U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2006
Commission File Number: 000-51564
NORTHERN ETHANOL, INC
---------------------
(Exact name of small business issuer as specified in its charter)
Delaware
--------
State or other jurisdiction
of incorporation)
34-2033194
(IRS Employer ID No.)
---------------------
193 King Street East
Suite 300
Toronto, Ontario, M5A 1J5, Canada
---------------------------------
(Address of principal executive offices)
(416) 366-5511
(Issuer's Telephone Number)
---------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
X No .
- ----- -----
The number of shares of the registrant's only class of common stock issued and
outstanding as of November 20, 2006, was 104,971,500 shares.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes X No
----- -----
PART I
ITEM 1. FINANCIAL STATEMENTS
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
TABLE OF CONTENTS
Page
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Consolidated Balance Sheet F-1
Consolidated Statements of Operations F-2
Consolidated Statement of Changes in Stockholders' Equity F-3
Consolidated Statements of Cash Flows F-4
Notes to Unaudited Consolidated Interim Financial Statements F-5 to F-13
2
- --------------------------------------------------------------------------------
Northern Ethanol, Inc.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
Consolidated Balance Sheets
As at: September 30, 2006 December 31, 2005
(Unaudited)
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,386,322 $ 13,390
Accounts receivable 53,073 --
Deposits 951,602 --
Prepaid expenses 407,841 10,250
------------ ------------
Total current assets 2,798,838 23,640
Property and equipment (note 3) 305,966 --
Assets under capital lease (note 7) 16,761,565 --
------------ ------------
$ 19,866,369 $ 23,640
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 103,821 $ 2,000
Accrued expenses 75,000 3,098
Current portion of obligation under capital lease (note 7) 17,385 --
------------ ------------
Total current liabilities 196,206 5,098
Obligation under capital lease (note 7) 16,744,180 --
------------ ------------
16,940,386 5,098
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 100,000,000 shares
authorized; none issued and outstanding (note 6) -- --
Common stock, $.0001 par value; 250,000,000 shares
authorized;
100,700,000 and 101,500,000 shares issued and
outstanding as of September 30, 2006 and December 31
2005, respectively (note 6) 10,070 10,150
Additional paid-in capital 5,163,429 39,865
Deficit accumulated during the development stage (2,234,967) (31,473)
Accumulated other comprehensive income (loss) (12,549) --
------------ ------------
2,925,983 18,542
------------ ------------
$ 19,866,369 $ 23,640
============ ============
See notes to unaudited consolidated interim financial statements
F-1
3
- --------------------------------------------------------------------------------
Northern Ethanol, Inc.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
Consolidated Statements of Operations
(Unaudited)
- --------------------------------------------------------------------------------
Nov 29, 2004
Three Months ended Nine Months ended (Inception) to
September 30 September 30 September 30
2006 2005 2006 2005 2006
REVENUES $ -- $ -- $ -- $ -- $ --
COST OF GOODS SOLD -- -- -- -- --
------------- ------------- ------------- ------------- -------------
GROSS MARGIN -- -- -- -- --
OPERATING EXPENSES
Salaries and benefits (note 5) 784,626 -- 1,539,978 -- 1,539,978
General and administrative 427,964 14,745 589,822 20,024 621,295
Occupancy costs 46,779 -- 60,684 -- 60,684
Depreciation 7,723 -- 13,010 -- 13,010
------------- ------------- ------------- ------------- -------------
1,267,092 14,745 2,203,494 20,024 2,234,967
------------- ------------- ------------- ------------- -------------
NET LOSS $ (1,267,092) $ (14,745) $ (2,203,494) $ (20,024) $ (2,234,967)
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.00) $ (0.02) $ (0.00)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 103,441,761 101,500,000 101,760,081 101,500,000
============= ============= ============= =============
See notes to unaudited consolidated interim financial statements
F-2
4
- --------------------------------------------------------------------------------
Northern Ethanol, Inc.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
