Amended Research Agreement is currently suspended we are not
be able to continue our research and development activities on our
NGD
TM
Technology at SFU.
We have not had enough cash to make our payments to CIO-BC for
ongoing research and development costs. As a result, CIO-BC has fallen behind
with its payments under the Amended Research Agreement and the CIO-BC Research
Agreement has been suspended by SFU. There are no assurances that a new
agreement with SFU will be reached, that SFU will allow us to continue to use
their facilities to conduct our research and development activities. We will
require financing to repay the debt owed on the Promissory Note and conduct
further research and development activities. There is no assurance that we will
be able to secure financing on acceptable terms or at all.
CIO-BC has defaulted on the Promissory Note that we have
guaranteed and we have defaulted on the interest payments on the Loan from
Foundation. As a result, we may lose all four of our PVD 75 Deposition tools and
our Nova NanoSEM 430 Ultra-high resolution FESEM microscope.
SFU has made a demand on the outstanding balance of the
Promissory Note and Foundation has made a demand on the interest payable on the
Loan. The Loan is currently in default because of our failure to pay interest
that was due on September 30, 2012. We do not have sufficient finances to pay
the outstanding interest on the Loan and the outstanding balance due on the
Promissory Note. As a result, we may lose all four of our PVD 75 Deposition
tools and our Nova NanoSEM 430 Ultra-high resolution FESEM microscope. If we
lose all of our equipment, our business may fail. There is no assurance that we
will be able to negotiate an alternative arrangement with Foundation or SFU or
that we will obtain sufficient financing to settle our outstanding debts.
If photovoltaic technology is not suitable for widespread
adoption, or if sufficient demand for solar modules does not develop or takes
longer to develop than we anticipate, we may never earn revenues or become
profitable.
The solar energy market is at a relatively early stage of
development and the extent to which solar modules will be widely adopted is
uncertain. If photovoltaic technology proves unsuitable for widespread adoption
or if demand for solar modules fails to develop sufficiently, we may be unable
to grow our business or generate sufficient net sales to sustain profitability.
In addition, demand for solar modules in our targeted may not develop or may
develop to a lesser extent than we anticipate. Many factors may affect the
viability of widespread adoption of photovoltaic technology and demand for solar
modules, including the following:
1.
|
cost-effectiveness of the electricity generated by
photovoltaic power systems compared to conventional energy sources and
products, including conventional energy sources, such as natural gas, and
other non-solar renewable energy sources, such as wind;
|
2.
|
availability and substance of government subsidies,
incentives and renewable portfolio standards to support the development of
the solar energy industry;
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3.
|
performance and reliability of photovoltaic systems
compared to conventional and other non-solar renewable energy sources and
products;
|
4.
|
success of other renewable energy generation
technologies, such as hydroelectric, tidal, wind, geothermal, solar
thermal, concentrated photovoltaic, and biomass;
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5.
|
fluctuations in economic and market conditions that
affect the price of, and demand for, conventional and non-solar renewable
energy sources, such as increases or decreases in the price of oil,
natural gas and other fossil fuels; and
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6.
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fluctuations in capital expenditures by end-users of
solar modules, which tend to decrease when the economy slows and interest
rates increase.
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9
An increase in interest rates or lending rates or tightening
of the supply of capital in the global financial markets (including a reduction
in total tax equity availability) could make it difficult for end-users to
finance the cost of a photovoltaic system and could reduce the demand for solar
modules utilizing our NGD Technology and/or lead to a reduction in the average
selling price for photovoltaic modules.
