| UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
x Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended November 30, 2010
¨ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________
Commission file number: 000-53156
| QUADRA PROJECTS INC. | |||
| (Name of small business issuer in its charter) | |||
| Nevada | 45-0588917 | ||
| (State or other jurisdiction of incorporation or | (IRS Employer Identification No.) | ||
| organization) | |||
| 6130 Elton Avenue, # 338, Las Vegas, NV | 89107 | ||
| (Address of principal executive offices) | (Zip Code) | ||
| Issuer's telephone Number | 1-888-597-8899 | ||
| Securities registered under Section 12(b) of the Exchange Act: | |||
| Common Stock, $0.001 par value Common | OTCBB | ||
| (Title of class) | (Name of exchange on which registered) | ||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES¨ NOx
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES¨ NOx
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESx NO¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES¨ NO¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x |
| (Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨Yes x No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants’ most recently completed second fiscal quarter. The aggregate market value held by non-affiliates as at May 31, 2010 was approximately $ 1,360,000.
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: The Registrant had 23,818,046 shares of common stock outstanding as of March 14, 2011.
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Contents
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PART I
Note regarding forward-looking statements
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things:
• general economic and business conditions, both nationally and in our markets,
• our expectations and estimates concerning future financial performance, financing plans and the impact of competition,
• our ability to implement our growth strategy, • anticipated trends in our business,
• advances in technologies, and
• other risk factors set forth herein.
In addition, in this report, we use words such as "anticipates," "believes," "plans," "expects," "future," "intends," and similar expressions to identify forward-looking statements.
As used in this current report, the terms “we”, “us”, “our” and the “company” refer to Quadra Projects Inc. and our wholly-owned subsidiary Quadra Energy Systems Inc.
We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Annual Report on Form 10K. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
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ITEM 1. DESCRIPTION OF BUSINESS
History
Our company was incorporated in the State of Nevada on June 7, 2007. From incorporation until 2009 we were a distributor of an electronic non-invasive acupuncture pen (the “Pen”) as an alternative to traditional needles used during acupuncture treatments. We had a distribution agreement which granted to us the right to market and sell the Pen on an exclusive basis throughout Asia (with the exception of China), the Middle East and the Caribbean. We obtained our distribution rights through United Overseas Products Pty., Ltd. (“United”), a company based in Taiwan. We entered into this distribution agreement on November 30, 2007 for a period of 10 years and had ancillary rights to the patent held in China through United. Operations were based in Taiwan, commencing June 2007. We did not generate revenues from appointed sub distributions and minimum quotas were not fulfilled. Upon further market research, it was determined that pursuing the marketing and sale of this product was not as profitable as previously projected. Therefore, all efforts relating to the distribution and marketing of the Pen were ceased.
We have not been involved in any bankruptcy, receivership or similar proceeding.
Effective April 30, 2009, we completed the acquisition of our wholly-owned subsidiary, Quadra Energy Systems Inc. (“Energy Systems”). Energy Systems was incorporated under the laws of Belize and prior to our acquisition, had no prior operating history with no assets, liabilities or equity. Energy Systems has an authorized capital of 50,000 common shares, and all of the issued and outstanding share capital, consisting of 5,000 shares was acquired by us for consideration of $5,000.
On April 30, 2009, Energy Systems completed its acquisition of Energy Conversion and Waste Disposal Technology (“Acquired Technologies”) from Quadra Marketing Corp., (“Quadra Marketing”), a company incorporated in Belize, under the Technology Purchase Agreement (the “Agreement”). The Agreement was an arms length transaction. Quadra Marketing acquired the rights to the Energy Conversion and Waste Disposal Technology from the inventor on April 1, 2009.
Acquired Technologies consist of equipment and software for pyrolysis systems consisting of QES 2000S and QES Mobile Systems (the “QES Systems”) which is a non polluting energy conversion and waste disposal system designed to convert organic waste to fuel and valuable by-products such as activated carbon, fertilizer, producing no measurable air pollution or ash to be land filled.
The primary applications of the QES Systems consist of converting waste streams into valuable commodities. Depending on which technology we apply and to which feedstock we process, the commodities produced include fuel-gases, diesel fuel, carbon black, thermal energy and electricity. The QES Systems are designed to handle commonly generated waste stream, whether liquid, solid, mixed or unmixed (including whole tires, all types of plastics, animal wastes and biomass) and represent an environmentally friendly and commercially viable alternative to traditional methods of processing waste. The solutions are commercially viable ecological recycling models based on the zero-waste philosophy.
The QES System is able to integrate the combined use of steam together with a second stage gasification process into the conventional pyrolysis process, thereby overcoming the deficiencies of the earlier pyrolysis processes.
Current Business
Principal Products, Services and Their Markets
Effective April 30, 2009, Energy Systems completed its acquisition of the Acquired Technologies from Quadra Marketing under the Agreement.
Quadra Marketing transferred to Energy Systems all right, title and interest in and to the Acquired Technologies, along with engineering and design drawings, studies and reports and all information relating to the Acquired
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Technologies, whether written or oral, and related technologies including the past, present and future versions software, computer programs, data and text (regardless of form including but not limited to the source code version thereof and the batch processor logic module) and all patent rights, copyrights, trade secret rights and other proprietary rights in and thereto, including all documentation for the software, all technical documentation, system designs and specifications, flow charts, record and file layouts, memoranda, correspondence and other such documentation containing or relating to the design, structure or coding or testing of, or algorithms or routines used in, or errors discovered or corrected in, the software and any other type of information or material relating to the software and invention and related technology that was prepared by or for the inventor of the Acquired Technologies.
Quadra Marketing acquired the rights to the Energy Conversion and Waste Disposal Technology from the inventor of such technologies on April 1, 2009. The QES System and related technologies are patented in Taiwan under Patent No 285138, with pending patents No. 2006 10066751.9 and No. 2006 10072434.8 in the People's Republic of China and pending US patents No. 2007/0231073A1 and No. 2007/0231224A1. Patent application number 11/727,803 filed with the United States Patent Trademark Office for a reaction furnace utilizing high temperature steam and a re-circulated heat source to crack dioxin and organic substances contained in waste, being the basis of the our proprietary technology, has been granted by the United States Patent and Trademark Office effective the 15th day of December 2009 under patent number 7,632,471.
For consideration of our acquisition of the Acquired Technologies, we agreed to remit 10% of gross sales generated from use of the Acquired Technologies and 10% of the net proceeds of sales of the QES Systems to Quadra Marketing.
Our objective is to utilize the market of converting material generally recognized as having little or no value and which are or have been in the past, treated as waste and improperly discharged, discarded or dumped in landfills to saleable products. By offering an efficient, non-polluting, high quality and comparatively low cost pyrolytic and gasification system to treat the waste as feedstock, the QES System will convert the waste materials into marketable by-products or valuable energy sources - a relatively low cost solution for remediation of environmental problems worldwide.
Two important environmental issues are global warming and shortages of available clean affordable fuel. Carbon dioxide (“CO2”) emissions are one of the major causes of global warming. Concerns about this global problem and the search for solutions to address the issue of reducing CO2 emissions are universal. Most CO2 emissions are emitted from automotive and transportation vehicles including ships, trains and airplanes. A second major source of CO2 emissions is emitted from incinerators and coal-fired power generators. Therefore the production of affordable clean renewable energies has become a primary concern and currently is a key focus for new and innovative technologies. Another major concern is the development of new sources of clean and affordable energy resources. Pyrolysis technologies are not only sources of renewable energy but also significantly reduce CO2 emissions that are emitted by incinerators.
Heavily populated areas face the problem of disposal of Municipal Solid Waste (“MSW”). In many cases incinerators are used in addition to land fill sites, which require a great deal of preparation. Both methods are costly and have significant negative effects on the environment. The QES System has the ability to dispose of the MSW efficiently with no measurable pollution in addition to creating a secondary source of revenue. Present methods of handling and disposing of a wide variety of waste material, without having negative effects on the environment, is a major challenge.
The QES System has the ability to efficiently dispose of the accumulations of waste products which range from electronic waste, to used tires, municipal waste and hospital waste among the most common types of waste materials.
The pyrolysis process combines direct and indirect steam heat in two stages and this ensures complete penetration and decomposition of organic waste as part of the conversion to marketable by-products.
Part of the decomposition process involves gasification which eliminates contamination and the possibility of polluting residues. Our current pyrolysis technology can also improve the efficiency of coal-fired plants by incorporating the use of gas fired turbines which have a much higher efficiency rating than the steam turbines currently in use in old coal fired plants.
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QES products specification:
There are two product models based on the QES System technologies. One is the QES2000 which is a full integration modular system and factory based. Installation of a loading and unloading machine and additional equipment in plant operations is required. The second is the QES2000M which is a mobile system.
The QES System has three applications for treatment of waste: used tires, plastics, and MSW .
The following is the application range of the QES System:
- Waste tires or rubber
- Waste plastic
- Agriculture waste
- MSW
- Oil sludge, organic sludge
- Carbon black modification
- Petroleum waste
- Organic waste
The QES System is able to accommodate all or a single application. The QES System may require additional equipment, depending on the application. We have the ability to provide all additional equipment necessary for all applications.
