net of $1,974
in commissions and of
$6,163 in tax benefit 48,840 49 15,071 - - - 15,120
July to Oct 2011, stock for
cash ranging from $0.20 to
$0.43 per share, net of
commissions of $1,547 47,978 48 14,286 - - - 14,334
Oct 2011, stock based
compensation at $0.39 to
$0.51 per share 5,379,688 5,380 2,434,261 - - - 2,439,641
Nov to Dec 2011, stock for
cash ranging from $0.16
to $0.19 per share, net
of commission of $2,266 84,703 85 12,753 - - - 12,838
Nov to Dec 2011, stock for
cash ranging from $0.27
to $0.28 net of
commissions of $1,603 39,391 39 9,047 - - - 9,086
Dec 2011, stock based
compensation at $0.34 1,000,000 1,000 394,000 - - - 395,000
Foreign currency translation
(note10) - - - 80,956 - - 80,956
Net loss - year ended
December 31, 2011 - - - - - (4,894,497) (4,894,497)
--------------------------------------------------------------------------------------------------
Balances, December 31, 2011 203,405,984 203,406 32,900,355 (44,789) 2,499 (36,392,549) (3,331,078)
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
26
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
1 - ORGANIZATION AND BUSINESS
COMPANY HISTORY
Initially, this company was incorporated under the name Sea 2 Sky Corporation
("Sea2Sky"), under the laws of the State of Nevada on November 16, 2005. Sea 2
Sky was initially established to provide travel related services to tourists in
Canada and other countries. Due to an economic downturn, Sea2Sky abandoned the
travel service business in the first half of fiscal 2009. Accordingly, results
from operations related to the travel business were reclassified from current
operations to that of discontinued operations. Effective March 1, 2009, Sea2Sky
transitioned its 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.
ecoTECH Energy Group (Canada), Inc. ("ecoTECH Canada") was incorporated under
its original name of ecoPHASER Energy Corp., under the federal laws of Canada on
November 28, 2007. ecoTECH Canada is a development-stage renewable energy
company whose business focus is the manufacture, construction and/or operation
of biomass-fuelled power stations that not only provide electrical power from
biomass and/or waste, but that can also be augmented with various operational
facilities that utilize waste energy from these power plants, including;
torrefaction, aqua-culture, hydroponics, aquaponics, cold storage heat exchange
technologies and other environmental related processes.
On November 12, 2010 (the "Effective Date"), pursuant to the terms of a stock
purchase agreement, Sea2Sky acquired 100 percent of the issued and outstanding
common stock of ecoTECH Canada for approximately 110 million shares of its own
common stock, which were distributed to the former shareholders of the acquired
ecoTECH Canada. ecoTECH Canada was then amalgamated with 7697112 Canada Corp., a
company incorporated under the federal laws of Canada that was a wholly owned
subsidiary of Sea2Sky, and as a result of this amalgamation, ecoTECH Canada
became a wholly owned subsidiary of Sea2Sky.
ecoTECH (Canada) has no subsidiaries and is not a reporting issuer in any
jurisdiction of Canada or the United States. This transaction, which represented
a majority of the then issued and outstanding shares of Sea2Sky constituted a
change in control of the company. As such, on December 20, 2010, Sea2Sky changed
its name to ecoTECH Energy Group Inc. (the "Parent") and changed its trading
symbol to "ECTH".
The acquisition of ecoTECH Canada has been accounted for as a reverse
acquisition in accordance with Accounting Standards Codification ("ASC") 805-40
Business Combinations, under which it has been determined for accounting and
reporting purposes that ecoTECH Canada was the acquirer because of the
significant holdings and influence of the control group of ecoTECH before and
after the acquisition. At November 12, 2010, as a result of the transaction, the
former shareholders of ecoTECH Canada shareholders held approximately 58 percent
of issued and outstanding common stock of the new Parent company ecoTECH Energy
Group, Inc. (formerly Sea2Sky) on a diluted basis.
Accordingly, the assets and liabilities of ecoTECH Canada have been reported at
historical costs and the historical results of operations have been reported in
these ecoTECH Energy Group, Inc. filings as a change in reporting entity. The
assets and liabilities of the Parent were reported at fair value on the date of
acquisition, and results of operations were reported from the date of
acquisition of November 12, 2010. The assets and liabilities of the Parent were
reported at their carrying values, which approximated fair value. No goodwill
was recorded upon acquisition since the Parent had no active business. The
following is a schedule of the Parent's assets and liabilities at the Effective
Date:
27
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
Assets:
Cash and cash equivalents $ 8,510
--------------------
Liabilities:
Accounts payable 312
Accrued liabilities 160,379
Other 2,664
--------------------
163,355
--------------------
Net liabilities assumed $ 154,845
--------------------
The net liabilities assumed were accounted for as a deemed distribution through
charges to the Company's shareholders deficit.
The unaudited pro forma combined information for the year ended December 31,
2010 would have been:
Year Ended
December 31,
2010
Revenue $ --
Net loss from continuing operations (19,893,847)
Basic and diluted net loss per share from continuing operations $ (0.11)
BUSINESS
Over the past 30 years, the ecoTECH team has developed and refined the
proprietary ecoPHASER thermal gasification technology which enables very
clean-burning of bio-mass and wastes. We are in various stages of project
development primarily located in the United States of America and in Canada. The
Company is also pursuing international opportunities.
EcoTECH's combined heat and power (CHP) technology produces: (i) electricity,
which can be channelled to utilities and end-users via the local electrical
distribution system and (ii) heat which can be used to fuel a variety of "Green"
operating facilities.
Our current activities are focused on developing several strategically
positioned CHP power stations in order to: (i) reduce the reliance on fossil
fuels by providing a sustainable and environmentally friendly source of energy
and fuel products manufactured from local biomass feedstocks; (ii) meet specific
local needs for decentralized power, while reducing the cost of biomass
transportation; (iii) assist communities meet federal and state renewable energy
and reduced emissions mandates; and, (iv) provide local jobs and community
development for the project communities.
28
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the Company's financial statements. The financial statements and
notes are representations of the Company's management who are responsible for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles in the United States of America and have been
consistently applied in the preparation of the financial statements. The
financial statements are stated in United States of America dollars.
Principles of Consolidation
These consolidated financial statements include the accounts of ecoTECH Energy
Group Inc. (formerly Sea 2 Sky Corporation), and its wholly-owned ecoTECH Energy
Group (Canada), Inc. All intercompany balances and transactions have been
eliminated in consolidation.
Development- Stage
ecoTECH is a development-stage company as defined in Accounting Standards
Codification ("ASC") 915 Development-Stage Entities, as it is devoting
substantially all of its efforts to develop markets for its products and planned
facilities. There have been no revenues from planned principal operations or
sales from Inception through December 31, 2011. Consequently, cumulative amounts
are presented in these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. These estimates are based on management's best
knowledge of current events and actions the Company may undertake in the future.
Actual results may ultimately differ from those estimates. The significant
estimates made by management relate to the estimation of the value of the
Company's common stock and income tax benefit related to the sale of
flow-through shares. Changes in estimates are reported in earnings in the period
in which they become known.
Cash and Cash Equivalents
For purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. The Company did not have any cash equivalents at
December 31, 2011 and 2010.