Many of potential solar technology customers will depend on
debt financing to fund the initial capital expenditure required to develop,
build and purchase a photovoltaic system. As a result, an increase in interest
rates or lending rates could make it difficult for our potential customers to
secure the financing necessary to develop, build, purchase or install a
photovoltaic system on favorable terms, or at all, and thus lower demand for our
solar modules which could limit our growth or reduce our net sales. Due to the
overall economic outlook, our end-users may change their decision or change the
timing of their decision to develop, build, purchase or install a photovoltaic
system. In addition, we believe that a significant percentage of our end-users
install photovoltaic systems as an investment, funding the initial capital
expenditure through a combination of equity and debt. An increase in interest
rates and/or lending rates could lower an investors return on investment in a
photovoltaic system, increase equity return requirements or make alternative
investments more attractive relative to photovoltaic systems, and, in each case,
could cause these end-users to seek alternative investments. A reduction in the
supply of project debt financing or tax equity investments could reduce the
number of solar projects that receive financing and thus lower demand for solar
modules.
Existing regulations and policies and changes to these
regulations and policies may present technical, regulatory and economic barriers
to the purchase and use of photovoltaic products, which may significantly reduce
demand for our solar modules.
The market for electricity generation products is heavily
influenced by foreign, federal, state and local government regulations and
policies concerning the electric utility industry, as well as policies
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries,
these regulations and policies have been modified in the past and may be
modified again in the future. These regulations and policies could deter
end-user purchases of photovoltaic products and investment in the research and
development of photovoltaic technology. For example, without a mandated
regulatory exception for photovoltaic systems, utility customers are often
charged interconnection or standby fees for putting distributed power generation
on the electric utility grid. If these interconnection standby fees were
applicable to photovoltaic systems, it is likely that they would increase the
cost to our end-users of using photovoltaic systems which could make them less
desirable, thereby harming our business, prospects, results of operations and
financial condition. In addition, electricity generated by photovoltaic systems
mostly competes with expensive peak hour electricity, rather than the less
expensive average price of electricity. Modifications to the peak hour pricing
policies of utilities, such as to a flat rate for all times of the day, would
require photovoltaic systems to achieve lower prices in order to compete with
the price of electricity from other sources.
We anticipate that solar modules utilizing our technology and
their installation will be subject to oversight and regulation in accordance
with national and local ordinances relating to building codes, safety,
environmental protection, utility interconnection and metering and related
matters. It is difficult to track the requirements of individual states and
design equipment to comply with the varying standards. Any new government
regulations or utility policies pertaining to our solar modules may result in
significant additional expenses to us, our resellers and their customers and, as
a result, could cause a significant reduction in demand for our solar
modules.
We face intense competition from manufacturers of
crystalline silicon solar modules, thin film solar modules and solar thermal and
concentrated photovoltaic systems; if global supply exceeds global demand, it
could lead to a reduction in the average selling price for photovoltaic
modules.
The solar energy and renewable energy industries are both
highly competitive and continually evolving as participants strive to
distinguish themselves within their markets and compete with the larger electric
power industry. Within the global photovoltaic industry, we face competition
from crystalline silicon solar module manufacturers, other thin film solar
module manufacturers and companies developing solar thermal and concentrated
photovoltaic technologies.
10
Even if demand for solar modules continues to grow, the rapid
expansion plans of many solar cell and module manufacturers could create periods
where supply exceeds demand.
During any such period, our competitors could decide to reduce
their sales price in response to competition, even below their manufacturing
cost, in order to generate sales. As a result our partners may be unable to sell
solar modules based on our technology at attractive prices, or for a profit,
during any period of excess supply of solar modules, which would reduce our net
sales and adversely affect our results of operations. Also, we may decide to
lower our average selling price to certain customers in certain markets in
response to competition.
Our failure to further refine our technology and develop and
introduce improved photovoltaic products could render solar modules based on our
technology uncompetitive or obsolete and reduce our net sales and market
share.
We will need to invest significant financial resources in
research and development to continue to improve our module conversion efficiency
and to otherwise keep pace with technological advances in the solar energy
industry. However, research and development activities are inherently uncertain
and we could encounter practical difficulties in commercializing our research
results. We seek to continuously improve our products and processes, and the
resulting changes carry potential risks in the form of delays, additional costs
or other unintended contingencies. In addition, our significant expenditures on
research and development may not produce corresponding benefits. In addition,
other companies could potentially develop a highly reliable renewable energy
system that mitigates the intermittent power production drawback of many
renewable energy systems, or offers other value-added improvements from the
perspective of utilities and other system owners, in which case such companies
could compete with us even if the levelized cost of electricity associated with
such new system is higher than that of our systems. Our solar modules may be
rendered obsolete by the technological advances of our competitors, which could
reduce our net sales and market share.