How the System Works
Pyrolysis technologies:
Pyrolysis is most commonly used for organic materials. It does not involve reactions with oxygen or any other reagents but can take place in their presence. Extreme pyrolysis, which leaves only carbon as the residue, is called carbonization and is also related to the chemical process of charring.
Pyrolysis is heavily used in the chemical industry, for example, to produce charcoal, activated carbon, methyl alcohol and other chemicals from wood to convert ethylene dichloride into vinyl chloride to make PVC, to produce coke fuel from coal, to convert biomass into synthetic gas, to turn waste into safely disposable substances, and for the cracking of medium-weight hydrocarbons from petroleum into smaller molecules to produce lighter forms like gasoline.
There are two kinds of pyrolysis technologies classified by heat source.
Direct-Heat Pyrolysis
This method allows the heat source to make direct contact with the feedstock material. It has the advantage of being the most efficient method of thermal conductivity. Examples of Direct-Heat Pyrolysis systems are; steam pyrolysis systems, nitrogen or argon gas pyrolysis systems. Both steam and gas pyrolysis heat the feedstock material completely thereby decomposing the hydrocarbons. The disadvantage of the Direct-Heat Pyrolysis method is that it requires the consumption of a large amount of energy.
Indirect-Heat Pyrolysis
In the Indirect-Heat Pyrolysis method the feedstock material does not make direct contact with the heat source. The material is loaded in a vacuum chamber isolated from air. Then a heat source is applied to heat the chamber. The heat source can be a burner or heat wire.
Indirect-Heat Pyroloysis has a low thermal conductive efficiency because no contact is made with the surface of the feedstock material. To improve efficiency, Catalyst Pyrolysis has been developed. It uses a catalyst to bring
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the heat in contact with the feedstock material. If more than one catalyst is used the greater the heat contact is made with the surface of the feedstock material and the efficiency is thereby increased. Another method is to break down the feedstock material into the small pieces or to grind the feedstock into powder where the feedstock material will react instantly. This technology is called Fast Pyrolysis. No matter how the contact surface of the feedstock material is increased, the heat will always be applied from the surface to the interior of the feedstock material. When heat makes contact with the surface of the feedstock material, it will form a hard shell preventing the heat from penetrating to the interior of the feedstock material resulting in incomplete de-composition of the organic compounds.
Gasification Technologies:
The difference between gasification and pyrolysis processes is the operating temperature and the by-product produced. Gasification operates at higher temperature greater than 600oC. Above this temperature, hydrocarbons will only decompose to fuel gas. Gasification is suitable for converting large amounts of organic waste to fuel gas which is then connected to a gas turbine to generate electricity. Normally the scale of a plant incorporating this technology has the capacity to process 350 tons per day of MSW. Gasification provides a more efficient method of processing MSW compared to existing incinerators and coal fired power plants. It also offers an alternative to incinerators. This process is called ¡°Waste-To-Electricity¡±.
QES Technologies:
The QES System is a proprietary system which combines the Steam Direct-Heat Pyrolysis and Indirect-Heat Pyrolysis technologies and further incorporates a unique two stage pyrolysis and gasification process into one system.
In pyrolysis mode:
We believe that QES System offers a more efficient system than other indirect pyrolysis systems. Further, the QES System has developed a standard system for waste management and production of quality carbon black.
In gasification mode:
QES can also operate as a gasification system whereby the system operates at a higher temperature turning all of feedstock into syngas, a form of synthetic gas consisting of various amounts of carbon monoxide, carbon dioxide and hydrogen. To accomplish this, modification of the GASTEC unit, a fuel gas cleaning system and multi-stage condenser and includes a gas cleaner to remove hydrochloric acid, hydrogen sulfide, dust, NHx, and mercury; is required so that it can process a higher volume of gas. When the QES System is used as a gasification system for processing MSW, we recommend that the scale of MSW processed should be in excess of 350 tons per day to be economical. The syngas produced will then be connected to a gas turbine and used as fuel to create electricity.
QES two stage process technology for the purpose of treating the broadest types of waste:
Traditional pyrolysis technology is a one stage process. It is designed and engineered to handle only one kind of uniform organic material during the same process. Also, the thermal conditions will vary based on what type of feedstock material is used; otherwise the feedstock material cannot be decomposed properly. The carbon residue will contain an organic composition. These by-products are not marketable. As a result, most pyrolysis systems can only process one type of feed stock material. Mixed or varied feedstock materials cannot be processed. For application in the waste management field where there are a variety of waste materials in an unpredictable composition, a one stage process cannot be accommodated. The QES System can process mixed feedstock material based on its two stage pyrolysis technology.
The first stage acts as a pyrolysis mode. It converts most of the organic composition to fuel oil at the critical cracking stage. To obtain the greatest amount of fuel oil is the most important function in this stage. The second stage simulates gasification, deep pyrolysis, carbon activated, and fuel gas synthesis system. The purpose of the second stage is to decompose the residue of organic compounds remaining after completion of the pyrolysis mode and convert it to fuel gas.
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Energy efficiency by Steam with indirect thermal pyrolysis technologies:
As mentioned above, traditional pyrolysis technology uses the application of indirect heat to a thermal reaction chamber. Because the thermal conductive surface is small, significantly more time and energy is required to decompose the organic compounds resulting in low efficiency. Another problem is created when heat is applied to the surface of the feedstock material. When heat contacts the surface of the feedstock material, it forms a crust which restricts penetration of the heat to the interior of the feedstock material, resulting in an incomplete decomposition of the organic compounds. The carbon residue will also contain remnants of the organic compounds and becomes a secondary waste.
To solve this problem, the QES System uses steam as the main heat source to directly heat the material. Steam is used to penetrate the feedstock material into the interior in order to decompose the organic compounds. To generate the steam heat source requires more energy however the QES System uses an energy recovery technology to generate the steam required by using the fuel gas generated from the pyrolysis process which creates an indirect heating chamber by the use of the same waste heat source. The reaction chamber is supported by steam and indirect heat at the same time. This process increases the efficiency of energy use. When the pyrolysis system commences to generate fuel gas, enough fuel gas is produced to support the heat source for the system without the need for any external energy source. This creates significant energy cost savings which are not available in competitive systems.
Quality of by-products:
As mentioned above, the traditional pyrolysis system cannot completely decompose organic compounds leaving carbon residue which is flammable. As a result these by-products cannot be sold on the market. It is one of the biggest problems in a tire pyrolysis plant. The QES System with thermal indirect heat technology overcomes this problem with steam penetration. Further, the gasification phase of the QES system eliminates the remaining carbon residue left after the pyrolysis phase by converting it into fuel gas enabling complete decomposition of the feedstock. Further, a higher volume of fuel gas is able to be generated through the reaction of steam with the carbon. The quality of carbon residue can be adjusted by the QES System to produce a variety of carbon by-products ranging from high quality carbon black N220 to activated carbon.
System Safety
There are two conditions necessary in a pyrolysis system. The first is a vacuum condition. During this phase, the organic compounds will decompose to fuel oil and fuel gas. This fuel gas is rich in hydrogen. It is dangerous if contact is made with air and is the major reason why explosions can occur at most pyrolysis plants. The second condition is a high pressure phase. The higher the pressure, the higher the conversion rate, however, the high pressure creates instability in the system and can be explosive.
In an Indirect Heat pyrolysis system, carbon dust is mixed with oil (called “tar”) vapors. These tar vapors while passing through the pipe to the condenser, stick to the pipe as tar. The tar may eventually plug the pipe and since tar contains sulfur it can corrode the pipe creating leaks causing the explosive fuel gas to leak. This is the most common reason for explosions in traditional pyrolysis systems plants. To prevent such events, the QES System uses steam as protection. The steam reacts with the carbon dust to generate more fuel gas and reduces the tar produced. Also, the steam cleans the pipes to prevent corrosion and forms a protective shell to protect the fuel gas from making contact with the air even if it is leaking. The steam provides protection by preventing the fuel from igniting.
QES SYSTEM APPLICATIONS:
QES System application for waste tire treatment:
Waste tires are a dominant market for the pyrolysis system. The QES System can produce marketable high quality by-products from waste tire treatment. These included a high quality carbon black as well as fuel oil.
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The expected percentage rate of the by-products generated is as follows:
Steel wire : 8~12% depend on the type of tires
Fuel Oil: 40% ~ 50%, depending on the flash point
Low quality Carbon black: 5% ~10%
High quality carbon black: 20% ~ 35%
The additional equipment required is as follows:
1) Weigh Bridge
2) Breaker and cutting system with steel wire separator
3) Belt Conveyor
4) Loading machine
5) Unloading machine
6) Dryer and magnetic separator
7) Grinder with cyclone selector and bag filter
8) Central Bag filter
9) Waste water treatment system
10) Oil storage tank with oil filter
11) Central control and monitor system
QES application of waste plastic:
Plastic is a rich hydrocarbon product, the only concern is that it may contain Polyvinyl Chloride (“PVC”). Waste plastic material containing PVCs are traditionally treated by steam pyrolysis in the chemical industry.