Consolidated Statement of Stockholders' Equity
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months ended September 30, 2006 and September 30, 2005
Accumulated
Common Stock Additional Other
---------------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Gain (Loss) Total
----------- ------------- ---------- ----------- ------------- -------------
Inception, November 29, 2004 101,500,000 $ 10,150 $ 39,865 $ -- $ -- $ 50,015
Stock issued for cash
Net loss for the period
November 29, 2004 (inception)
to December 30, 2004 -- -- -- (3,708) -- (3,708)
----------- ------------- ---------- ----------- ------------- -------------
Balances, December 31, 2004 101,500,000 $ 10,150 $ 39,865 $ (3,708) $ -- $ 46,307
Net loss for the nine months
ended September 30, 2005 -- -- -- (20,024) -- (20,024)
----------- ------------- ---------- ----------- ------------- -------------
Balances, September 30, 2005 101,500,000 $ 10,150 $ 39,865 $ (23,732) $ -- $ 26,283
=========== ============= ========== =========== ============= =============
Balances, December 31, 2005 101,500,000 $ 10,150 $ 39,865 $ (31,473) $ -- $ 18,542
Shares cancelled (note 6) (800,000) (80) 80 -- -- --
Options issued for services -- -- 1,276,984 -- -- 1,276,984
Proceeds of sales under
unit subscription -- -- 3,846,500 -- -- 3,846,500
agreements, net of fees
Cumulative translation
adjustment -- -- -- -- (12,549) (12,549)
Net loss for the nine months
ended September 30, 2006 -- -- -- (2,203,494) -- (2,203,494)
----------- ------------- ---------- ----------- ------------- -------------
Balances, September 30, 2006 100,700,000 $ 10,070 $4,962,798 (2,234,967) $ (12,549) 2,925,983
=========== ============= ========== =========== ============= =============
See notes to unaudited consolidated interim financial statements
F-3
5
- --------------------------------------------------------------------------------
Northern Ethanol, Inc.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
Statements of Consolidated Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
Nov 29, 2004
Three Months ended Nine Months ended (Inception) to
September 30 September 30 September 30
2006 2005 2006 2005 2006
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net loss $ (1,267,092) $ (14,745) $ (2,203,494) $ (20,024) $ (2,234,967)
Items not involving cash:
Depreciation 7,723 -- 13,010 -- 13,010
Stock-based compensation 619,605 -- 1,276,984 -- 1,276,984
Changes in non-cash working capital
balances:
Accounts receivable (19,414) -- (53,073) -- (53,073)
Deposits (201,602) -- (951,602) -- (951,602)
Prepaid expenses (133,911) 4,500 (397,591) 9,141 (397,591)
Accounts payable 31,487 2,000 101,821 2,000 103,821
Accrued liabilities 68,302 8,245 71,902 8,151 75,000
Other (8,077) -- (12,549) -- (22,799)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
operating activities (902,979) -- (2,154,592) (732) (2,191,217)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common -- -- -- -- 50,015
stock
Unit subscriptions, received in 2,346,500 -- 3,846,500 -- 3,846,500
advance, (net of costs)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by 2,346,500 -- 3,846,500 -- 3,896,515
financing activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of capital assets (158,678) -- (318,976) -- (318,976)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (158,678) -- (318,976) -- (318,976)
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 1,284,843 -- 1,372,932 (732) 1,386,322
CASH AND CASH EQUIVALENTS:
Beginning of period 101,479 36,783 13,390 37,315 --
------------ ------------ ------------ ------------ ------------
End of period $ 1,386,322 $ 36,783 $ 1,386,322 $ 36,783 $ 1,386,322
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Assets acquired under capital $ 16,761,565 -- $ 16,761,565 -- $ 16,761,565
lease
Cash paid for income taxes -- -- -- -- 353
See notes to unaudited consolidated interim financial statements
F-4
6
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND OPERATIONS
Beaconsfield I, Inc. (the "Company"), located in Toronto, Ontario, was
incorporated in Delaware on November 29, 2004 for the purpose of engaging
in the potential future merger or acquisition of an unidentified target
business. Since its inception, the Company's operations have primarily
included raising capital and the performance of certain administrative
functions.