Intangible Assets
Licenses acquired are either expensed or recognized as intangible assets. The
Company recognizes intangible assets when the following criteria are met: 1) the
asset is identifiable, 2) the Company has control over the asset, 3) the cost of
the asset can be measured reliably, and 4) it is probable that economic benefits
will flow to the Company. During the period from Inception to December 31, 2011
and the years ended December 31, 2011 and 2010 and, the Company has not incurred
any fees related to intangible assets obtained and accordingly no expense or
capitalized asset has been recognized.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization of property and equipment are calculated using the straight-line
method over the assets' estimated useful lives as follows: computer hardware and
software (five years), leasehold improvements (the shorter of five years or
lease life), furniture and fixtures (seven years), Website (three years),
equipment (five to ten years).
29
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
Maintenance and repairs are charged to expense as incurred. Significant renewals
and betterments are capitalized. At the time of retirement or other disposition
of property and equipment, the cost and accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in operations.
Debt and Stock Issuance Costs
Debt issuance costs represent costs incurred related to the Company's
convertible debentures. These costs were capitalized and amortized over the term
of the note using the effective interest method. Debt issuance costs represent
the finder fees related to the debentures and consisted of both cash and stock
compensation.
Additionally, the Company incurred commissions related to the raising of capital
through the sale of subscription agreements for common stock during a private
offering. At the time of the completion of the offering, these commissions are
charged against the capital raised.
Convertible Debentures
Convertible debt is accounted for under the guidelines established by ASC 740
"Beneficial Conversion Features". The Company records a beneficial conversion
feature ("BCF") related to the issuance of convertible debt that have conversion
features at fixed or adjustable rates that are in-the-money when issued and
records the fair value of the conversion feature with those instruments.
The BCF for the convertible instruments is recognized and measured by allocating
a portion of the proceeds to the conversion feature, and as a reduction to the
carrying amount of the convertible instrument equal to the intrinsic value of
the conversion features, both of which are credited to additional paid in
capital.
Research and Development
Research and development costs are expensed as incurred. The costs of materials
and equipment that will be acquired or constructed for project development
activities, and that have alternative future uses, both in project development,
marketing or sales, will be capitalized classified as property, plant and
equipment and depreciated over their estimated useful lives. To date, research
costs include engineering expenses related to the Company's future
waste-to-energy facilities, and all have been expensed when incurred.
Share-Based Payments
The Company accounts for stock issued to employees and directors under ASC 718
"Compensation - Stock Compensation". Under ASC 718, stock-based compensation
cost to employees is measured at the grant date, based on the estimated fair
value of the award, and is recognized as expense over the employee's requisite
vesting period. No stock options are currently outstanding.
The Company measures compensation expense for its non-employee stock-based
compensation under ASC 505 "Equity". The fair value of the option issued or
committed to be issued is used to measure the transaction. The fair value is
measured at the value of the Company's common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty's performance is complete or the award is fully vested. The fair
value of the equity instrument is charged directly to stock-based compensation
expense and credited to common stock and additional paid-in-capital.
Prior to November 12, 2010, there was no public market for ecoTECH Canada's
common stock, and accordingly, the amount of the compensatory charge was based
on prevailing sales price of the stock since Inception under which the
determination of stock-based compensation was inherently highly uncertain and
subjective, and involves the application of discounts deemed appropriate to
reflect the lack of marketability of the Company's securities - which have not
been considered in the basis for calculation. If the Company had made different
assumptions, its stock-based compensation expense and relative net loss could
have been significantly different.
30
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
Flow-Through Shares Financing
The Company has financed a portion of its development-stage activities through
the issue of Canadian renewable and conservation expense ("CRCE") flow-through
shares of common stock. A 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. Under these provisions,
certain qualifying expenditures are renounced by the Company for its income tax
purposes and transferred to the investors to claim on their individual Canadian
income tax returns.
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. Upon renunciation of the
expenses, a deferred income tax recovery is recognized by the Company.
Foreign Currency Translations
The Company uses the Canadian dollar as its functional currency of its operating
subsidiary ecoTECH Canada. Unless otherwise noted, for the purpose of this
report, the financial statements of the ecoTECH Canada have been translated into
United States dollars in accordance with ASC 830, "Foreign Currency Matters",
using historical rates for fixed assets and year-end exchange rates in effect on
the balance sheet dates for all other assets and liabilities, average, specific
or historical exchange rates as applicable in effect for the period for
revenues, costs, and expenses, and historical exchange rates for shareholder
equity (deficit).
Translation adjustments resulting from translation of balances from functional
to reporting currency are accumulated as a separate component of shareholders'
deficit and as a component of comprehensive loss in the accompanying statements
of operations. Transaction gains and losses are reported in the statements of
operations and comprehensive loss. To date, no transaction gains or losses have
been experienced.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740 "Income Taxes"
("ASC 740"). ASC 740 requires the Company to recognize a tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available operating
loss or tax credit carry forwards. ASC 740 sets forth a recognition threshold
and valuation method to recognize and measure an income tax position taken, or
expected to be taken, in a tax return. The evaluation is based on a two-step
approach. The first step requires an entity to evaluate whether the tax position
would "more likely than not," based upon its technical merits, be sustained upon
examination by the appropriate taxing authority.
The second step requires the tax position to be measured at the largest amount
of tax benefit that is greater than 50 percent likely of being realized upon
ultimate settlement. In addition, previously recognized benefits from tax
positions that no longer meet the new criteria would no longer be recognized.
The application of this Interpretation is considered a change in accounting
principle with the cumulative effect of the change recorded to the opening
balance of retained earnings. Adoption of this standard did not have a material
impact on the Company's financial position, results of operations, or cash flow.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The Company's other comprehensive loss arose from the
effect of unrealized foreign currency translation adjustments.
31
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
Loss per Common Share
The Company presents basic loss per share ("EPS") and diluted EPS on the face of
the consolidated statement of operations. Basic loss per share is computed as
net loss divided by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants, and other convertible
securities. Since Inception to December 31, 2011 the Company has not issued any
options or warrants.
Related-Party Transactions
A related party is generally defined as (i) any person that holds 10% or more of
the Company's securities and their immediate families, (ii) the Company's
management, (iii) someone that directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.
Fair Value Measurements
On January 1, 2009, the Company adopted ASC 820 "Fair Value Measurements and
Disclosures". The Company did not record an adjustment to retained earnings as a
result of the adoption of the guidance for fair value measurements, and the
adoption did not have a material effect on the Company's results of operations.
Fair value is defined as the exit price, or the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants as of the measurement date. The guidance also establishes a
hierarchy for inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs
market participants would use in valuing the asset or liability and are
developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company's assumptions about the
factors market participants would use in valuing the asset or liability. The
guidance establishes three levels of inputs that may be used to measure fair
value:
Level 1 Observable inputs such as quoted prices in active markets;
Level 2 Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly;
Level 3 Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
As of December 31, 2011 and 2010, the Company did not have any material level 1,
2, or 3 assets or liabilities.