Our failure to protect our intellectual property rights may
undermine our competitive position and litigation to protect our intellectual
property rights or defend against third-party allegations of infringement may be
costly.
Protection of our proprietary processes, methods and other
technology is critical to our business. Failure to protect and monitor the use
of our existing intellectual property rights could result in the loss of
valuable technologies. We rely primarily on patents, trademarks, trade secrets,
copyrights and contractual restrictions to protect our intellectual property.
Our existing provisional patents and future patents could be challenged,
invalidated, circumvented or rendered unenforceable. Our pending patent
applications may not result in issued patents, or if patents are issued to us,
such patents may not be sufficient to provide meaningful protection against
competitors or against competitive technologies.
We also rely upon unpatented proprietary manufacturing
expertise, continuing technological innovation and other trade secrets to
develop and maintain our competitive position. While we generally enter into
confidentiality agreements with our associates and third parties to protect our
intellectual property, such confidentiality agreements are limited in duration
and could be breached and may not provide meaningful protection for our trade
secrets or proprietary manufacturing expertise. Adequate remedies may not be
available in the event of unauthorized use or disclosure of our trade secrets
and manufacturing expertise. In addition, others may obtain knowledge of our
trade secrets through independent development or legal means. The failure of our
patents or confidentiality agreements to protect our processes, equipment,
technology, trade secrets and proprietary manufacturing expertise, methods and
compounds could have a material adverse effect on our business. In addition,
effective patent, trademark, copyright and trade secret protection may be
unavailable or limited in some foreign countries, especially any developing
countries into which we may expand our operations. In some countries we have not
applied for patent, trademark or copyright protection.
Third parties may infringe or misappropriate our proprietary
technologies or other intellectual property rights, which could have a material
adverse effect on our business, financial condition and operating results.
Policing unauthorized use of proprietary technology can be difficult and
expensive. Also, litigation may be necessary to enforce our intellectual
property rights, protect our trade secrets or determine the validity and scope
of the proprietary rights of others. We cannot assure you that the outcome of
such potential litigation will be in our favor. Such litigation may be costly and may divert management
attention and other resources away from our business. An adverse determination
in any such litigation may impair our intellectual property rights and may harm
our business, prospects and reputation. In addition, we have no insurance
coverage against litigation costs and would have to bear all costs arising from
such litigation to the extent we are unable to recover them from other
parties.
11
We have yet to attain profitable operations and we will need
additional financing to fund continued development of solar energy
products.
We have incurred a net loss of $14,248,969 for the period from
inception to September 30, 2012, and have earned no revenues to date. We expect
to spend additional capital in order produce and market solar energy products
which we are licensed to do, and establish our infrastructure and organization
to support anticipated operations. We cannot be certain whether we will ever
earn a significant amount of revenues or profit, or, if we do, that we will be
able to continue earning such revenues or profit. Also, any economic weakness
may limit our ability to continue development and ultimately market our products
and services. Any of these factors could cause our stock price to decline and
result in investors losing a portion or all of their investment. These factors
raise substantial doubt that we will be able to continue as a going concern. We
have cash in the amount of $15,057 as at September 30, 2012.
We do not have sufficient financing to cover our anticipated
expenditures over the next three months. We currently do not have sufficient
arrangements for future financing and we may not be able to obtain financing on
acceptable terms or at all.
Our financial statements included with this Quarterly Report
have been prepared assuming that we will continue as a going concern. If we are
not able to earn revenues, then we may not be able to continue as a going
concern and our financial condition and business prospects will be adversely
affected. These factors raise substantial doubt that we will be able to continue
as a going concern and adversely affect our ability to obtain additional
financing.