On December 15, 2004, the Company issued 150,000 shares of its common stock
for a total of $15 in cash in accordance with a Stock Purchase Agreement.
Additionally on that date, the Company issued 10,000,000 shares
(pre-forward split) of its common stock, for a total of $50,000 in cash.
On April 6, 2006, the Company incorporated Northern Ethanol, Inc., a 100%
owned subsidiary under the laws of the State of Delaware. Effective May 3,
2006, the Company merged with this subsidiary, and was the surviving
entity. As permitted by Delaware law, the Company has adopted Northern
Ethanol, Inc. as its corporate name on May 3, 2006. On April 11, 2006, the
Company incorporated two 100% owned Canadian subsidiaries, Northern Ethanol
(Canada) Inc. and Northern Ethanol (Barrie) Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying interim financials statements of the Company as of
September 30, 2006, for the three-month and nine-month periods ended
September 30, 2006 and 2005 and for the period from November 29, 2004
(Inception) to September 30, 2006 have been prepared in accordance with
accounting principles generally accepted for interim financial statement
presentation and in accordance with the rules and regulations of the United
States Securities and Exchange Commission for small business users.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
of America for complete financial statement presentation. In the opinion of
management, all adjustments necessary for a fair statement of the results
of operations and financial position for the interim period presented have
been included. All such adjustments are of a normal recurring nature. The
results of operations for the interim periods are not necessarily
indicative of the results to be expected for a full year. This financial
information should be read in conjunction with the financial statements and
notes included in the Company's Form 10-KSB for the year ended December 31,
2005.
Basis of preparation
These unaudited interim consolidated financial statements have been
prepared on a going concern basis, which assumes that the Company will
continue in operation for the foreseeable future and accordingly will be
able to realize its assets and discharge its liabilities in the normal
course of operations. Since the beginning of 2006, the Company has
concentrated on activities that will enable it to acquire facilities to
produce ethanol. It has no net earnings, minimal revenue and negative
operating cash flows, and has financed its activities through the issuance
of shares and capital lease arrangements. The Company's ability to continue
as a going concern is dependent on obtaining additional investment capital
and the achievement of profitable operations. There can be no assurance
that the Company will be successful in increasing revenue or raising
additional investment capital to generate sufficient cash flows to continue
as a going concern. These unaudited interim consolidated financial
statements do not reflect the adjustments that might be necessary to the
carrying amount of reported assets, liabilities and revenue and expenses
and the balance sheet classification used if the Company were unable to
continue operation in accordance with this assumption.
Certain items in the comparative statements have been reclassified to be
consistent with the presentation in the current year.
F-5
7
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and cash equivalents - The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Property and equipment - Computer and furniture and equipment are recorded
at cost and depreciated on a straight-line basis over their useful life.
Leasehold improvements are capitalized at cost and amortized on a straight
line basis over the shorter of the term of the lease and the estimated
useful life.
Depreciation and amortization commences at the time when the assets are
available for use in operations.
Leases - The Company follows the guidance in SFAS No. 13 "Accounting for
Leases", as amended, which requires the Company to evaluate the lease
agreements it enters into to determine whether they represent operating or
capital leases at the inception of the lease.
Assets under capital leases - The fair value of the land acquired at the
Barrie site is less than 25% of the fair value of the leased property and
was therefore considered with the building as one lease when determining
that the lease should be classified as a capital lease. The assets acquired
at the Barrie site cannot currently be used to carry out the business of
the Company without extensive renovation and construction activities. As
such, management considers that the assets are not available for their
intended use. Specifically, management expects to make substantial
renovations to portions of the existing building to provide the space
needed to construct an ethanol processing facility. The portion of the
building that will eventually serve as the administrative offices requires
extensive renovation in order to bring it up to standard for occupation.