The QES System uses a similar method to process waste plastic containing PVCs. During the pyrolysis process the PVCs produce a large amount of Hydrolchloric acid (“HCl)”. It is recommended that PVCs not be processed alone, but rather that PVCs be blended with other waste materials such as used tires because PVCs contain large amounts of chlorine. To remove the chlorine content, the QES System adds a catalyst to prevent the fuel oil combining with the chlorine. In the processing of plastics, the only significant by-product is fuel oil with less than 2% of carbon produced, depending on plastic type.The yield rate of fuel oil is about 30% ~ 70% depending on the plastic type.
The following additional equipment is required:
1) Weigh Bridge
2) Cutting machine
3) Belt Conveyor
4) Loading machine
5) Unloading machine
6) Central Bag filter
7) Waste water treatment system
8) Oil storage tank with oil filter
9) Central control and monitor system
QES application on the MSW waste:
MSW is a major problem however it can also be an energy source. Currently, most MSW is land filled or sent to an incinerator for burning. Both the landfill and incinerator solutions cause significant environmental problems such as air and land pollution. Significant amounts of toxic materials are buried under ground including the waste generated from an incinerator.
MSW is a mixed waste containing various composites to be treated and as a result is not suitable for traditional pyrolysis technologies. The only alternative method is to gasify the MSW waste. The QES System offers this method for processing MSW by incorporating pyrolysis technology with gasification in its two stage process.
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The QES System, unlike a gasification system does not only convert hydrocarbons to fuel gas solely. The first priority of the QES System is to produce fuel oil, then fuel gas. The QES System can also be used as gasification system by adjusting the processing temperature for Waste to Electricity Processes. However this process is not a cost effective use of the QES System as the cost of generating fuel oil for the gas turbine to generate electricity is in excess of the cost of the QES System itself. Further, the electricity may not be a readily marketable product as it must connect with a transmission network and is also subject to various regulatory approvals.
The following additional equipment is required:
1) Weigh Bridge
2) Cutting machine
3) Belt Conveyor
4) Loading machine
5) Unloading machine
6) Dryer and Separator system
7) Central gas cleaning system
8) Waste water treatment system
9) Oil storage tank with oil filter
10) Central control and monitor system
QES application for hospital waste:
The term hospital waste covers a wide spectrum and is hazardous in that it has the potential to cause the spread of disease. The highest priority for the remediation of hospital waste is to eliminate the potential of infectious disease. The best method to treat, purify and destroy the bacteria contained in the hospital waste is with the use of high temperatures. Currently, the method used by most countries for treatment of hospital waste is by incineration. However, a significant drawback to incineration is the production of dioxins, a carcinogenic agent. The technology employed by the QES System is called “heat disintegration method”.
During the handling of hospital waste, the concern for the safety of the operator is paramount. Preventing operators from coming into direct contact with any pathogens and the contamination of the environment by the hospital waste is a principal concern. Therefore it is important that an enclosed environment be maintained for hospital waste during transport and handling.
The QES System application for hospital waste can process the following materials:
- General business waste
- Compound containing silver from silver recovery
- Used X-ray film
- Non-contagious waste after sterilization
- PET film (D-2201)
- Film fiber containing acetic acid (D-2202)
- Organic waste
- Mixed film (D-2299)
- Plastic, glass, paper, metal etc.
- Resource recycling products
The following items cannot be handled by the QES System, and need to be properly and separately treated:
- Liquid chemicals, saline etc.
- Spent film developer
- Waste that is radioactive or containing radioactive ingredients
- Liquid waste or sewage
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The QES System for Hospital Waste Treatment illustrated below is based on no required sorting and assumes all hospital waste is sealed prior to treatment. The flow chart illustrated herein is based on the standard Regulations and needs to be reviewed in every jurisdiction so as to ensure the system meets the regulatory requirements prevailing in each country.
Additional equipment required for hospital waste application of the QES System is as follows:
1) Weigh Bridge
2) Vertical Conveyor
3) Loading system with Breaker machine and sterilization function
4) Unloading machine
5) Conveyor, and separation system with magnetic separator
6) Central gas cleaning system
7) Waste water treatment system
8) Oil storage tank with oil filter
9) Central control and monitor system
Pollution control for hospital waste:
When processing hospital waste, the QES System has a three stage process to prevent any possible air pollution by dioxins, or other toxic gases. The first stage is the pyrolytic process to decompose the organic compounds including dioxins to a fuel gas molecule. The second stage is to remove any toxic material such as hydrogen sulfide, hydrochloric acid, mercury, and any metal by the gas cleaning system and subsequently by an activated carbon fiber filter (HEPA). This generates a clean fuel gas similar to liquefied petroleum gas. The third stage is to generate a hot zone as a system heat source by the use of the clean fuel gas at a temperature over 1200 ºC. This will destroy any possible remaining pathogens, dioxins or organic compounds. We believe that incorporating this three stage process makes the QES System environmentally friendly. To guarantee the system meets the regulations and standards of each country, the installation of additional systems such as, wastewater treatment system and a central air pollution control system are recommended.
The central air pollution control system is designed for air cleaning and carbon dust filtering. It can also extract the air in the interior of the plant to form a negative pressure so as to eliminate the possibility of air leaks. It also absorbs the vapor and carbon dust to prevent them from being emitted into the atmosphere. The system also has a sterilization system to kill microbes in the plant. The water treatment system is designed to re-treat the waste water to meet the standard draining regulations. The QES System is designed to recycle a substantial amount of water so as to reduce the waste water discharge. The amount of waste water generated depends on the chlorine content.
QES application for gasification:
Traditional incinerator plants have been the standard solution to generate electricity. They convert heat to steam, and then use the steam to push a steam turbine to generate electrical power. However, as mentioned earlier, traditional incinerators cause major pollution problems, such as emission of dioxins, air pollution, fly-ash, bottom ash pollution, and CO2 emissions. The new generation of Waste-To-Electricity uses gasification technologies and is designed to replace the incinerator.
When the QES System is used as a gasification system for processing MSW, we recommend that the scale of MSW processed should be in excess of 350 tons per day to be economical. QES can operate as a gasification system whereby the system operates at a higher temperature turning all of feedstock into syngas, a form of synthetic gas consisting of various amounts of carbon monoxide, carbon dioxide and hydrogen. To accomplish this, modification of the GASTEC unit, a fuel gas cleaning system and multi-stage condenser and includes a gas cleaner to remove hydrochloric acid, hydrogen sulfide, dust, NHx, and mercury; is required so that it can process a higher volume of gas. The syngas produced will then be connected to a gas turbine and used as fuel to create electricity.
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The benefits of a gas turbine are:
Lower CO2 emissions than an incinerator with higher power generator capabilities
Free of Dioxins
Residue of carbon residue can be re-used.
Markets
Joint Ventures
It is our intention to market the QES System through joint ventures with qualified interests in establishing joint ventures and establishing waste conversion operations.
Avani Corporation, Zhunger Capital Partners Inc.
On October 28, 2009, Energy Systems entered into an agreement with Avani Corporation SDN BHD (“Avani”) of Malaysia, and Zhunger Capital Partners Inc. (“Zhunger”) of Taiwan, to exclusively market the QES System conversion system in Korea, Cambodia, Thailand, Malaysia, Indonesia, Saudi Arabia and Egypt (the “Avani/Zhunger Territories”). The agreement also provides that Avani and Zhunger may establish joint ventures with third parties for the establishment of an assembly facility and/or manufacturing plant in the Avani/ Zhunger Territories. Avani and Zhunger will also be granted rights to locate and appoint key distributors and agents.
Energy Systems shall grant Avani and Zhunger the right to locate and appoint key distributors and agents, wherein this will also include the granting of a right to the distributors and agents to, use and demonstrate the QES System, when one is manufactured for the Avani/Zhunger Territories, advertise, market, sell and otherwise distribute the QES System in the Avani/Zhunger Territories to customers who are end users and/or joint venture partners, advertise, market, sell, and otherwise distribute the QES System in the Avani/Zhunger Territories to sub-distributors or sub-agents for further distribution to end users and/or joint venture partners, screen and select a funding group to joint venture in the establishment of an assembly facility and/or manufacturing plant in the Avani/Zhunger Territories for the QES System. The agreement is effective October 30, 2009 for a term of 20 years.
The Joint Venture with Avani would involve the building of several plants to process palm husks in Malaysia and Indonesia. Currently each palm oil plant operating in Malaysia and Indonesia, after extraction of the palm oil, generates between 300 to 1,000 tons of palm husk remnants per day creating a major disposal problem for each palm oil plant. We offer an environmentally friendly solution for dealing with the palm husks by creating marketable by products such as N220 grade carbon black, using the QES System.