Our short operating history makes our business difficult to
evaluate, accordingly, we have a limited operating history upon which to base an
evaluation of our business and prospects.
Our business is in the early stage of development and we have
not generated any revenues or profit to date. We commenced our operations in
April, 2004. Because of our limited operating history, investors may not have
adequate information on which they can base an evaluation of our business and
prospects.
In order to establish ourselves as a technology supplier, we
are dependent upon continued funding and the successful development of the NGD
Technology and products. Failure to obtain funding for continued development and
marketing would result in us having difficulty establishing licensing agreements
for our technology or achieving profitability. Investors should be aware of the
increased risks, uncertainties, difficulties and expenses we face as a
development stage company and our business may fail and investors may lose their
entire investment.
We have a limited operating history upon which to base an
evaluation of our business and prospects. Our business and prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as renewable energy. These
risks include the initial completion of a developed product, the demand for the
companys product, the companys ability to adapt to rapid technological change,
the level of product and price competition, the companys success in setting up
and expanding distribution channels and whether the company can develop and
market new products and control costs.
To address these risks, we must successfully implement our
business plan and marketing strategies. We may not successfully implement all or
any of our business strategies or successfully address the risks and
uncertainties that we encounter. We have no history of earning revenues and
there is no assurance that we will be able to generate revenues from sales or
that the revenues generated will exceed the operating costs of our business.
Operating results are difficult to predict, with the result
that we may not achieve profitability and our business may fail.
12
Our future financial results are uncertain due to a number of
factors, many of which are outside our control. These factors include:
1.
|
Our ability to successfully license our technology to
OEMs and the ability of licensees to attract customers;
|
2.
|
Our ability to generate revenue through the licensing of
the NGD Technology;
|
3.
|
The amount and timing of costs relating to expansion of
our operations;
|
4.
|
The announcement or introduction of competing
distributors and products of competitors; and
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5.
|
General economic conditions and economic conditions
specific to the solar power generation.
|
We believe that we can compete favorably on these factors.
However, we will have no control over how successful our competitors are in
addressing these factors. These factors could negatively impact on our financial
results, with the result that we may not achieve profitability and our business
may fail.
We will require additional financing and may not be able to
continue operations if additional financing is not obtained.
We have not obtained sufficient financing to fund our
anticipated business activities over the next twelve months. Our total
expenditures over the next twelve months are anticipated to be approximately
$1,700,000 the majority of which is due to the development and marketing of our
products and general, legal, accounting and administrative expenses associated
with our reporting obligations under the Exchange Act. Depending on the success
of our initial marketing efforts, we estimate that we will require further
funding to implement an advertising campaign to establish and enhance awareness
of our products.
The accompanying financial statements have been prepared
assuming that we will continue as a going concern. As discussed in Note 1 of our
interim financial statements, we are in the development stage of operations,
have had losses from operations since inception, and have insufficient working
capital available to meet ongoing financial obligations over the next fiscal
year. After the fiscal year end, we will require additional financing for any
operational expenses and to pursue our plan of operation. We will require
additional capital and financing in order to continue otherwise our business
will fail. We have no agreements for additional financing and there can be no
assurance that additional funding will be available to us on acceptable terms in
order to enable us to complete our plan of operation.
If we fail to re-negotiate our secured debt obligations to our
secured creditors, we could lose our assets and be forced to discontinue our
business.
We will depend on recruiting and retaining qualified
personnel and the inability to do so would seriously harm our business.
Our success is dependent in part on the services of certain key
management personnel, including Dr. Andras Pattantyus-Abraham our Chief
Executive Officer, President and Chief Technology Officer, Graham R. Hughes, our
Chief Financial Officer, Secretary and Treasurer, and Daryl J. Ehrmantraut our
Chief Operating Officer. We have an employment agreement with Mr. Ehrmantraut.
We do not have employment agreements with Mr. Hughes or Dr. Pattantyus-Abraham.