Management's initial examination of the infrastructure items has indicated
that substantial additional expenditures will be required to ensure that
rail lines are serviceable, and in correct locations, and that the gas and
water lines can be expanded to provide the required capacity for the plant
operations. Before commencing demolition and construction activities, the
Company will use the findings of an engineering study that will be
performed, with detailed recommendations on the usefulness of individual
assets. The Company will write-off any portion of the buildings that may be
demolished. The Company will not capitalize costs to assets under capital
leases beyond what is recoverable from operations. Depreciation of capital
assets will commence once they are determined to be available for their
intended use. The assets will be depreciated over the lesser of their
useful life or the remaining lease term.
Impairment of long-lived assets - Long-lived assets are reviewed for
impairment at least annually or whenever events or changes in circumstance
indicate that the carrying amount of the asset may not be recoverable.
Recoverability is measured by a comparison of the carrying amount of an
asset to estimated undiscounted cash flows expected to be generated by the
long-lived asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized for the amount that
the carrying amount exceeds the fair value of the particular assets.
Stock-based compensation - Effective January 1, 2006, the Company adopted
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standard (SFAS) No. 123R, "Share Based Payment". SFAS 123R
requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award. That cost is recognized on a straight-line basis over
the employee service period (usually the vesting period). That cost is
measured based on the fair value of the equity or liability instruments
issued using the Black-Scholes option pricing model.
F-6
8
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation - The Company has determined that the
functional currency of its Canadian subsidiaries is the Canadian dollar.
All transactions initiated in Canadian dollars are translated into U.S.
dollars in accordance with SFAS No. 52 "Foreign Currency Translation" as
follows:
(i) Assets and liabilities at the rate of exchange in effect at the
balance sheet date; and
(ii) Revenue and expense items at the average rate of exchange prevailing
during the period
Adjustments arising from such translations are deferred until realization
and are included as a separate component of stockholders' equity
(deficiency) as a component of comprehensive income or loss. Therefore,
translation adjustments are not included in determining net income (loss)
but are reported as a component of other comprehensive income (loss).
The Company translates foreign currency transactions into the Company's
functional currency at the exchange rate effective on the invoice date. If
the exchange rate changes between the time of purchase and the time actual
payment is made, a foreign exchange transaction gain or loss results which
is included in determining net income for the period.
Income taxes - Deferred income tax assets and liabilities are recognized
for the estimated future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and are measured
using enacted tax rates expected to apply in the years in which those
temporary differences are expected to be recovered or settled. A valuation
allowance is provided when it is more likely than not that the full benefit
of the deferred tax assets will not be realized.
Use of estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the reported amounts of
revenues and expenses and the disclosure of contingent liabilities. Actual
results may differ from these estimates.
Earnings (loss) per common share - The Company computes net loss per common
share using SFAS No. 128 "Earnings Per Share." Basic loss per common share
is computed based on the weighted average number of shares outstanding for
the period. Diluted loss per share is computed by dividing net loss by the
weighted average common shares outstanding assuming all dilutive potential
common shares were issued.
Fair value of financial instruments - The carrying value of cash and cash
equivalents, other current assets, accrued expenses and accounts payable
approximates fair value due to the short period of time to maturity. The
carrying value of the obligation under capital lease approximates fair
value as the discount rate of 12% in the capital lease approximates current
market rates of interest available to the Company for the same or similar
debt instruments.
F-7
9
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
---------------------------------------------------------------------------
Accumulated Net book
September 30, 2006 Cost depreciation value
---------------------------------------------------------------------------
Computer equipment and software $ 33,806 $ 5,185 $ 28,621
Furniture and equipment 131,351 6,098 125,253
Leasehold improvements 153,819 1,727 152,092
-----------------------------------------
$ 318,976 $ 13,010 $ 305,966
---------------------------------------------------------------------------
Accumulated Net book
December 31, 2005 Cost depreciation value
---------------------------------------------------------------------------
Computer equipment and software $ - $ - $ -
Furniture and equipment - - -
Leasehold improvements - - -
-----------------------------------------
$ - $ - $ -
---------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2006, the Company repaid $2,000
to Corsair Advisors, Inc., an entity owned by a stockholder, for advances
it had made on behalf of the Company prior to December 31, 2005.