Impairment of Long-Lived Assets
The Company regularly evaluates whether events and circumstances have occurred
that indicate the carrying amount of property and equipment may not be
recoverable. When factors indicate that these long-lived assets should be
evaluated for possible impairment, the Company assesses the potential impairment
by determining whether the carrying value of such long-lived assets will be
recovered through the future undiscounted cash flows expected from use of the
asset and its eventual disposition. If the carrying amount of the asset is
determined not to be recoverable, a write-down to fair value is recorded. Fair
values are determined based on quoted market values, discounted cash flows, or
external appraisals, as applicable. The Company regularly evaluates whether
events and circumstances have occurred that indicate the useful lives of
property and equipment may warrant revision. In our opinion, the carrying values
of our long-lived assets, including property and equipment, were not impaired at
December 31, 2011, with the exception of certain leasehold improvements that
were written-off due to lease abandonment (note 8).
32
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
Concentrations of Credit Risk
The Company maintains its cash accounts in a commercial bank; the total cash
balances held in a commercial bank are secured by the Canadian Deposit Insurance
Corporation ("CDIC") up to CAD$100,000 per depositor, per insured bank. At
times, the Company may have cash deposits in excess of federally insured limits.
New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued amended
standards to achieve common fair value measurements and disclosures between GAAP
and International Financial Reporting Standards. The standards include
amendments that clarify the intent behind the application of existing fair value
measurements and disclosures and other amendments which change principles or
requirements for fair value measurements or disclosures. The amended standards
are to be applied prospectively for interim and annual periods beginning after
December 15, 2011. Management does not believe the adoption of these changes
would have an impact on the Consolidated Financial Statements.
In June 2011, the FASB issued amended standards that eliminated the option to
report other comprehensive income in the statement of stockholders' equity and
require companies to present the components of net income and other
comprehensive income as either one continuous statement of comprehensive income
or two separate but consecutive statements. The amended standards do not affect
the reported amounts of comprehensive income. In December 2011, the FASB
deferred the requirement to present components of reclassifications of other
comprehensive income on the face of the income statement that had previously
been included in the June 2011 amended standard. These amended standards are to
be applied retrospectively for interim and annual periods beginning after
December 15, 2011. Management does not believe the adoption of these changes
would have an impact on the Consolidated Financial Statements
In September 2011, the FASB issued Accounting Standards Update ("ASU") No.
2011-08, Intangibles -- "Goodwill and Other" (Topic 350). This Accounting
Standards Update amends FASB ASC Topic 350. This amendment specifies the change
in method for determining the potential impairment of goodwill. It includes
examples of circumstances and events that the entity should consider in
evaluating whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. The amendments are effective for annual
and interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011. Management does not believe the adoption of these changes
would have an impact on the Consolidated Financial Statements
In December 2011, the FASB issued changes to the disclosure of offsetting assets
and liabilities. These changes require an entity to disclose both gross
information and net information about both instruments and transactions eligible
for offset in the statement of financial position and instruments and
transactions subject to an agreement similar to a master netting arrangement.
The enhanced disclosures will enable users of an entity's financial statements
to understand and evaluate the effect or potential effect of master netting
arrangements on an entity's financial position, including the effect or
potential effect of rights of setoff associated with certain financial
instruments and derivative instruments. These changes become effective for the
Company on January 1, 2013. Management does not believe the adoption of these
changes would have an impact on the Consolidated Financial Statements
Management does not believe that any other recently issued, but not yet
effective accounting pronouncements, if adopted, would have a material effect on
the accompanying financial statements.
Comparative financial information
Certain prior year's amounts have been reclassified to conform to the 2011
presentation.
33
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America, which
contemplates continuation of the Company as a going concern.
The Company is a development-stage company with no revenues, has a working
capital deficit, has net losses and used cash from operating activities from
Inception to December 31, 2011 of $1,849,781. At December 31, 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 success of its future operations.
The Company requires additional capital of approximately $600,000 to $1,200,000
to continue its development activities and provide working capital for general
corporate purposes for the next 12 months. In addition, the Company also needs
to obtain debt and equity financing to construct its current projects which
range in cost from approximately $4 million to $130 million depending on the
scale of each project.
To the extent we are unable to meet our operating expenses, we may borrow funds
from our current management or other related parties. We will also attempt to
raise capital from private individuals or institutional investment equity and/or
debt funds for operating purposes.
The Company's management remains optimistic that some of our developing projects
will proceed in the relatively near future. Future project revenues and/or
sales, if any, which exceed operating expenses and debt repayments will be used
to pay outstanding liabilities and expand operations.
Since we have no liquidity and have suffered losses, we depend to a great degree
on the ability to attract external financing in order to conduct our business
activities and to ensure that we have sufficient cash on hand to expand our
operations. These factors raise substantial doubt about our ability to continue
as a going concern.
There is no assurance that our capital raising plans will be successful in
obtaining sufficient funds to assure the eventual profitability of the Company.
If we are unable to obtain sufficient amounts of additional capital, we may be
required to reduce the scope of our planned development, which could harm our
business, financial condition and operating results.
These financial statements do not include any adjustments that might result from
these uncertainties.
34
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31 2011 December 31 2010
Land $ 256,725 $ --
Computer hardware 110,458 110,458
Computer software 23,904 23,904
Furniture and fixtures 20,043 20,043
Equipment 33,463 33,463
Leasehold improvements (note 8) -- 139,600
Website 14,463 14,463
Less accumulated depreciation (note 8) (127,858) (161,892)
---------------------------------------
Total property, plant and equipment, net $ 331,198 $ 180,039
---------------------------------------
Depreciation expense for the period from Inception to December 31, 2011, and for
the years ended December 31, 2011 and 2010, was $212,297, $65,152 and $57,577,
respectively.
In March, 2011, ecoTECH Canada acquired land located in McBride, British
Columbia. The purchase price was $256,725, of which approximately 20 percent was
paid in cash and the balance by a vendor financed mortgage for a term of two (2)
years at an interest rate of 8%.
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 relation-
ship (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 $200,351
as of September 30, 2011. The mortgage accrues simple interest at 8% annually,
calculated monthly, but not in advance, over a two year term expiring March 15,
2013 and is secured by the land. Payments of $1,587 are due monthly, with a
balloon payment at expiration. As of September 30, 2011, interest expense of
approximately $8, 866 has been recorded in relationship to this note.
The Company is not current in servicing the note, and accordingly, the note has
been classified as a current liability. We are working on a satisfactory
resolution to bring the loan current. The loss of this property would not have
an adverse impact on it ability to operate in the region.
35
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
5 - ACCRUED LIABILITIES
Accrued liabilities by major classification are as follows:
December 31, December 31,
2011 2010
Accrued wages and payroll taxes $ 2,133,656 $ 1,302,381
Accrued consulting fees $ 300,000 $ 275,000
Accrued interest $ 23,627 $ 18,832
Accrued liability for office relocation $ 66,990 --
------------------------------------
Total accrued liabilities $ 2,524,273 $ 1,596,213
------------------------------------
Accrued liabilities balances reflected above include interest applicable to
convertible debenture balances outstanding, mortgage payable for land purchased,
accrued fees for capital raise and a provision for the office relocation
settlement (note 8).
6 - ACCOUNTS PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
On February 5, 2009, the Company borrowed $99,137 from a shareholder for
operating capital, and agreed to repay the principal plus 10% annual interest in
90 days. On September 8, 2009 the note was amended to pay interest at 20%
interest per annum and matured in 90 days. Upon default, the note continues to
earn 20% per annum. On November 1, 2010, the note holder converted the principal
balance into 312,500 shares of private company common stock (pre-acquisition).