On April 16, 2010, Energy Systems entered into an agreement with Avani and Zhunger to redefine the terms of the agreement dated October 28, 2009 whereas Energy Systems would reclaim all rights in the Avani and Zhunger Territories as previously defined in the October 28, 2009 agreement (“Reclaimed Territories”), for consideration of 10% of net profits of any joint venture or other business venture involving the QES Systems. Energy Systems shall have the right to use and demonstrate the QES Systems, advertise, market and otherwise create joint ventures for QES Systems and related QES Systems plants (“Systems and Plants”) in the Reclaimed Territories to potential joint venture partners, advertise, market and otherwise source joint venture partners for the System and Plants in the Reclaimed Territories to sub-agents for further sourcing of joint venture partners.
Energy Systems also has the right to use its affiliated officers, personnel and technical team to market and source joint venture partners for the System and Plants in the Reclaimed Territories, apply and pay for the patent rights in the countries progressively targeted, source funding on a best efforts basis for the System and Plants in the Reclaimed Territories.
No assurance can be provided that the joint venture will be completed on terms acceptable to our company or will be completed at all.
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Imex – Joint Venture – Jamaica, West Indies
On August 31, 2010, Energy Systems entered into a Joint Venture Agreement with Imex, to establish a QES Systems Plant for used tire conversion to biochar and fuel oil in Jamaica (“Imex Joint Venture”).
The agreement supersedes the February 15, 2010 purchase agreement wherein Imex was to purchase one QES System at a total cost of $650,000 of which $ 450,000 relates to the cost of the System and $ 200,000 relates to cost of additional equipment.
The Imex Joint Venture enables us to establish a QES Systems Conversion Plant (“Plant”) in Jamaica under a joint venture structure with 60% equity interest to us and 40% to Imex. The Joint Venture will operate under the name Carib Green Industries.
For Imex to earn the 40% equity interest, Imex must source and deliver the feedstock material of used tires and also be the general operator of the Plant for operations in Jamaica. Imex is responsible for sourcing a suitable facility for joint venture operations. As a joint venture partner, Imex is entitled to exclusive importation and distribution rights of the QES Systems in the Caribbean. At this time we have not finalized a formal importation and distribution agreement with Quadra. Imex will also be responsible for marketing by-products, specifically biochar to target markets of landscapers.
For Energy Systems to earn 60% equity interest, QES must deliver, install and train staff to operate the QES Systems. Energy Systems will provide all required technical support and management services if needed. Energy Systems will be responsible for undertaking development of special applications of the QES Systems if required, maintain the QES Systems and develop upgraded versions of the QES Systems, market the by-products generated, sourcing all required licenses, approvals to manufacture, sell, and market by-products, and complying with all environmental rules and regulations.
Title and ownership for any QES Systems installed shall remain the property of Energy Systems until payment of the amount of $650,000 from the earnings of the joint venture for such installed QES Systems shall be paid to Energy Systems. When this amount is paid, title and ownership of the QES Systems will pass to the Joint Venture however use of the technologies as defined above as the “Acquired Technologies” will be licensed for a period of 40 years.
No assurance can be provided that the joint venture will be completed on terms acceptable to our company or will be completed at all.
Markets – By Products
Market for Used Tire Conversion to Marketable By Products
In the U.S. the federal Environmental Protection Agency reports that 290 million waste tires are generated each year and an estimated 2 Billion waste tires have accumulated in stockpiles or uncontrolled tire dumps across the country. A variety of pests, including mosquitoes capable of carrying West Nile virus, breed and live in old tires, Tires also take up much-needed landfill space and create a blight on the urban landscape as well as resulting in a large amount of black solid refuse which contaminates the soil and ground water.
Waste tires are a dominant market for the pyrolysis system. The major problem in this market is the quality of the by-products produced. As mentioned before, the traditional indirect-heat pyrolysis systems cannot completely process waste tires resulting in a carbon black residue containing a significant quantity of organic compounds and is also highly flammable. There is no market for this carbon black. A second problem is the quality of fuel oil produced which contains a significant amount of tar and sulfur. The resulting oil product is not easily marketable. The QES System overcomes these difficulties producing marketable high quality by-products to meet the demand of industry.
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Market for Carbon Black and Fuel Oil
We anticipate that China and India will account for the largest increases in carbon black and fuel oil demand due to the expanding automobile industry and highway transportation infrastructure resulting in an increased demand for tires, rubber, industrial rubber goods and fuel oil.
The QES System is capable of producing several grades of carbon black through the processing of various feedstock materials. We believe that we can compete favorably by the use of waste materials as feedstock which account for less than 5% of the cost of the selling price of the by products as opposed to a 50% cost compared to those using “old furnace black technology” where the feedstock materials are petroleum based and are subject to the changing market prices of petroleum and natural gas.
Fuel oil is similar to diesel fuel and heating oil which trades on the world commodity markets such as NYMEX. The demand for fuel oil is generated for use as a fuel for diesel engines and for use as a heating fuel to fire commercial furnaces such as required for the leather or die industries or any furnace where heat is to be generated such as home heating. Fuel oil can be blended with conventional diesel for transportation purposes or used directly in diesel powered generators for the production of electricity.
Electronic Waste By-Products
Electronic waste is currently one of the biggest problems for the environment in the world. The problems result mostly because electronic waste contains toxic materials such as resin, polychlorinated Dibenzo-p-Dioxin, heavy metal, etc. As a result electronic waste is not suitable for burning by an incinerator. Currently, the most popular method of treating electronic waste is to deposit it at a landfill.
QES provides a new solution. The QES System can convert the plastic, resin, and destroy the dioxin structure to convert it into a marketable fuel. After processing of electronic waste, valuable by-products such as precious metals and silicon can easily be recovered and refined.
It is estimated that one ton of used mobile phones, or approximately 6,000 handsets contain approximately 3.5 kilograms of silver, 340 grams of gold, 140 grams of palladium, and 130 kilograms of copper. The average mobile phone battery contains another 3.5 grams of copper. These commodities are also traded on markets such as NYMEX and can be a source of significant revenues.
Marketing Strategy
Our marketing strategy currently implemented throughout the United States, Canada and remaining territories with the exception of Jamaica which are through joint efforts with our distributor listed below. There are no distributors appointed in the territories of China, Hong Kong and Macau as a result of terminating former distributor.
Ameco Industries Inc.
Energy Systems entered into an agreement dated the 30th day of April 2010 with Ameco Industries Ltd (“Ameco”), a Nevada corporation, wherein Ameco was appointed as exclusive importer and distributor (the “Ameco Agreement”) for the United States of America and its territories (the “Ameco Territories”) for Energy System’s QES Systems and related QES Systems Plants (“Systems and Plants”). The term of the Ameco Agreement is for 30 years which term can be extended for additional 10 year terms unless written notice of termination is delivered by either party no less than 60 days prior to the expiration of the then current term.
The Ameco Agreement further provides that Ameco is also appointed as exclusive marketing agent in the Ameco Territories for the by- products produced from all Systems and Plants.
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The Ameco Agreement also provides that Ameco shall at its expense engage and maintain a sales, service and parts handling organization in the Ameco Territories staffed with experienced staff as are necessary to enable Ameco to perform its obligations under the Agreement.
7510446 Canada Inc.
Energy Systems entered into an agreement dated the 30th day of April 2010 with 7510446 Canada Inc. (“Canada Inc.”), a Canadian corporation, wherein Canada Inc was appointed as exclusive importer and distributor (the “Canada Inc. Agreement”) for Canada (the “Canada Inc. Territories”) for Energy System’s Energy System’s QES Systems and related QES Systems Plants (“Systems and Plants”). The term of the Canada Inc. Agreement is for 30 years which term can be extended for additional 10 year terms unless written notice of termination is delivered by either party no less than 60 days prior to the expiration of the then current term.
The Canada Inc. Agreement further provides that Canada Inc. is also appointed as exclusive marketing agent in the Canada Inc. Territories for the byproducts produced from all Systems and Plants.
The Canada Inc. Agreement also provides that Canada Inc. shall at its expense engage and maintain a sales, service and parts handling organization in the Canada Inc. Territories staffed with experienced staff as are necessary to enable Canada Inc. to perform its obligations under the Canada Inc. Agreement.
Quadra Marketing Corp.
Energy Systems entered into an agreement dated the 30th day of April 2010 with Quadra Marketing Corp. (“Quadra Marketing”), a Belize corporation, wherein Quadra Marketing was appointed as exclusive worldwide importer and distributor (the “Quadra Marketing Agreement”), excepting for the countries of Canada, United States of America, Hong Kong, Macau, and China which are excluded (the “Quadra Marketing Territories”), for Energy System’s QES Systems and related QES Systems Plants (“Systems and Plants”).
The term of the Quadra Marketing Agreement is for 30 years which term can be extended for additional 10 year terms unless written notice of termination is delivered by either party no less than 60 days prior to the expiration of the then current term.
The Quadra Marketing Agreement further provides that Quadra Marketing is also appointed as exclusive marketing agent in the Quadra Marketing Territories for the by products produced from all Systems and Plants.
The Quadra Marketing Agreement also provides that Quadra Marketing shall at its expense engage and maintain a sales, service and parts handling organization in the Territories staffed with experienced staff as are necessary to enable Quadra Marketing to perform its obligations under the Quadra Marketing Agreement.