We do not have any employment agreements with any third parties providing
services to us. The experience of these individuals is an important factor
contributing to our success and growth and the loss of one or more of these
individuals could have a material adverse effect on our company. Our future
success also depends on our attracting, retaining and motivating highly skilled
personnel and we may be unable to retain our key personnel or attract,
assimilate or retain other highly qualified personnel in the future.
We may become liable for defects or patent disputes that
arise and this could negatively affect our business.
We may become liable for any defects that exist in the NGD
Technology, or any patent disputes. If we are deemed to be liable for any
defects or licensing issues, this will have a material adverse impact on our
financial condition and results of operation.
13
Because we are significantly smaller and less established we
may lack the financial resources necessary to compete effectively and sustain
profitability.
Our future success depends on our ability to compete
effectively with other distributors of other solar technology. Many of these
competitors are more established, offer more products, services and features,
have a greater number of clients, locations, and employees, and also have
significantly greater financial, technical, marketing, public relations, name
recognition, and other resources than we have. While our objective is to
continue to develop our technology, if we do not compete effectively with
current and future competitors, we may not generate enough revenue to be
profitable. Any of these factors could cause our stock price to decline and
result in investors losing a portion or all of their investment. Increased
competition may result in increased operating costs and the inability to
generate revenues, any one of which could materially adversely affect our
business, results of operations and financial condition. Many of our current and
potential competitors have significantly greater financial, marketing, customer
support, technical and other resources than us. As a result, such competitors
may be able to attract potential customers away from us, and they may be able to
devote greater resources to the development and promotion of their products than
we can.
We do not intend to pay dividends in the near
future.
We have not declared any dividends and we do not plan to
declare any dividends in the foreseeable future. Our board of directors
determines whether to pay dividends on our issued and outstanding shares. The
declaration of dividends will depend upon our future earnings, our capital
requirements, our financial condition and other relevant factors. The Nevada
Revised Statutes, however, do prohibit us from declaring dividends where, after
giving effect to the distribution of the dividend:
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1.
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We would not be able to pay our debts as they become due
in the usual course of business; or
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2.
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Our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the rights of
stockholders who have preferential rights superior to those receiving the
distribution.
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Our board does not intend to declare any dividends on our
shares for the foreseeable future.
Our business is exposed to foreign currency fluctuations
causing negative changes in exchange rates to result in greater costs.
A portion of our expenses and capital spending will be
transacted in Canadian dollars. We do not have a foreign currency hedging
program in place. Due to the unpredictable behavior of foreign currency exchange
rate fluctuations we cannot assure that this will not have a material adverse
impact on our financial condition and results of operation.
Because our stock is a penny stock, stockholders will be
more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or quotation system.
Because our securities constitute "penny stocks" within the
meaning of the rules, the rules apply to us and to our securities. The rules may
further affect the ability of owners of shares to sell our securities in any
market that might develop for them. As long as the quotation price of our common
stock is less than $5.00 per share, the common stock will be subject to Rule
15g-9 under the Exchange Act. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock, to deliver a standardized risk
disclosure document prepared by the SEC, that:
1.
|
contains a description of the nature and level of risk in
the market for penny stocks in both public offerings and secondary
trading;
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14
2.
|
contains a description of the broker's or dealer's duties
to the customer and of the rights and remedies available to the customer
with respect to a violation to such duties or other requirements of
securities laws;
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3.
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contains a brief, clear, narrative description of a
dealer market, including bid and ask prices for penny stocks and the
significance of the spread between the bid and ask price;
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4.
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contains a toll-free telephone number for inquiries on
disciplinary actions;
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5.
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defines significant terms in the disclosure document or
in the conduct of trading in penny stocks; and
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6.
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contains such other information and is in such form,
including language, type, size and format, as the SEC shall require by
rule or regulation.
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The broker-dealer also must provide, prior to effecting any
transaction in a penny stock, the customer with: (a) bid and offer quotations
for the penny stock; (b) the compensation of the broker-dealer and its
salesperson in the transaction; (c) the number of shares to which such bid and
ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (d) a monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that, prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for our stock.