The Company has paid $9,707 of the $27,959 interest accrued since note
Inception. The remaining accrued interest of $18,252 remains to be paid at
December 31, 2011.
On November 17, 2009, the Company borrowed $34,151 from a shareholder for
operating capital. This loan is non-interest bearing and does not have a
specific maturity date. Management did not impute interest as such amount was
not deemed significant. As of December 31, 2011, the Company has not repaid any
of the principal balance.
From time to time, the directors and officers have loaned money to the Company
for general operating capital. These loans are repaid in part or in full when
additional capital is raised. Due to the short-term nature of these loans, the
directors and or officers agreed that they would not be interest bearing, and
are due upon demand.
Related party payables represent balances in accounts payable that are owed to
directors, officers and shareholders. These payables are primarily for
unreimbursed travel and entertainment expenses incurred on behalf of the
Company. The respective parties have agreed to defer these payables,
interest-free, until additional capital is raised.
36
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
7 - CONVERTIBLE DEBENTURES
The Company has financed a portion of its development-stage activities through
the issuance of convertible debentures. These 10% debentures were convertible
into the Company's common stock at a 33% discount off of its per-share price,
which due to fluctuating exchange rates, ranged between $0.25 and $0.33. All
debentures had a three-month maturity and were convertible at the option of the
holder upon issuance. During the period from Inception to December 31, 2011, the
Company raised $1,137,581, through these debentures, respectively. During the
period from Inception to December 31, 2011, the Company amortized $541,131; of
the discount to interest expense.
The Company offered each debenture holder additional shares in lieu of accrued
interest, at the rate of 50% of their post conversion number of shares. All
participants agreed, except as noted below. As a result, an additional 153,060
shares of common stock were issued, in addition to shares issued for conversion
noted below, to extinguish the accrued interest on debentures during fiscal
2009. Accordingly, the Company has recorded an additional $700,535; in loss on
extinguishment of debt for the period from Inception to December 31, 2011.
8 - COMMITMENTS AND CONTINGENCIES
Capital Raise Agreement
On April 10, 2008, the Company entered into a fundraising engagement agreement
(the "Agreement") with WPC Financial Group ("WPC") to raise between $2.1 and
$3.5 million in operating capital for the Company through the sale of
convertible debentures and stock subscriptions. As consideration for WPC's
services, the Company would issue shares of its common stock based on the total
capital raised, at a rate of approximately 4.76 shares for each dollar raised.
Additionally, the Agreement contained a "Tail Terms" provision, providing that
for a term of 18 months subsequent to closing date, WPC would continue to earn
shares based on any further shares purchased by WPC investors.
On November 17, 2008, the Agreement was terminated by both parties. WPC had
raised a total of approximately $1,149,568 via convertible debenture and
subscription agreement sales, for which they were issued 5,474,429 shares of the
Company's common stock as consideration. See Note 9 for additional information
regarding the transaction. During the 18 month tail terms, WPC earned an
additional 776,565 shares
Operating Leases
The Company leased office space in Langley, British Columbia, Canada. The office
lease became effective on April 1, 2008 and was for a term of five years. Basic
rent for the first three years was $4,794. Basic rent for the last two years
increased approximately 7% to $5,113 per month. In addition to basic rent and
applicable taxes, the Company was responsible for varying operating expenses
(HVAC, assessments, utilities and service charges, licenses and permits) as they
arose.
Due to delayed receipt of project approvals and sales deposits applicable to the
Company's business plans, the office rent payments were in arrears prior to
December 31, 2011. Subsequently, in 2012 the lessor was no longer willing to
allow rent payments to be in arrears, resulting in the Company vacating the
premises on March 1, 2012, Accordingly the company has written off its leasehold
improvements of $139,600 and applicable accumulated depreciation of $99,185 and
has accrued a provision for future settlement costs of $79,655 at December 31,
2011 offset by a lease deposit of $12,665 (note 5).
Actual office rent expense, including all applicable taxes and operating costs,
for the period from Inception to December 31, 2011, and the years ended December
31, 2011 and 2010, were $349,136; $97,143 and $89,859 and respectively
The Company leases an automobile, under a four-year term agreement, for use by
one of its directors, with current lease payments of $946 per month. The
remaining minimum lease commitments in 2012 are $2,837.
37
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
9 - COMMON STOCK
Number of Common Shares
-----------------------------------
December 31, December 31,
2011 2010
Authorized - 675,000,000 Voting Shares ($0.001 par value)
Number of shares issued and outstanding 195,490,599 195,233,427
Number of shares sold not yet issued (a) 285,697 --
Number of shares to be issued for compensation (a) 7,629,688 --
---------------- -----------------
203,405,984 195,233,427
---------------- -----------------
(a) The issuance of these common shares have been approved by the Board of
Directors; however, the shares are not considered to be "issued and
outstanding" until they have been formally registered and issued by our
transfer agent. These shares are detailed below under the caption
"Common Shares to be issued for 2011.
Common Share Issuances Prior to Fiscal 2011
Prior to the merger on November 12, 2010, ecoTECH Energy Group (Canada) Inc. had
110,606,239 shares of Class A common stock issued and outstanding, held by
approximately 97 shareholders, including 88,000,000 shares owned by the
directors /control group.
Since Inception through November 12, 2010, the Company raised $663,446 through
the direct sale of 2,400,568 Class A common shares via subscription agreements
to 43 investors, net of commissions. Per-share price of the Company's common has
fluctuated between $0.25 and $0.33, due to foreign exchange rates. The Company
also raised $109,639 through the direct sale of 230,000 "Flow-through" shares to
six investors at per-share prices ranging from $0.44 to $0.51 per share,
depending on the current exchange rate at the time of the transaction.
Flow-through shares offer the shareholder and the Company a tax benefit, for
which the Company assigned an approximate $0.18 per share premium.
In January 2010 and 2009, the Company issued 48 million and 27 million shares of
common stock, respectively, to four officers/directors as compensation. Based on
transaction date exchange rates, stock compensation expense of $14,929,920 and
$7,047,648 was recorded for those issuances, respectively, based on per-share
prices of $0.31 and $0.26, respectively.
On November 1, 2010, the Company issued 250,000 Class A common shares to an
individual for acceptance of the Chief Operating Officer position. Shares were
fully vested upon issuance and recorded as stock compensation of $80,704.
On November 3, 2010, the Company satisfied a $99,138 note payable balance by
issuing 312,500 shares common stock at $0.32 per share.
On November 5, 2010, the Company satisfied a $42,000 payable balance by issuing
5,400,000 shares of common stock to the former Chief Financial Officer of
Sea2Sky. As a result, the Company recorded stock-based compensation of
$1,723,680.
38
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
On November 12, 2010 (the effective reverse merger date), ecoTECH Canada had
110,606,239 shares of Class A common stock issued and outstanding; all of these
shares were exchanged for Sea2Sky common stock on a one-for-one exchange basis.
These shares contain an 18 month restriction from the date of issuance.