Distribution Agreement – China, Hong Kong, Macau - Terminated
On July 20, 2009, Energy Systems entered into an agreement (the “Fanta Agreement”) with Fanta wherein Fanta was appointed as exclusive distributor of the QES System in China, Hong Kong and Macau (the “Fanta Territory”), for a term of 2 years which such term could be extended for an additional 2 year term, provided that Fanta achieves its minimum purchase requirements of one QES System in year 1, three QES Systems in year 2 and ten QES Systems in years 3 and year 4. Thereafter any renewal terms would be subject to mutually acceptable terms, provided however if the parties fail to agree on terms of any renewal, then Energy Systems shall have right to determine the conditions of any subsequent renewal.
The Fanta Agreement provided that Fanta could appoint a network of sub-distributors in the Fanta Territory to assist Fanta in the sales and servicing required of the QES Systems in the Fanta Territory. The Fanta Agreement further provided that Fanta would establish a full service distribution and parts center, service maintenance team, sales team to support the sales of QES System in the Fanta Territory and would jointly promote the marketing of the QES System with Energy Systems.
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On November 9, 2009, we entered into a development and marketing agreement (“Fanta Marketing Agreement”) with Fanta for the purchase of one QES2000 utility unit (“Utility Unit”) for the purchase price of $ 420,000. Included in this total is a $ 360,000 marketing expense of which was credited to Fanta to assist Fanta in setting up distribution networks and marketing of the QES System in China. The Utility Unit will encompass all applications of the QES System. The Utility Unit is smaller in scale, mobile and will have a lower processing rate compared to the full size QES System. The Utility Unit operates on a batch system and can process 50kg per hour of waste. It has a manual loading and unloading system. With additional equipment installed, the Utility Unit can operate as a continuous system that can process 200kg per hour.
Fanta failed to meet its performance quotas as mentioned above and the Fanta Agreement was terminated.
Distribution Methods and Installation
In larger and emerging markets, our business model is such that we intend to sell the QES System to a joint venture (to which we are one of the principals) which will then market the QES Systems in that region or develop its own plants. This will allow us to maintain ongoing revenues.
In third world countries, we intend to sell the QES System to distributors and rely on the distributors to penetrate the market. Also in many cases funding for projects in these countries need to be orchestrated through the World Bank and as such require local government participation.
We sub-contract construction of the QES System components and such components are assembled on premises currently being rented on a per use basis. We currently do not have an assembly facility and may establish a facility pending funding.
New Products
We are not developing nor do we intend to distribute any other products in the foreseeable future.
Competition
Many of our potential competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we have. Competitors have and may adopt aggressive pricing or inventory availability policies and devote substantially more resources to website and systems development than we do. Increased competition may result in reduced operating margins and loss of market share.
We believe that the principal competitive factors in our market are:
(a) Quality of by products
(b) Emission standards
(c) Capital cost of plant
We believe that the QES System addresses these factors by offering quality by products, emitting negligible emissions meeting the regulatory requirements in Europe and the US. We offer the QES System at a significantly lower capital cost.
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.
Availability of Raw Materials
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QES System Construction
The component parts of the QES System will be outsourced and assembled by our technical team. We intend to build plants to process used tires either through a joint venture or solely owned and operated plants.
The only significant raw material required for construction of the QES System is steel and it is readily available.Currently we intend to use steel manufactured in China as it is competitively priced and is readily available.
Inventory
We do not carry inventory. It is our intention to commence procurement of necessary components of the QES System when we receive financial commitments from interested parties.
We cannot estimate at this time the frequency of our placement of orders as we have not established trends or possible seasonal aspects which may affect our sub distributor’s business and the resultant increase or lag in number of orders placed with us.
Orders and Payment
Payment terms will vary and payments are made by wire transfer, bank draft, or money order.
Delivery
Delivery terms are subject to negotiations and are unique in each transaction.
Returns and Refunds
Our warranty policy states that the QES System will be free from defects in materials and workmanship. The foregoing warranty is subject to the proper installation, operation and maintenance of the QES System in accordance to the QES System operating manual. Warranty claims must be made by the customer in writing within 15 days of the manifestation of a problem. Our sole obligation under the foregoing warranty is, at our option, to repair, replace or correct any such defect that was present at the time of delivery, or to remove the QES System and to refund 50% of the purchase price to customer.
The warranty period begins on the date the QES System is delivered and continues for Twelve (12) months.
Any repairs under this warranty must be conducted by our authorized service representative.
Excluded from the warranty are problems due to accidents, misuse, misapplication, storage damage, negligence, or modification to the QES System or its components.
Patents, Trademarks and Labor Contracts
Patents
Our QES System and related technologies are patented in Taiwan under Patent No 285138, with pending patents No. 2006 10066751.9 and No. 2006 10072434.8 in the People's Republic of China and pending US patents No. 2007/0231073A1 and No. 2007/0231224A1.
Patent application number 11/727,803 filed with the United States Patent Trademark Office for a reaction furnace utilizing high temperature steam and a re-circulated heat source to crack dioxin and organic substances contained in waste, being the basis of the our proprietary technology, has been granted by the United States Patent and Trademark Office effective the 15th day of December 2009 under patent number 7,632,471.
Trademarks
We do not have any trademarks on our trade name or logo.
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Labor Contracts
The component parts of the QES System will be outsourced and assembled by our technical team.
We do not have contracts with our officers and directors and advisory board.
Government Regulation
We are subject to regulations from various federal, state and municipal authorities, each having different environment regulations to deal with waste and emissions. The following are some of the regulatory authorities throughout the world.
In the USA hazard wastes are regulated by the Environmental Protection Agency (“EPA”) through the Resource Conservation and Recovery Act (“RCRA”) which requires that hazard wastes be tracked from the time that they are generated until their final disposition. Further with the enactment of the Comprehensive Environmental Response, Compensation and Liability Act in 1980, a super fund was created for the clean-up and remediation of closed and abandoned hazardous waste sites. A facility that treats, stores or disposes of hazardous waste must obtain a permit under the RCRA. Individual states may regulate particular wastes more stringently than that mandated by the EPA because the EPA is authorized to delegate primary rulemaking to individual States and most states have implemented such regulations.
The federal government also mandates the requirements for hazardous waste landfill sites together with state and local governmental agencies which may have criteria of their own and which in some cases may be more stringent than the federal regulations.
Worldwide the United Nations Environmental Program (“UNEP”) estimated that more than 400 million tons of hazardous waste is produced annually.
In the United Kingdom the Department for Environment Food and Rural Affairs is the agency responsible for policy and regulations on the environment which includes air quality, waste operations and local authority environmental regulation. In Europe the European Commission is the regulator authority responsible issuing directives for the regulation of hazardous waste.
The EPA is also the regulatory authority governing vehicle emissions and emissions from large Municipal Waste Combustors (“MWC”) (greater than 250 tons per day), small MSWs (less than 150 Tons per day) (MWCs are incinerators which burn household, commercial/retail and or institutional waste), Hazardous Waste Combusters (‘HWC”) and Medical Waste Incinerators. State or federal MWC plans also include source and emission inventories, emission limits, testing, monitoring and reporting requirements or site specific compliance schedules including increments of progress.
The Asian countries also have their own emission and waste treatment regulatory bodies, most of which conform either to the EU or EPA standards. As worldwide emissions levels have increased dramatically, a greater understanding of the impacts of these emissions have resulted in increased regulation and new development practices have been implemented to reduce emissions in countries worldwide. All of the above are the regulatory environment in which our technology and the proposed applications of the technology are applicable.
Research and Development
We intend to establish a research and development facility in each assembly plant with the intention of maintaining the technological lead in terms of product quality and development of new product applications.
Compliance with Environmental Laws
To our knowledge, we are not subject to any environmental laws which are cause of concern among management.
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The QES System is equipped to address environmental issues. It does not burn waste like an incinerator. To deal with complex wastes such as MSW, E-waste, the QES System has two processes to eliminate air pollution. The first process is pyrolysis. It keeps most of the carbon as a by-product thereby reducing the carbon dioxide emissions and incorporates a fuel gas cleaning system in its GASTEC unit The GASTEC unit is a multi-stage condenser and includes a gas cleaner to remove hydrochloric acid, hydrogen sulfide, dust, NHx, and mercury. The second process is a gasification process which operates between 550 and 800C and converts the carbon residue remaining after the pyrolysis process is complete into fuel gas. The product of this two stage process is clean fuel gas which is used as a heat source. In treating Hospital Waste a hot zone will incorporated as a third process whereby the residue remaining is processed in a 1200ºC heating chamber which destroys any possible pathogens or toxic materials that may remain. . The GASTEC unit includes an oil-water separator, oil filter system, and water treatment system. It treats the waste water and recycles the water back into the system. This waste water can be recycled when processing materials that do not contain chlorine such as used tires, or certain plastics except PVC. If waste materials contain chlorine such as MSW, Hospital Waste, E-waste, PVC, the recycled water must be chemically treated.