Additionally, the Company utilized the office space and equipment of a
stockholder at no cost, until April 2006, when the Company entered into a
lease for office space, as further discussed in note 7. During April 2006,
the Company, through a Canadian subsidiary, entered into the Barrie lease
for property to be used as an ethanol processing facility, as further
discussed in note 7. These leases were entered into with an entity
affiliated with a stockholder of the Company.
F-8
10
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. STOCK OPTIONS
On April 4, 2006, the Company approved the 2006 Stock Plan (the "Plan") and
reserved 8,000,000 shares of Common Stock for issuance under the Plan.
On April 12, 2006, pursuant to an employment agreement, the Company granted
options to purchase an aggregate of 2,000,000 shares of the Company's
common stock at an exercise price equal to $1.00, to its Chief Executive
Officer. The options will vest in equal amounts each quarter over the next
two years from the date of grant. The options expire five years following
the date of grant.
On April 21, 2006, pursuant to an employment agreement, the Company granted
options to purchase an aggregate of 500,000 shares of the Company's common
stock at an exercise price equal to $1.00, to its Chief Financial Officer.
The options were to vest in equal amounts each quarter over the next two
years from the date of grant. The options were to expire five years
following the date of grant. These options were forfeited with the
resignation of the Chief Financial Officer (note 9).
On May 1, 2006 and on June 8, 2006, the Company granted options to purchase
an aggregate of 224,000 shares of the Company's common stock at an exercise
price equal to $1.00, to certain new employees. The options will vest in
equal amounts each quarter over the next two years from the date of grant.
The options expire five years following the date of grant.
On July 15, 2006, pursuant to an employment agreement, the Company granted
options to purchase an aggregate of 300,000 shares of the Company's common
stock at an exercise price equal to $1.00, to its Chief Operating Officer.
The options will vest in equal amounts each quarter over the next three
years from the date of grant. The options expire five years following the
date of grant.
On September 8, 2006, the Company granted options to purchase an aggregate
of 275,000 shares of the Company's common stock at an exercise price equal
to $1.00, to the non-salaried Directors of the Company. The options vested
immediately at the date of grant. The options expire five years following
the date of grant. Also on September 8, 2006, pursuant to a consulting
agreement, the Company granted options to purchase an aggregate of 200,000
shares of the Company's common stock at an exercise price equal to $1.00,
to a Director. The options will vest at a rate of 50,000 shares in equal
amounts each quarter over the first year from the date of grant, 50,000
shares in equal amounts each quarter over the second year from the date of
grant and 100,000 shares in equal amounts each quarter over the third year
from the date of grant. The options expire five years following the date of
grant.
The fair value of each option granted was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions:
----------------------------------------------------------------
2006
----------------------------------------------------------------
Risk-free interest rate 5.1 - 5.2%
Volatility factor of the future expected market price 86.6%
of the Company's common shares
Weighted average expected life in years 5.0
Expected dividends None
----------------------------------------------------------------
- ---------------------------------------------------------- -------------
F-9
11
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. STOCK OPTIONS (continued)
A total of 3,474,000 options were granted during the nine month period
ended September 30, 2006 and are outstanding at September 30, 2006. The
fair value of the options granted as determined above was $2,234,879, of
which $1,583,738 will be expensed in fiscal 2006. Of this amount, $619,605
and $1,276,984 was expensed during the three and nine month periods ended
September 30, 2006, respectively. A total of 939,775 options are
exercisable at September 30, 2006.
6. CAPITAL STOCK
Holders of shares of common stock are entitled to cast one vote for each
share held at all stockholders' meetings for all purposes, including the
election of directors. The common stock does not have cumulative voting
rights.
The preferred stock of the Company shall be issued by the Board of
Directors of the Company in one or more classes or one or more series
within any class, and such classes or series shall have such voting powers,
full or limited or no voting powers, and such designations, preferences,
limitations or restrictions as the Board of Directors of the Company may
determine, from time-to-time.