On November 30, 2010, the Company entered into an advisory agreement with a
consulting firm to assist with the recruitment of management and the placement
of debt and equity financing relative to the business and growth strategies of
the Company. The agreement is for two years, effective retroactively from
February 2010, at a monthly fee of $25,000 for the first year only. As such, the
Company has recorded vested compensation of $300,000 as of December 31, 2011
($275,000 at December 31, 2010) to accrued liabilities. Additionally, per this
agreement, the consulting firm was issued 4,000,000 fully vested shares of
common stock. Based on a market price of $0.26, the Company recorded
compensation expense of $1,040,000.
On December 22, 2010, Sea2Sky changed its name to ecoTECH Energy Group Inc.,
changed its stock trading symbol to ECTH and increased its authorized $0.001 par
value common stock to 675,000,000 shares. The Company does not have any
preferred stock
The Company has issued common shares of stock to settle convertible debentures
totalling $1,112,969 which were converted into 7,978,607 shares during the
period from Inception to December 31, 2011 (Note 7). The Company issued
6,250,994 shares common stock to a consulting company as compensation for
selling convertible debentures and stock subscriptions. Of those shares
5,352,405 related to shares earned for debentures. Based on a per-share value
ranging from $0.26 to $0.30, the Company recorded $1,389,908 to interest expense
related to these shares. The remaining shares were deemed in connection with
sales of common stock and, thus, were included within the proceeds received from
the sale of the common stock.
Common Shares Issued During 2011
On January 4, 2011, the Company satisfied a $5,036 accounts payable balance by
issuing 18,518 shares of common stock to a utility company at $0.27 per share.
During February 2011, the Company raised $8,021 through the sale of 29,366
shares of common stock for cash to three investors, at stock prices between
$0.25 and $0.32 per share, less commissions of $1,203.
During March and April 2011, the Company raised $107,486 through the sale of
209,288 flow-through common shares to eight investors at stock prices ranging
between $0.51 and $0.52 per share, depending on the current exchange rate at the
time of the transaction, less commissions of $16,122. The Company has recorded a
corresponding tax benefit of $28,484.
Common Shares to be Issued for 2011
The following share transactions have been approved by the Board of Directors,
but have not yet been formally registered and issued by our transfer agent as of
December 31, 2011.
Effective May 2011, the Company approved the issuance of 1,000,000 common shares
as compensation to an officer in accordance with a compensation agreement. The
individual was granted 500,000 shares immediately. The remaining balance of
500,000 shares was issued in November 2011. The Company has recorded total stock
compensation expense related to the grant of $450,000 reflecting a share value
of $0.45 per share.
Effective May 2011, the Company approved the issuance of 750,000 common shares
as compensation to an officer. The Company has recorded stock compensation
expense of $300,000 reflecting a share value of $0.40 per share.
On May 31, 2011 the Company satisfied a $29,841 accounts payable balance by
issuing 64,785 shares of common stock to a utility company, based on a stock
price of $0.46 per share.
39
During May to September 2011, Company raised $23,257 through the sale of 48,840
flow-through common shares to three investors at stock prices ranging between
$0.48 to $0.51 per share, depending on the current exchange rate at the time of
the transaction, less commissions of $1,974. The Company has recorded a
corresponding tax benefit of $6,163.
In July 2011, the Company raised $1,000 through the sale of 5,111 common shares
for cash at $0.20 per share less commission of $150.
In September 2011, the Company raised $5,031 through the sale of 15,614 common
shares for cash at $0.35 per share including 1,420 shares for commission.
In September 2011, the Company raised $5,000 through the sale of 11,628 common
shares for cash at $0.43 per share, less commission of $797.
In October 2011, the Company raised $5,001 through the sale of 15,625 common
shares for cash at $0.32 per share, less commission of $750.
Effective October 2011, the Company approved the issuance of 5,300,000 common
shares as compensation for services to 9 individuals. The Company has recorded
stock compensation expense of $2,399,000 reflecting share values of $0.39, $0.50
and $0.51 per share.
Effective October 2011, the Company approved the issuance of 79,688 common
shares as additional commissions to 10 individuals. The Company has recorded
stock compensation expense of $40,641, reflecting share values of $0.51 per
share.
During November and December 2011, the Company raised $15,104 through the sale
of 84,703 common shares for cash at $0.16 to $0.19 per share, less commissions
of $2,266.
During November and December 2011, the Company raised $10,689 through the sale
of 39,391 common shares for cash at $0.27 to $0.28 per share, less commissions
of $1,603.
Effective
December 2011, the Company approved the issuance of 500,000 common shares as
compensation to an officer of the Company. The Company has recorded stock
compensation expense of $170,000 reflecting a share value of $0.34 per share.
40
10 - FOREIGN CURRENCY TRANSLATION
From
November 28,
2007 Year Ended Year Ended
(Inception) to
December 31, 2011 December 31, 2011 December 31 2010
Cumulative foreign currency translation adjustment
Unrealized gains (losses) upon translation $ (44,789) $ 80,956 $ (86,298)
The exchange rates used to translate amounts in Canadian dollars ("CAD") into
United States dollar equivalents ("USD") for the purposes of preparing these
financial statements were as follows:
2011 2010
Fixed assets - historical rates 0.9707 to 0.9989 0.9707 to 0.9989
Other assets and liabilities - year end rate 0.9804 1.0015
Shareholder deficit - historical rates 0.8986 to 1.0104 0.8986 to 0.9767
Costs, and expenses - average, specific or historical rates 0.9804 to 1.0114 0.9670 to 1.0702
41
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
11 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
From
November 28,
2007 Year Ended Year Ended
(Inception) to
December 31, 2011 December 31, 2011 December 31 2010
Cash Payments:
Cash paid for interest $ 21,280 $ 6,802 $ 9,707
Cash paid for income taxes -- -- --
Non-cash investing and financing activities:
Fair value of beneficial of conversion
feature of convertible debentures $ 544,307 -- --
Conversion of debentures into common stock 1,116,391 -- --
Premium on flow-through shares 36,306 -- --
Shares issued to extinguish debt 99,138 -- 99,138
Accounts payable settled through the issuance of stock 34,877 34,877 --
Vendor financing - mortgage to acquire land 205,380 205,380 --
See Note 1 for cash received and liabilities assumed in the November 12, 2010
reverse acquisition.
NOTE 12 - RELATED-PARTY TRANSACTIONS
Shareholder Loans
From time to time, the directors and officers have loaned money to the Company
for general operating capital. These loans are repaid in part or in full when
additional capital is raised. Due to the short-term nature of these loans, the
officers/directors agreed that they would not be interest bearing, and are due
upon demand.
Related-Party Payables
Related party payables represent balances in accounts payable that are owed to
directors, officers and shareholders. These payables are primarily for
unreimbursed travel and entertainment expenses incurred on behalf of the
Company. The respective parties have agreed to defer these payables,
interest-free, until additional capital is raised.
Accrued Wages
Due to capital restraints, management has deferred certain of their monthly
salaries until capital is available.
42
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
NOTE 13 - INCOME TAXES
Since Inception, our executive offices and operations have been located in
British Columbia. As such, we filed the appropriate Canadian income tax returns
for prior years. As a result of the November 12, 2010 merger, we now are under
U.S. Federal tax jurisdiction. During the year ending December 31, 2010, we
became subject to filing a Canadian tax return and a U.S. Federal tax return. We
have identified our U.S. Federal tax return as our "major" tax jurisdiction. The
Company has had losses to date, and therefore, has paid no income taxes.