To summarize there are two processes to destroy toxic materials such as dioxins. They are steam pyrolysis, including the GASTEC purification system, and a secondary gasification process which converts residual carbon into fuel gas and if dealing with hospital waste a third process which incorporates a 1200ºC heating chamber. With these processes, the QES System eradicates pathogens, dioxins, air contaminants and other pollutants.
Dioxins and air pollution control
Incineration is the most popular system to handle the MSW and hospital waste. The main problem resulting from incineration is air pollution caused by the emission of dioxins and other toxic materials during the incineration process. It is the opinion of management that the QES System is a natural replacement for the incinerator.
Chlorine is the key element to forming dioxins inside the benzene structure. Benzene is produced during organic material decomposition. In the burning process, the organic material is decomposed and oxidized under high temperature. In an ideal case, the material will decompose 100% and be oxidized; otherwise chlorine will replace the hydrogen molecule of Benzene to form dioxins.
The pyrolysis method employed in the QES System prevents chlorine from replacing the hydrogen molecule of Benzene to produce dioxins as a by-product. To achieve this goal, there are two methods. One method is 100% decomposition and oxidization in the burning process. Vapor gas is kept at high temperatures over 600ºC, and enough oxygen is supplied to ensure complete oxidization. Unfortunately this is not easy to achieve under normal operating conditions as the chlorine is always present during the burning process. Most incinerators have a dioxin problem because they cannot completely burn the waste. The second alternative is to remove the chlorine during the decomposition process. The QES pyrolysis system incorporates removal of chlorine in its processes.
There are three methods to prevent the creation of dioxins in the QES System. The first method used by the QES pyrolysis system is to remove chlorine during organic compound decomposition and reforms chlorine into calcium chloride or sodium chloride by catalyst. It also generates enough hydrogen to prevent the benzene from forming dioxins. Only a small amount of chlorine remains to create hydrogen chloride. The second method is to use the gas cleaning system to clean the fuel gas. The gas cleaning system will remove the hydrogen sulfide, hydrogen chloride, and mercury from fuel gas and passes these materials into waste water. The QES System then uses a high efficiency particulate absorbing (“HEPA”) filter technology to remove toxic materials from the fuel gas by an activated carbon filter. After these processes, the fuel gas resembles liquefied petroleum gas. The third method is to burn the fuel gas at a high temperature zone over 1200 ºC. This will destroy any possible missed pathogens or toxic materials.
The QES System may incorporate a central gas cleaning system which is the last step to prevent any possible air pollution. This central gas cleaning system is optional equipment.
The QES System then uses the steam pyrolysis process to decompose waste materials. This process consumes about 20% of recycled fuel gas as a heat source.
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Employees
During the year ended November 30, 2010 we had no full-time employees and no part-time employees. We have engaged a number of consultants who provide services to our company.
Principal Business Office & Administrative Branch Office
Our principal business office is located at 6130 Elton Avenue, # 358, Las Vegas, NV. Our administrative office for North American investor relations and U.S. regulatory reporting is located at Suite 200, 245 East Liberty Street, Reno, Nevada, 89501.
ITEM 1A. RISK FACTORS
Any of the following risks could materially adversely affect our business, financial condition, or operating results.
All parties and individuals reviewing this Annual Report on Form 10K and considering us as an investment should be aware of the financial risk involved. When deciding whether to invest or not, careful review of the risk factors set forth herein and consideration of forward-looking statements contained in this registration statement should be adhered to. Prospective investors should be aware of the difficulties encountered as we face all the risks including competition, and the need for additional working capital. The likelihood of our success must be considered in light of the problems and expenses that are frequently encountered in connection with operations in the competitive environment in which we will be operating.
***You should read the following risk factors carefully before purchasing our common stock. ***
RISKS RELATING TO OUR BUSINESS
We have a limited operating history upon which an evaluation of our prospects can be made. For that reason, it would be difficult for a potential investor to judge our prospects for success.
We were organized and commenced operations in June 2007. We have had limited operations since our inception from which to evaluate our business and prospects. There can be no assurance that our future proposed operations will be implemented successfully or that we will have the ability to generate profits. If we are unable to sustain our operations, you may lose your entire investment. We face all the risks inherent in a new business, including the expenses, difficulties, complications and delays frequently encountered in connection with conducting operations, including capital requirements and management's potential underestimation of initial and ongoing costs. As a new business, we may encounter delays and other problems in connection with the methods of product distribution that we implement. We also face the risk that we will not be able to effectively implement our business plan. In evaluating our business and prospects, these difficulties should be considered. If we are not effective in addressing these risks, we will not operate profitably and we may not have adequate working capital to meet our obligations as they become due.
If we do not receive shareholder loans we may be unable to continue meeting our minimum funding requirements.
As of November 30, 2010 we had a negative working capital of $ 194,552. We will require shareholder loans to meet our working capital needs; however, we have no formalized agreements with shareholders guaranteeing that any required funding will be available to us. We may exhaust this source of funding at any time, which would cause us to cease operations.
We require short term funding in the amount of approximately $ 740,000 in the next 12 months to fund our operations. Although our shareholders are committed to providing the necessary funding in order to generate revenues they are not obligated to do so. We have no formal agreements with our shareholders. If we do not receive shareholder loans or any other form of funding, our operations would cease indefinitely.
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We may not be able to compete effectively against our competitors, which could force us to curtail or cease business operations.
Many of our competitors have significantly greater name recognition, financial resources and larger distribution channels. If we are not able to compete effectively against our competitors, we will be forced to curtail or cease our business operations. We do not have any market share in the industry at this time.
We may face product liability for the product we sell.
We may become liable for any damage caused by our products when used in the manner intended. Any such claim of liability, whether meritorious or not, could be time-consuming and result in costly litigation. We do not carry insurance. Any imposition of liability could severely harm our business.
Our shareholders may not be able to enforce U.S. civil liabilities claims.
Our assets are located outside the United States and all of our directors and officers are located outside the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. In addition, a shareholder should not assume that the courts in any other country (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or other laws of the United States.
RISKS RELATING TO OUR COMMON STOCK
Trading On The OTC Bulletin Board May Be Volatile And Sporadic, Which Could Depress The Market Price Of Our Common Stock And Make It Difficult For Our Stockholders To Resell Their Shares.
Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of their shares.
Our Stock Is A Penny Stock. Trading Of Our Stock May Be Restricted By The SEC’s Penny Stock Regulations And FINRA’s Sales Practice Requirements, Which May Limit A Stockholder’s Ability To Buy And Sell Our Stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive
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the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The Financial Industry Regulatory Authority’ requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Principal Business Office
Our principal business office is located at 6130 Elton Avenue, # 338, Las Vegas, NV, 89107. Our resident agent office is located at Suite 200, 245 East Liberty Street, Reno, Nevada, 89501.
We conduct our business in the office of a company controlled by a shareholder. There has been no charge for this use. If there was a charge, it would be insignificant.
There are currently no proposed programs for the renovation, improvement or development of the facilities that we currently use. We believe that this arrangement is suitable given the nature of our current operations, and we also believe that we will not need to lease additional administrative offices in the immediate future.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Amendments to Articles of Incorporation
Effective February 17, 2009, we effected a five (5) for one (1) forward stock split of our authorized and issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 shares of common stock with a par value of $0.001 to 375,000,000 shares of common stock with a par value of $0.001 and our issued and outstanding shares increased from 3,050,000 shares of common stock to 15,250,000 shares of common stock.
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Effective April 16, 2009, we effected a two (2) for one (1) forward stock split of our authorized and issued and outstanding common stock. As a result, our authorized capital increased from 375,000,000 shares of common stock with a par value of $0.001 to 750,000,000 shares of common stock with a par value of $0.001 and our issued and outstanding shares increased from 15,250,000 shares of common stock to 30,500,000 shares of common stock.
Effective September 17, 2009, we filed a Certificate of Amendment with the Secretary of State of Nevada for the creation of 750,000,000 shares of preferred stock, par value of $0.001, for which the directors of the company may fix and determine the designations, rights preferences or other variations of each class or series within each class of preferred stock of the company.
Our board of directors approved the amendment to our articles of incorporation and stockholders representing a majority of the outstanding shares of our corporation gave us their written consent to the amendment to our Articles of Incorporation on July 23, 2009.
On November 2, 2009, the Company filed a Certificate of Designation that pursuant to the authority granted to and vested in the Board in accordance with the provisions of the Certificate of Incorporation, as amended and restated, created a Series A Preferred Stock, $0.001 par value, with a maximum of 20,000,000 shares authorized of the 750,000,000 Preferred Shares Authorized, which series shall have certain designations and number thereof, powers, preferences, rights, qualifications, limitations and restrictions, in particular, it shall have the following voting rights:
Each share of Series A Preferred Stock shall entitle the holder to One Hundred (100) votes for each share of Series A Preferred Stock. In any vote or action of the holders of the Series A Preferred Stock voting together as a separate class required by law, each share of issued and outstanding Series A Preferred Stock shall entitle the holder thereof to One Hundred (100) votes per share. The holders of Series A Preferred Stock shall vote together with the shares of Common Stock as one class. The holders of the Series A Preferred Stock shall share ratably, with the holders of common stock, in any dividends that may, from time to time be declared by the board of directors. Series A Preferred Stock are not convertible into common stock. The holders of the Series A Preferred Stock shall rank equally with the holders of common stock in respect of all rights in liquidation, dissolution or winding up with all of said assets being distributed among the holders of the Series A Preferred Stock and other classes of stock ranking equally with the Series A Preferred Stock.