Holders of shares of stock of any class shall not be entitled as a matter
of right to subscribe for or purchase or receive any part of any new or
additional issue of shares of stock of any class, or of securities
convertible into shares of stock of any class, whether now hereafter
authorized or whether issued for money, for consideration other than money,
or by way of dividend.
a) During the nine months ended September 30, 2006, the Company has
received gross proceeds of $4,096,500 under the terms of a unit
subscription agreement which provides for the purchase of one share of
common stock for $1.00. Cost of issuance related to raising these
funds amounted to $250,000. As at September 30, 2006, 4,096,500 shares
of the Company's common stock are issuable under the terms of this
agreement. The Company is authorized to issue, to accredited investors
only, up to 5,000,000 shares of common stock under the terms of the
Unit Subscription agreement. Sales of units of the Company's stock
under these agreements will continue during the fourth quarter.
b) On April 1, 2006, certain founding shareholders of the Company, each
owning 50,000 shares of the Common Stock of the Company, agreed to
surrender a portion of their stock ownership to the Company for
cancellation. In total, 800,000 shares were surrendered. The Company
transferred $80 from common stock to additional paid in capital.
c) Effective July 3, 2006, the Company's shareholders approved an
increase in the authorized capital stock of the Company from
80,000,000 shares of $0.0001 par value stock to 350,000,000 shares of
authorized capital stock, consisting of 250,000,000 shares of Common
Stock having a par value of $0.0001 per share, and 100,000,000 shares
of Preferred Stock, having a par value of $0.0001 per share
d) On July 5, 2006, the Company effected a 10 for one forward stock split
of its common stock to holders of record on that date.
F-10
12
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LEASE AGREEMENTS
At April 20, 2006, the Company entered into a lease agreement through its
wholly owned subsidiary, Northern Ethanol (Barrie) Inc, for a 25 year
lease, with two ten year optional renewal periods, on an industrial
property located in Barrie, Ontario, Canada, (the "Barrie Lease"), on which
it intends to construct an ethanol processing facility. The Company also
entered into a five year lease on April 20, 2006 through its wholly owned
subsidiary, Northern Ethanol (Canada) Inc., for office premises located in
Toronto, Ontario, Canada to be used for its head office (the "Head Office
Lease"). The Company has analyzed these leases and determined that the
terms of the property lease at the Barrie industrial location require it to
be accounted for as a capital lease. The Company determined the value of
the capital lease acquired, by calculating the present value of the lease
payments over the 25 year term of the lease, discounted at 12% per annum.
The terms of the office lease at the Toronto location require it to be
accounted for as an operating lease.
As the Barrie location was acquired for the purposes of constructing an
ethanol processing facility, and the plant is not yet operational, no
amortization or interest expense related to this lease is reflected in the
income statement.
The terms of the leases require the following minimum payments:
Fiscal Year Barrie Lease Head Office Lease Total
2006 $ 338,948 $ 80,631 $ 419,579
2007 2,033,686 161,261 2,194,947
2008 2,033,686 161,261 2,194,947
2009 2,033,686 161,261 2,194,947
2010 2,033,686 161,261 2,194,947
Thereafter 48,673,826 67,192 48,741,018
----------- ----------------- -----------
Total minimum lease payments $57,147,518 $ 792,867 $57,940,385
================= ===========
Less amount representing
interest of 12% 40,385,953
-----------
16,761,565
Less current portion 17,385
-----------
$16,744,180
===========
The Barrie lease payments are due on a monthly basis starting in November
2006. Upon commissioning of the ethanol facility at the Barrie location,
the value of the capital lease will be amortized on a straight line basis
over the period remaining in the 25 year term. The interest expense
implicit in the capital lease obligation will be recognized at the 12% rate
implicit in the lease, and will be calculated on a monthly basis on the
balance outstanding at each month end. Since the lease payments are in
Canadian dollars, the actual amortization and interest expense reflected in
the account will vary as the exchange rate changes.