Deferred income taxes arise from temporary timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist entirely of the benefit from net operating loss
carry-forwards. Effective November 12, 2010, prior net operating loss carry
forwards from the prior business of Sea2Sky are no longer available to the
Company, due to the Company's change in control.
Any future net operating losses, based on operations of the renewable energy
business, will be considered for NOL carry-forward. For federal tax purposes
this carry forward expires in twenty years, beginning in 2027. A full valuation
allowance has been placed on the Company's deferred tax assets as it cannot be
determined if these tax assets will be likely be used. All years from Inception,
including those presented below, remain open tax years as the Company has not
undergone a tax audit.
The benefit for income taxes relates to the flow-through shares issued which
utilized net operating losses for income tax reporting purposes. The flow
through shares generated a current income tax benefit as reflected in the
accompanying statements of operations and comprehensive loss; no provision
(benefit) for deferred income taxes was recorded.
Subsequent to November 2010, and for the foreseeable future, the Company's
Canadian combined federal and provincial income tax rate is 26.5%, because
ecoTECH (Canada) ceased to be a Canadian Controlled Private Corporation
("CCPC"). Prior to November 12, 2010 ecoTECH Canada was eligible for the reduced
CCPC income tax rate of 13.5%. Applicable statutory income tax rates for the
Company's operations in the United States are estimated at 34% for calculation
purposes.
Deferred income taxes arise from temporary differences in the recognition of
income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist primarily of net operating loss carry forwards since
Inception. For federal tax purposes this carry forward expires in twenty years,
beginning in 2027. A full valuation allowance has been placed on the Company's
deferred tax assets as it cannot be determined if the assets will be likely be
used. All years from Inception, including those presented below, remain open for
examination and there are no ongoing examinations.
43
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
The significant components of future income tax assets are as follows:
December 31, December 31,
2011 2010
Non-capital loss carry-forwards $ 706,651 $ 391,961
Property, plant and equipment 12,006 14,110
---------------------------------------
Deferred tax assets 718,657 406,071
Valuation allowance - including applicable income tax rate change (718,657) (406,071)
---------------------------------------
Net deferred tax asset (liability) $ -- $ --
---------------------------------------
The Company has net operating loss carry-forwards as detailed below:
December 31,
2011
Year of Expiration:
2027 $ 78,041
2028 784,038
2029 423,269
2030 701,025
2031 680,236
--------------------
Total $ 2,666,609
--------------------
The Company's reconciliation of the statutory income tax rate and effective
income tax rate for financial reporting purposes is as follows:
Year Ended Year Ended
December 31, December 31,
2011 2010
Income tax benefit at combined statutory rates of 26.5% (2010 - 13.5%) $1,306,223 $2,596,444
Stock-based compensation (890,305) (2,399,531)
Change in valuation allowance (312,586) (218,950)
Other (68,685) 39,510
---------------------------------------
Total $ 34,647 $ 17,473
---------------------------------------
44
ecoTECH Energy Group Inc.
(A Development-Stage Company)
Notes to Consolidated Financial Statements
December 31, 2011
NOTE 14 - SUBSEQUENT EVENTS
Stock to be issued
In February 2012, the Company raised $1,006 through the sale of 3,211 common
shares for cash at $0.31 per share, less commission of $151.
In March 2012, the Company raised $6,263 through the sale of 25,445 common
shares for cash at $0.25 per share, less commissions of $939.
The issuance of these common shares have been approved by the Board of
Directors, however the shares are not considered to be "issued and outstanding"
until they have been formally registered and issued by our transfer agent.
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Management's Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and financial
officers, has evaluated the effectiveness of our disclosure controls and
procedures in ensuring that the information required to be disclosed in our
filings under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, including ensuring that
such information is accumulated and communicated to management as appropriate to
allow timely decisions regarding required disclosure. Based on such evaluation,
our principal executive and financial officers have concluded that such
disclosure controls and procedures were not effective as of December 31, 2011
(the end of the period covered by this Annual Report on Form 10-K).
Management's Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The internal control process
has been designed, under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company's financial statements for external reporting purposes in accordance
with accounting principles generally accepted in the United States of America.
Management conducted an assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2011, including (i)
the control environment, (ii) risk assessment, (iii) control activities, (iv)
information and communication, and (v) monitoring, based on the framework in
Internal Control - Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). As of December 31, 2011,
management has determined that the Company's internal control over financial
reporting as of December 31, 2011 was not effective, as more fully described
below. This was due to the size of the deficiencies that existed in the design
or operation of our internal control over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses. The matters involving internal controls and procedures that the
Company's management considered to be material weaknesses under the standards of
the Public Company Accounting Oversight Board were: (1) lack of formal review
process for our financial information and related disclosures; (2) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; (3) inadequate segregation of duties consistent with control
objectives; and (4) lack of policies and procedures relating to issuances of our
common stock. The aforementioned material weaknesses were identified by the
Company's Chief Financial Officer in connection with the review of our financial
statements as December 31, 2011 and communicated the matters to our management.
Management believes that the material weaknesses set forth above did not affect
the Company's financial results.
Management believes that preparing and implementing sufficient written policies
and checklists will remedy the following material weaknesses (i) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; and (ii) ineffective controls over period end financial close and
reporting processes. Further, management believes that the hiring of additional
personnel who have the technical expertise and knowledge will result proper
segregation of duties and provide more checks and balances within the
department. Additional personnel will also provide the cross training needed to
support the Company if personnel turn over issues within the department occur.
This coupled with the appointment of additional outside directors will greatly
decrease any control and procedure issues the company may encounter in the
future.
As is the case with many companies of similar size, we currently a lack of
segregation of duties in the accounting department. Until our operations expand
and additional cash flow is generated from operations, a complete segregation of
duties within our accounting function will not be possible.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
46
preparations and presentations. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to permanent rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2011, there were no significant changes in
our internal controls over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act, or in other factors that could
significantly affect these controls subsequent to the evaluation date.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the names, ages, and positions of the Company's
executive officers and directors as of March 31, 2011. Executive officers are
elected annually by the Company's Board of Directors. Each executive officer
holds his office until he resigns, is removed by the Board, or his successor is
elected and qualified. Directors are elected annually by the Company's
shareholders at the annual meeting. Each director holds his office until his
successor is elected and qualified or his until his successor is elected and
qualified or his earlier resignation or removal. All of our officers and
directors were elected or appointed on November 12, 2010 except Mr. Eugster, who
was appointed on December 16, 2011.
NAME AGE POSITION
---------------------- --- -----------------------------------------------
C. Victor Hall 66 Chairman, Chief Executive Officer
Rolf A. Eugster 59 Chief Financial Officer
Stuart Mason 50 Chief Operating Officer
John Matthews 67 Executive Vice President, Engineering and
Director
Terence J. Ferguson 58 Executive Vice President, Business Development
and Director
Anne Sanders 54 Executive Vice President, Administration,
Company Secretary and Director
Biographical Information
The following summarizes the occupation and business experience for the
Company's officers, directors, and key employees
C. Victor Hall, Chairman, Chief Executive Officer. Mr. Hall was appointed as our
Chairman and Chief Executive Officer on November 12, 2010 upon closing of the
Acquisition. From 2007 until the closing of the Acquisition, Mr. Hall was
employed by ecoTECH (Canada) as its Chief Executive Officer. From 2001-2007, Mr.