On October 14, 2010, we effected a three hundred (300) to one (1) reverse stock split of our authorized and issued and outstanding common and preferred stock. As a result, our authorized capital decreased from 750,000,000 shares of common and preferred stock with a par value of $0.001 to 2,500,000 shares of common and preferred stock with a par value of $0.001. Our issued and outstanding shares of common stock decreased from 45,394,260 shares of common stock to 151,314 shares of common stock. Our issued and outstanding shares of preferred stock decreased from 800,000 shares of preferred stock to 2,668 shares of preferred stock.
On November 10, 2010, we increased our authorized capital of our common stock to 100,000,000 and preferred stock to 100,000,000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON EQUITY
Market Information
We have been listed on the OTC Bulletin Board under the symbol “QPRJ” since April 23, 2009. The following table sets forth the high and low bid price per share of our common stock for the periods presented.
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| Quarter Ended | High | Low |
| February 28, 2010 | 0.18 | 0.033 |
| May 31, 2010 | 0.065 | 0.01 |
| August 31, 2010 | 0.06 | - |
| November 30, 2010 | 0.15 | 0.005 |
Stockholders of Our Common Shares
As of November 30, 2010, we had 11,818,046 shares of our common stock outstanding and 710,890 shares of our Series A Preferred Stock outstanding.
Our common shares are issued in registered form. The registrar and transfer agent for our shares of common stock is Quicksilver Stock Transfer, with an address of 6623 Las Vegas Boulevard, South Street, 255, Las Vegas Nevada, 89119, Telephone: 702-629-1883, Facsimile: 702-562-9791.
Dividend Policy
We have not declared or paid any cash dividends on our common stock or other securities and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
We issued the following common shares in settlement of our debts to a consultant and designated parties for services rendered and payments made on our behalf and on behalf of Energy Systems. The quantity of common shares issued was determined based on the closing price of our shares on the dates mentioned below. The shares issued have been adjusted for the 300 to 1 reverse stock split effective October 14, 2010.
| Date of Issuance | Debt incurred to: | Amount | Common Shares Issued | Preferred Shares Issued |
| 2009 | ||||
| November 5, 2009 | September 1, 2009 | $ 249,000 | 2,964 | - |
| November 23, 2009 | October 31, 2009 | 152,143 | 2,048 | 1,334 |
| December 4, 2009 | November 30, 2010 | 265,000 | 8,833 | - |
| 2010 | ||||
| November 17, 2010 | October 31, 2010 | $ 763,740 | 11,666,666 | 708,222 |
| Total | $ 1,429,883 | 15,820,226 | 709,556 |
Other Share Issuances:
On November 3, 2009, our President was awarded 453 shares of common stock valued at $ 38,000 and 1,334 shares of Series A Preferred Stock, valued at approximately $2,800,000 as compensation for services rendered to our company. These shares were issued to settle compensation to our President. The above noted shares have been adjusted to reflect the reverse split affected October 14, 2010.On October 23, 2009, we entered into a consulting agreement with Paradigm Capital Corporation of Taiwan, for corporate and marketing consulting in Asia. The agreement is effective October 23, 2009 and expires January 31, 2010 with an option at our discretion to extend the term until May 31, 2010. On January 27, 2010, the consulting agreement was extended to May 31, 2010. We issued 1,750 common shares to Paradigm Capital Corp and its appointed nominees for consulting services for the period October 23, 2009 till January 31, 2010.
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We issued an additional 16,667 common shares for consulting services for the period February 1, 2010 till May 31, 2010.
On October 28, 2009, we entered into a consulting agreement with Alpha International Marketing Corp. of Chile, for corporate and marketing consulting in Asia, North America, South America and the Caribbean. The agreement is effective October 28, 2009 and expires January 31, 2010 with an option at our discretion to extend the term until May 31, 2010. On January 27, 2010, the consulting agreement was extended to May 31, 2010. We issued 1,783 common shares to Alpha International Marketing Corp and its appointed nominees for consulting services for the period October 23, 2009 till January 31, 2010.We issued an additional 15,150 common shares for consulting services for the period February 1, 2010 till May 31, 2010.
The offer and sale of the shares were exempt from registration pursuant to section 4(2) of the Securities Act, Rule 701 and Rule 506 of Regulation D promulgated there under. We believe that these sales were also exempt under Regulation S under the Securities Act, as such sales were made in offshore transactions to non-U.S. persons.
Equity Compensation Plan Information
Except as disclosed below, we do not have a stock option plan in favor of any director, officer, consultant or employee of our company.
Stock Option Grants
On September 23, 2009, our Board of Directors adopted a stock option plan (the “2009 Stock Option Plan”). The 2009 Stock Option Plan provides for the issuance of up to 13,334 shares to assist us in retaining those officers, employees, consultants or directors whose services would contribute to our success. As of November 30, 2010 there were no options granted.
There are no outstanding options or warrants to purchase, or securities convertible into shares or equity compensation plans. Our issued and outstanding shares could be sold at the appropriate time pursuant to Rule 144 of the Securities Act.
Securities Authorized For Issuance Under Equity Compensation Plans
On November 3, 2009, our company president was awarded 453 shares of common stock and 1,334 shares of Series A Preferred Stock as compensation for services rendered to our company.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our fourth quarter of our fiscal year ended November 30, 2010.
ITEM 6. SELECTED CONSOLIDATED 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.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our next Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
The following discussion should be read in conjunction with our financial statements and the related notes included herein. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this report, particularly in the section entitled “Risk Factors”.
Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
OVERVIEW.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The application of GAAP involves the exercise of varying degrees of judgment. The resulting accounting estimates will not always precisely equal the related actual results. Management considers an accounting estimate to be critical if:
- assumptions are required to be made; and
- changes in estimates could have a material effect on our financial statements.
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We have determined that the calculation of the fair value of equity securities issued, specifically Series A Preferred Shares issued for services rendered by our President and also issued to settle debt incurred, meet those criteria of a significant estimate. We issued common and preferred shares in settlement of or debts to an affiliate and designated parties for services rendered and payments made on our behalf and on the behalf of Energy Systems. The quantity of common shares issued was determined based on the price of our shares on the date of settlement.
Cash Requirements
Over the next twelve months we intend to use any funds that we may have available to fund our operations.
Not accounting for our working capital deficiency of $ 194,552 as of November 30, 2010, we require additional funds of approximately $ 740,000 at a minimum to proceed with our plan of operation over the next twelve months. As we do not have the funds necessary to cover our projected operating expenses for the next twelve month period, we will be required to raise additional funds through the issuance of equity securities, through loans or through debt financing. There can be no assurance that we will be successful in raising the required capital or that actual cash requirements will not exceed our estimates. We intend to fulfill any additional cash requirement through the sale of our equity securities.
Our auditors have issued a going concern opinion for our year ended November 30, 2010. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. As we had cash in the amount of $2,048 and a working capital deficiency in the amount of $ 194,552 as of November 30, 2010, we do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months. We plan to complete debt financings and/or private placement sales of our common stock in order to raise the funds necessary to pursue our plan of operation and to fund our working capital deficit in order to enable us to pay our accounts payable and accrued liabilities. We currently do not have any arrangements in place for the completion of any debt financings or private placement financings and there is no assurance that we will be successful in completing any debt financing or private placement financing.
Purchase of Significant Equipment
We do not intend to purchase any significant equipment over the twelve months ending November 30, 2011.
Research and Development
We do not intend to allocate any funds to research and development over the twelve months ending November 30, 2011.
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
From November 30, 2007 until April 2009, our operations were that of distribution of alternative health products. Upon further market research, it was determined that pursuing the marketing and sale of such product was not as profitable as previously projected. Therefore, all efforts relating to the distribution and marketing were ceased. In April 2009, we commenced operations relating to the distribution of the QES System which convert a variety of waste materials to marketable by-products. It is our intention to market the QES System to parties interested in establishing joint ventures and establishing waste conversion operations.
Our expenses are expected to vary and we cannot determine trends in our expenditures given our lack of operating history.
The following is an analysis of our revenues and gross profit, details and analysis of components of expenses, and variances from November 30, 2010 to November 30, 2009.
| Year Ended | ||
| November 30 | ||
| 2010 | 2009 | |
| Other income - sale of demonstration unit | $ 60,000 | $ Nil |
| Other expense - cost of demonstration unit | $ 60,000 | $ Nil |
| Selling and Administrative Expenses | $ 1,442,009 | $ 5,121,979 |
| Net Loss from Operations | $ (1,442,004) | $ (5,121,979) |
Other income - Sale of Demonstration Unit
As of November 30, 2010, we generated $ 60,000 in other income from the Fanta Marketing Agreement. A Utility Unit was constructed for Fanta for a purchase price of $ 420,000 against which we allowed a $ 360,000 credit for the marketing services to be performed by Fanta. The Utility Unit was therefore sold at cost and the profit on this sale was nil.