The Barrie lease provides for two renewal periods of ten years under the
same terms and conditions, at the market rates for similar properties in
the area at the time of renewal. The lease requires total payments of
$57,145,518 over 25 years, of which $40,385,953 is interest and $16,761,565
is the repayment of the capital lease amount. The capital lease principal
will be paid down by $17,385 as a result of monthly lease payments that
will be made over the next year.
F-11
13
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES
The Company has incurred losses resulting from start-up costs. A valuation
allowance has been recorded to fully offset any future tax asset because
the future realization of the related income tax benefits is uncertain.
9. SUBSEQUENT EVENTS
a) On October 12, 2006, the Company filed a SB-2 which is in the process
of being reviewed by the Securities Exchange Commission.
b) Effective October 31, 2006, the Company's Chief Financial Officer
resigned and forfeited options to purchase an aggregate of 500,000
shares of the Company's common stock. Effective November 1, 2006, the
Company appointed an interim Chief Financial Officer, on a
probationary basis.
c) On November 2, 2006, the Company granted options to purchase an
aggregate of 900,000 shares of the Company's common stock at an
exercise price equal to $1.00 to non-employees. The options will vest
in equal amounts each quarter over one year from the date of grant.
The fair value of each option granted was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions:
---------------------------------------------------------------------
2006
---------------------------------------------------------------------
Risk-free interest rate 5.1 - 5.2%
Volatility factor of the future expected market price 86.6%
of the Company's common shares
Weighted average expected life in years 5.0
Expected dividends None
---------------------------------------------------------------------
The fair value of the options granted as determined above was $592,806, of
which $425,178 will be expensed in fiscal 2006.
F-12
14
NORTHERN ETHANOL, INC.
(A DEVELOPMENT STAGE COMPANY)
(Formerly BEACONSFIELD I, INC.)
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS (continued)
d) Also on November 2, 2006, the Company granted options to purchase
100,000 shares of the Company's common stock at an exercise price
equal to $1.00, to a non-salaried Director of the Company. The options
will vest in equal amounts annually over the next three years from the
date of grant. The options expire five years following the date of
grant. Additionally on November 2, 2006, pursuant to an employment
agreement, the Company granted options to purchase an aggregate of
75,000 shares of the Company's common stock at an exercise price equal
to $1.00, to a new employee. The options will vest in equal amounts
annually over the next three years from the date of grant. The options
expire five years following the date of grant. The fair value of each
option granted was estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions:
----------------------------------------------------------------
2006
----------------------------------------------------------------
Risk-free interest rate 5.1 - 5.2%
Volatility factor of the future expected market price 86.6%
of the Company's common shares
Weighted average expected life in years 5.0
Expected dividends None
-------------------------------------------------------------------
The fair value of the options granted as determined above was $92,320, of
which $28,989 will be expensed in fiscal 2006.
F-13
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on, our behalf. We disclaim any obligation to update
forward-looking statements.
OVERVIEW
We were incorporated as "Beaconsfield I, Inc." in the State of Delaware on
November 29, 2004, to pursue a business combination. In May 2006, we attempted
to change our name to "Northern Ethanol, Inc." by effecting a merger of a
subsidiary company into Beaconsfield I, Inc. However, we were unable to
accomplish our objectives in this regard. Subsequently, in July 2006, the
holders of a majority of our then issued and outstanding common stock approved
an amendment to our Certificate of Incorporation wherein we did change our name
to "Northern Ethanol, Inc." to better reflect our current business plan that is
described under "Plan of Operation" below. We are currently considered a
"development stage" company.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the nine-month periods ended
September 30, 2006 and 2005
During the nine-month period ended September 30, 2006, we did not generate
any revenues. We do not expect to begin generating revenues until such time as
the ethanol plants described below under "Plan of Operation" become operational.