Hall was employed as an officer of ecoTECH Waste Management Systems (1991) Inc.
Rolf A. Eugster, C.A., Chief Financial Officer: Mr. Eugster was appointed as the
Chief Financial Officer on December 16, 2011. From 2004 through 2011 Mr. Eugster
was employed by Bell Canada Inc. While with Bell Canada Inc., he held the
following positions: Special Project Consultant 2010 - 2011, Director Financial
Reporting and Analysis 2007 - 2009, Associate Director Reporting and Analysis
2004 - 2007.
Stuart Mason, Chief Operating Officer. Mr. Mason was appointed as our Chief
Operating Officer in November 2010. From 2003 to 2010, Mr. Mason was employed as
a Technical Logistics Specialist for Catalyst Pater Corp.
47
John Matthews, Executive Vice President, Engineering and Director .Mr. Matthews
was appointed as our Executive Vice President, Engineering and as a Director in
connection with the consummation of the Acquisition. From 2007 until the closing
of the Acquisition, Mr. Matthews was employed by ecoTECH (Canada) as its
Executive Vice-President. From 2001-2007, Mr. Matthews was employed as an
officer of ecoTECH Waste Management Systems (1991) Inc.
Terence J. Ferguson, Executive Vice President, Business Development and
Director. Mr. Ferguson was appointed as our Executive Vice President, Business
Development and as a Director in connection with the consummation of the
Acquisition. From 2007 until the closing of the Acquisition, Mr. Ferguson was
employed by ecoTECH (Canada) as its Executive
Anne Sanders, Executive Vice President Administration, Company Secretary and
Director. Ms. Sanders was appointed as our Vice President, Administration and as
a Director in connection with the consummation of the Acquisition. From 2007
until the closing of the Acquisition, Ms. Sanders was employed by ecoTECH
(Canada) as its Vice-President. From 2001-2007, Ms. Sanders was employed as an
officer of ecoTECH Waste Management Systems (1991) Inc.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has, during the past five years:
o been convicted in a criminal proceeding or been subject to a pending
criminal proceeding (excluding traffic violations and other minor
offences);
o been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities, futures,
commodities or banking activities;
o been found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended, or
vacated; or
o has had any bankruptcy petition filed by or against any business of
which he was a general partner or executive officer, either at the time
of the bankruptcy or within two years prior to that time.
Family Relationships
There are no family relationships among the individuals comprising our board of
directors, management and other key personnel.
Board Committees
The Board intends to appoint such persons and form such committees as are
required to meet the corporate governance requirements imposed by the national
securities exchanges. Therefore, we intend that a majority of our directors will
eventually be independent directors and at least one director will qualify as an
"audit committee financial expert." Additionally, the Board is expected to
appoint an audit committee, nominating committee and compensation committee, and
to adopt charters relative to each such committee. Until further determination
by the Board, the full Board will undertake the duties of the audit committee,
compensation committee and nominating committee. Our CFO, Rolf A. Eugster,
Chartered Accountant, is our Chief Financial Officer and serves as an advisor to
the Board of Directors.
Code of Ethics
The Company has implemented a Code of Conduct and A Code of Ethics for Senior
Management, which are both located on our website www.ecotechenergygroup.com.
The Company's management intends to promote honest and ethical conduct, full and
fair disclosure in our reports to the SEC, and compliance with applicable
governmental laws and regulations. We believe our codes are reasonably designed
to deter wrongdoing and promote honest and ethical conduct; provide full, fair,
accurate, timely and understandable disclosure in public reports; comply with
48
applicable laws; ensure prompt internal reporting of code violations; and
provide accountability for adherence to the codes. We will provide to any person
without charge, upon request, a copy of our code of ethics. Requests may be
directed to our principal executive offices at 800 Fifth Avenue, Suite 4100,
Seattle, Washington 98104.
Director Independence
Our Board of Directors has determined that currently none of it members qualify
as "independent" as the term is used in Item 407 of Regulation S-B as
promulgated by the SEC and in the listing standards of The Nasdaq Stock Market,
Inc. - Marketplace Rule 4200. The chairman of the board is also an officer of
the Company. The Company plans to appoint an outside director in the future.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers, and stockholders holding more than 10% of any
class of equity security registered under Section 12 of the Securities Exchange
Act, of 1934, as amended, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in beneficial ownership of
our common stock. Executive officers, directors and greater-than-10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review of the
copies of such reports furnished to us for the period ended December 31, 2010,
all Section 16(a) reports required to be filed by our executive officers,
directors, and greater-than-10% stockholders were filed on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and its other executive officers ("Named Executive Officers") for
services rendered during the years ended December 31, 2011 and 2010.
Summary Compensation Table
-----------------------------------------------------------------------------------------------------------
Option
Stock Awards All Other
Name and Position Year Salary (1) Bonus Awards ($) ($) Compensation Total ($)
-----------------------------------------------------------------------------------------------------------
C. Victor Hall 2011 $198,277 (2) - $ - - $ 16,385 (4) $ 214,662
Chief Executive Officer 2010 $145,605 (2) - $ 8,960,000 (3) - $ 2,400 (4) $ 9,108,005
Erick Odeen 2011 $ 64,000 (12) - $ - - $ 4,400 (4) $ 68,400
Chief Financial Officer
Feb 2009 to May 2011 2010 $125,000 (12) - $ 64,000 (13) - $ 2,000 (4) $ 191,000
Rolf A. Eugster 2011 15,171 (14) - $ 170,000 (16) - $ 1,517 (4) $ 186,688
Chief Financial Officer
(since December 2011) 2010 - - $ - - $ - $ -
Stuart Mason 2011 $120,168 (5) - $ 300,000 (15) - $ 12,137 (4) $ 432,305
Chief Operation Officer
(since November 2010) 2010 $ 19,414 (5) - $ 8,159 - $ 2,000 (4) $ 29,573
John Matthews 2011 $108,151 (8) - $ - - $ 11,529 $ 119,680
Executive Vice President 2010 $ 93,187 (8) - $ 1,920,000 (9) - $ 1,800 (4) $ 2,014,987
Terence J. Ferguson 2011 $108,151 (6) - $ - - $ 11,530 (4) $ 119,681
Executive Vice President 2010 $ 93,187 (6) - $ 1,920,000 (7) - $ 1,800 (4) $ 2,014,987
Anne Sanders 2011 $108,151 (10) - $ - - $ 10,923 (4) $ 119,074
Executive Vice President 2010 $ 93,187 (10) - $ 2,560,000 (11) - $ 1,800 (4) $ 2,654,987
Mr. Hall's salary during the period above was CAD$15,000 month. Mr. Matthews,
Mr. Ferguson and Ms. Sanders' salaries during the periods above was CAD$8,000.
The amounts set forth in table have been adjusted to reflect $US for each such
period. Effective July 1, 2011, Mr. Hall's salary was increased to CAD$18,000
49
per month and Mr. Matthews, Mr. Ferguson and Ms. Sanders' salaries were
increased to CAD$10,000.
(1) $778,353 and $581,380 has been accrued but not paid for the years
ended December 31, 2011 and 2010, respectively.