Fanta is obligated to fulfill its performance quota for year 1 and has further obligations to purchase an additional three QES Systems in year 2 as per the Fanta Agreement. Fanta has failed to meet these obligations and all agreements with Fanta have been terminated.
Expenses
Our expenses for the fiscal year ended November 30, 2010 and 2009 are as follows:
| November 30 | ||
| 2010 | 2009 | |
| Consultation Fees | $ 1,304,900 | $ 516,900 |
| Professional Fees | 91,295 | 84,212 |
| Excess cost of stock issued to settle debt obligation | 26,180 | 1,440,000 |
| Investor Relations Expense | 15,000 | 50,000 |
| Stock Compensation Expense | - | 2,838,000 |
| Finders Fee | - | 150,000 |
| Other | 4,629 | 42,867 |
| $ 1,442,004 | $ 5,121,979 | |
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For the year ended November 30, 2010, our total operating expenses were $ 1,442,000 as compared to $ 5,121,979 for the year ended November 30, 2009. The decrease in operating expenses is primarily due to the absence of stock compensation expense, excess cost to settle debt obligation, and finders’ fees.
We expect to continue to increase our business activities and we expect our total operating expenses, excluding stock-based compensation, to continue to rise over the coming twelve months.
Consulting Fees
On June 15, 2009, Energy Systems entered into a Consulting Agreement with Magnum (“Magnum Agreement”) whereas Magnum will provide consulting services relating to accounting and corporate governance, assistance in compliance with international and domestic financing, domestic and international taxation, federal and state securities laws, and secondary securities trading, assistance with business acquisitions and dispositions and matters of general and special law. The term of the agreement is for five years with an effective commencement date of June 15, 2009. In consideration of services performed by Magnum, Energy Systems shall pay the monthly fee of $ 60,000 with a 5% increment per year. At Magnum’s discretion, the monthly fee or portion thereof, may be settled by the issuance of stock. On August 31, 2009, Energy Systems entered into an amended agreement with Magnum extending the terms of the Magnum Agreement to 15 years commencing August 31, 2009. Please refer to Exhibit 10.7.
As of November 30, 2010, we incurred consulting fees totaling $ 1,304,900 of which $ 720,000 relates to our agreement with Magnum, $ 530,000 relates to our agreement with Paradigm and Alpha and $ 40,000 relates to fees paid to technical staff, and a further $ 14,900 was incurred for other consultations expenses detailed as follows:
A total of $ 720,000 relates to our consulting agreement with Magnum as mentioned above for the period from December 1, 2009 through November 30, 2010 for accounting and corporate governance, assistance in compliance with international and domestic financing, domestic, international taxation, Federal and state securities laws, and secondary securities trading, assistance with business acquisitions and dispositions and matters of general and special law.
A total of $ 530,000 was incurred for consulting fees per our consulting agreements with Paradigm and Alpha. The fees for these contracts have been paid through the issuance of restricted common shares, a practice that we intend to continue. The expense stemming from the initial period of those contracts covering October 31, 2009 to January 31, 2010 was $ 291,500. The expense stemming from the renewal of those contracts, effective through May 31, 2010, was $ 238,500 of which $ 126,000 relates to the Paradigm agreement and $ 112,500 relates to the Alpha agreement.
On October 23, 2009, we entered into a consulting agreement with Paradigm, for corporate and marketing consulting in Asia. Pursuant to the terms of the agreement Paradigm agreed to provide assistance on corporate structure and specific projects, including and relating to marketing, road show presentations and related matters. The agreement is effective October 23, 2009 and expires January 31, 2010 with an option at our discretion to extend the term until May 31, 2010.On January 27, 2010, the consulting agreement with Paradigm was extended to May 31, 2010. The Paradigm agreement was not renewed subsequent to May 31, 2010.
Consideration for the services of Paradigm was $56,000 per month or a total of $168,000 for the full term until January 31, 2010. The total consideration paid to Paradigm was the issuance of 1,750 restricted common shares upon signing of the agreement. The Paradigm Agreement was extended under the same terms with consideration for services rendered until May 31, 2010 to be $ 168,000. The total consideration was paid by issuance of 16,667 restricted common shares.
On October 28, 2009, we entered into a consulting agreement with Alpha, for corporate and marketing consulting in Asia, North America, South America and the Caribbean to provide assistance on corporate structure and specific projects, including and relating to marketing, road show presentations and related matters. The agreement is effective October 28, 2009 and expires January 31, 2010 with an option at our discretion to
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extend the term until May 31, 2010. On January 27, 2010, the consulting agreement with Alpha was extended to May 31, 2010.The Alpha agreement was not renewed subsequent to May 31, 2010.
Consideration for the services of Alpha is $50,000 per month or a total of $150,000 for the full term until January 31, 2010. The total consideration to Alpha was the issuance of 1,783 common shares upon signing of the agreement. The Alpha agreement was extended under the same terms with consideration for services rendered until May 31, 2010 to be $ 150,000. The total consideration was paid by issuance of 15,150 restricted common shares.
We have engaged the inventor of the Acquired Technology and a supporting technical team to construct QES Systems. We have a labor contract with the inventor. The term is for a period of 5 years commencing July 1, 2009. The inventor is entitled to a monthly consulting fee in addition to a commission on sales of the QES Systems in China and Taiwan. As of November 30, 2010, we incurred $ 40,000 in such consulting fees.
We incurred $ 516,900 in professional fees as of November 30, 2009. The increase of $ 788,000 is attributable to the share issuance for payment of consulting services to Paradigm and Alpha and the full year effect of Quadra Energy Systems contract with Magnum.
Professional Fees
We incurred a total of $ 91,295 in professional fees of which $ 23,550 relates to audit and review fees, $ 9,000 relates to bookkeeping fees and the remainder of $ 58,745 relates to legal fees consisting mostly of preparation of SEC filings. Our audit and legal fees are expected to vary.
Excess cost to settle debt obligation
As of November 30, 2010, we incurred an additional $ 26,180 in excess cost to settle our debt obligations to a consultant. The Company issued a total of 11,666,666 shares of common stock and 708,222 shares of preferred stock to our consultant and appointed nominees to settle debt of $ 763,740 incurred through October 31, 2010.
As of November 30, 2009, we incurred an additional $ 1,440,000 in excess cost to settle our debt obligations to a consultant. Common stock and Series A Preferred Stock, with a value of $ 2,990,143 were issued to settle debt due to affiliate totaling $ 152,143.
Investor Relations
As of November 30, 2010, we incurred $ 15,000 in investor relations fees. We have not retained the services of any these consultants. We cannot determine if we will retain any investor relations consultants.
Stock Compensation Expense
On November 3, 2009, our President was awarded 453 shares of common stock valued at $ 38,000 and 1,334 shares of Series A Preferred Stock, valued at approximately $2,800,000 as compensation for services rendered to our company. These shares were issued to settle compensation to our President. The shares issued have been adjusted for the 300 to 1 reverse stock split.
Finders Fee
As of November 30, 2009, we incurred $150,000 in finders’ fees pursuant to our Finders Fee Agreement with Magnum dated January 5, 2009 and as amended on August 31, 2009. The finders’ fee relates to technology acquired under the Technology Purchase Agreement signed with Quadra Marketing. Please refer to Exhibit 10.11.
On April 30, 2009, we entered into an addendum to the Finders Fee Agreement with Magnum dated January 5, 2009. The addendum states that Magnum had sourced the Acquired Technologies initially to Quadra Marketing
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on April 1, 2009 and subsequently to Energy Systems under the terms of the Technology Purchase Agreement dated April 30, 2009. Magnum shall source financing on a best efforts basis for the construction of the QES Systems and market the QES Systems on a worldwide basis under our direction as well as the direction of Energy Systems.
The finder’s fee of $ 150,000 was paid on December 4, 2009 in combination with various amounts owing to Magnum by issuance of common and preferred shares. As per our amended agreement with Magnum entered into on August 31, 2009, Magnum will receive consideration Ten Per Cent (10%) of all the gross proceeds received by us or Energy Systems resulting from direct sales, joint ventures and/or from plants operated by us or Energy Systems for the QES System and ancillary equipment, and enhancements. In addition, 5% of gross proceeds from investors acquiring private placements, or investments shall be remitted to Magnum.
The Finders Fee Agreement is for a term of 20 years commencing August 31, 2009. The original Finder’s Fee Agreement dated January 5, 2009 and the addendum signed on April 30, 2009 and the amendment to the Finders Fee Agreement dated August 31, 2009.
Current trends in the industry
To the best of management’s knowledge, there are many pyrolosis systems competing in the same target market as the QES System. As we have commenced operations relating to the QES System in April 2009, at this time it is difficult to assess trends in the industry which may affect the results of our operations at this time due to the lack of operating history and experience in the industry.
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