(2) $198,277 and $145,605 has been accrued but not paid for the years
ended December 31, 2011 and 2010, respectively.
(3) 28,000,000 shares of our common stock were issued to Mr. Hall in
January 2010. The value represents the compensation costs of stock
issuances for financial reporting purposes for the year under ASC 718.
(4) Represents amount allocated for a car allowance.
(5) $120,168 and $19,414 has been accrued but not paid for the years ended
December 31, 2011 and 2010, respectively.
(6) $108,151 and $90,187 has been accrued but not paid for the years ended
December 31, 2011 and 2010, respectively.
(7) 6,000,000 shares of our common stock were issued to Mr. Ferguson in
January 2010. The value represents the compensation costs of stock
issuances for financial reporting purposes for the year under ASC 718.
(8) $108,151 and $93,187 has been accrued but not paid for the years ended
December 31, 2011 and 2010, respectively.
(9) 6,000,000 shares of our common stock were issued to Mr. Matthews in
January 2010. The value represents the compensation costs of stock
issuances for financial reporting purposes for the year under ASC 718.
(10) $108,151 and $93,187 has been accrued but not paid for the years ended
December 31, 2011 and 2010, respectively.
(11) 8,000,000 shares of our common stock were issued to Ms. Sanders in
January 2010 and 2009, respectively. The value represents the
compensation costs of stock issuances for financial reporting purposes
for the year under ASC 718.
(12) $64,000 and $125,000 have been accrued but not paid for the years
ended December 31, 2011and 2010. The value represents the compensation
costs of stock issuances for financial reporting purposes for the year
under ASC 718.
(13) 1,600,000 shares of our common stock were issued to Mr. Odeen for the
year ended December 31, 2010. The value represents the compensation
costs of stock issuances for financial reporting purposes for the year
under ASC 718. This amount does not include issuance of 5,400,000
shares of ecoTECH (Canada) Class A common shares to Mr. Odeen in
satisfaction of $42,000 in consulting services rendered from July 1,
2010 through August 31, 2010. The fair market value of these shares,
based on $0.32 per share, was $1,728,000.
(14) $15,171 has been accrued but not paid for the year ended December 31,
2011.
(15) 750,000 shares of common stock were issued to Mr. Mason for the year
ended December 31, 2011. The value represents the compensation costs
of stock issuances for financial reporting purposes for the year under
ASC 718.
(16) 500,000 shares of common stock were issued to Mr. Eugster for the year
ended December 31, 2011. The value represents the compensation costs
of stock issuances for financial reporting purposes for the year under
ASC 718.
Director Compensation
None of our directors received any compensation for services as directors during
the year ended December 31, 2011.
Outstanding Equity Awards at Fiscal-Year End
There were no outstanding equity awards at the end of our last fiscal year.
50
Potential Payments upon Termination
None.
Employment Agreements
We do not have any employment agreements with any of our executive officers or
directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us with respect to
the beneficial ownership (as defined in Instruction 4 to Item 403 of Regulation
S-K under the Securities Exchange Act of 1934) of our common stock immediately
following the completion of the Acquisition by (i) each person who is known by
us to be the beneficial owner of more than 5% of any class of our voting
securities, (ii) each of our directors and named executive officers, and (iii)
all of our executive officers and directors as a group. Except as otherwise
listed below, the address of each person is 800 Fifth Avenue, Suite 4100,
Seattle, Washington 98104.
Number of Shares Percentage
Name and Address (3) Beneficially Owned (1) Owned (2)
---------------------------------- ---------------------- ----------
Directors and Officers:
C. Victor Hall 49,033,929 24.1
Anne Sanders 15,189,732 7.47
John Matthews 11,189,732 5.50
Terence J. Ferguson 10,689,732 5.25
Stuart Mason 1,343,750 0.66
Rolf A. Eugster 500,000 0.25
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Shares of common stock subject to options and warrants which are exercisable or
convertible at or within 60 days of March 30, 2012, the date of the Acquisition
are deemed outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the percentage of
any other person. The indication herein that shares are beneficially owned is
not an admission on the part of the listed stockholder that he, she or it is or
will be a direct or indirect beneficial owner of those shares.
(2) Based upon 203,434,640 shares of common stock issued or to be issued as at
March 30, 2012.
(3) The address is 800 Fifth Avenue, Suite 4100, Seattle Washington, 98104.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
There were no extraordinary transactions during 2011 or the first 3 months of
2012.
Director Independence
For our description of director independence, see "Director Independence" under
the section entitled "Directors, Executive Officers, Promoters, Control Persons
and Corporate Governance; Compliance with Section 16(a) of the Exchange Act"
above.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
On May 22, 2009, the Company engaged dbbmckennon, Certified Public Accountants,
as their independent certified public accountants.
The aggregate fees billed for the most recently completed year ended December
31, 2011 and for the year ended December 31, 2010 for professional services
rendered by the principal accountant for the audit of our annual financial
statements and review of the consolidated financial statements included in our
51
quarterly reports on Form 10-Q and services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for these fiscal periods were approximately as follows:
Year Ended Year Ended
December 31, 2011 December 31 2010
Audit Fees $ 61,000 $ 32,900
Audit Related Services Fees -- 41,000
Tax Fees -- 1,000
-----------------------------------
Total $ 61,000 $ 74,900
-----------------------------------
Our Board of Directors pre-approves all services provided by our independent
auditors. All of the above services and fees were reviewed and approved by the
Board of directors either before or after the respective services were rendered.
Our Board of Directors has considered the nature and amount of fees billed by
our independent auditors and believes that the provision of services for
activities unrelated to the audit is compatible with maintaining our independent
auditors' independence.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
We have filed the following documents Item 8 of this Annual Report on Form 10-K:
1. Financial Statements
Report of Independent Registered Public Accounting Firm 18
Financial Statements
Consolidated Statements of Operations and Comprehensive Loss: 19
Consolidated Balance Sheets 20
Consolidated Statements of Cash Flows 21
Consolidated Changes in Stockholders' Deficit 22-24
Notes to Consolidated Financial Statements 25-42
2. Financial Statement Schedules: None
3. Exhibits: See the Exhibit index below
31.1 Certification of C. Victor Hall pursuant to Rule 13a-14(a), filed
herewith.
31.2 Certification of Rolf A. Eugster pursuant to Rule 13a-14(a), filed
herewith.
32.1 Certification of C. Victor Hall pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith
32.2 Certification of Rolf A. Eugster pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith.
101.INS XBRL Instance Document Filed Herewith
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith
52
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ecoTECH Energy Group Inc.
Date: April 16, 2012
By: /s/ C. Victor Hall
-------------------------------
C. Victor Hall
Chief Executive Officer
(principal executive officer)
By: /s/ Rolf A. Eugster
-------------------------------
Rolf A. Eugster
Chief Financial Officer
(principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signatures Title Date
--------------------------------------------------------------------------------
/s/ C. Victor Hall Chief Executive Officer and Director April 16, 2012
-------------------- (principal executive officer)
C. Victor Hall
/s/ Rolf A. Eugster Chief Financial Officer and Director April 16, 2012
-------------------- (principal financial and accounting
Rolf A. Eugster officer)
/s/ Anne Sanders Executive Vice President and Director April 16, 2012
--------------------
Anne Sanders
5