During the nine month period ended September 30, 2006, we incurred costs
and expenses totaling $2,203,494, including $1,539,978 in salaries and benefits,
$650,506 in other general and administrative expense and occupancy costs and
$13,010 in depreciation expense. During the nine-month period ended September
30, 2005, our total costs and expenses were $20,024. This
16
significant increase in operating expenses was a direct result of our
commencement of our new business plan, described below.
As a result, we incurred a net loss of $2,203,494 during the nine month
period ended September 30, 2006, compared to a net loss of $20,024 for the
similar period ended September 30, 2005.
Comparison of Results of Operations for the three-month periods ended
September 30, 2006 and 2005
During the three-month period ended September 30, 2006, we did not generate
any revenues. We do not expect to begin generating revenues until such time as
the ethanol plants described below under "Plan of Operation" become operational.
During the three month period ended September 30, 2006, we incurred costs
and expenses totaling $1,267,092, including $784,626 in salaries and benefits,
$474,743 in other general and administrative expense and occupancy costs and
$7,723 in depreciation expense. During the three-month period ended September
30, 2005, our total costs and expenses were $14,745. This significant increase
in operating expenses was a direct result of our commencement of our new
business plan, described below.
As a result, we incurred a net loss of $1,267,092 during the three month
period ended September 30, 2006, compared to a net loss of $14,745 for the
similar period ended September 30, 2005. Because we did not generate revenues
during the nine month period ended September 30, 2006, following is our Plan of
Operation.
PLAN OF OPERATION
As of the date of this report we have begun the initial steps to provide
entry into the business of manufacturing fuel ethanol for sale to oil refiners
and other users, including identifying proposed locations for the development of
ethanol plants. Our goal is to produce, market and sell ethanol and other
renewable fuels in the Eastern United States and Canada. In this regard we have
retained new management experienced in this industry. Further, we have secured
or are in advanced stages of securing sites to build ethanol processing
facilities at two locations in Ontario, Canada (Barrie and Sarnia), and one
location in upper New York State for total planned production capacity of 300
million US gallons per annum. Each of these locations will be the site for a
corn-based ethanol processing facility. The two facilities currently envisaged
for Ontario are expected to be completed and operational over the next two
years. The Upper New York State facility is expected to be operational one year
later.
We have secured, or are in the advanced stages of securing, sites to build
ethanol processing facilities at the following locations, in the capacities
indicated:
17
o Barrie, Ontario, Canada; 100 million gallons - The site has been
obtained under a 45 year lease including renewal options. The lease
allows us to utilize all existing site infrastructure and demolish or
modify existing structures to optimize plant operations. The site is
owned by an affiliate of one of our shareholders.
o Sarnia, Ontario, Canada; 100 million gallons - This site comprises
approximately 40 acres. We have entered into a non-binding letter of
intent with the owner of this location that provides us with a 99 year
lease with an annual rental payment of $10 (CN), plus payment by us of
all real estate and property taxes and other operating expenses,
including utilities. The terms are subject to our reaching an
agreement for the owner to supply steam to our proposed plant for a
minimum of 15 years. The proposed terms also include a right of first
refusal for us to acquire this land at a price to be agreed in the
future and also provides for us to receive $4 million (CN) as a tenant
inducement to enter into a definitive agreement. This site is adjacent
to a major rail line, has good highway access, access to the Great
Lakes for shipping purposes and is fully zoned and serviced.
In addition, we are actively negotiating for the acquisition and
development of a site at the following location: o New York State; 100 million
gallons. This site is undergoing a comprehensive evaluation for a 100 million
gallon facility and business terms of the site acquisition are currently under
discussion.
Each of these locations will be the site for a state-of-the-art ethanol
processing facility, using corn as the feedstock. The Barrie location represents
a conversion of an existing site from a former brewery. The Sarnia and Upstate
New York locations represent new construction.
Effective July 24, 2006, we entered into a Project Development Agreement
(the "Agreement") with Delta-T Corporation, Williamsburg, Virginia, ("Delta"),
wherein Delta shall provide us professional advice, business and technical
information, design and engineering and related services in order to assist us
in assembling all of the information, permits, agreements and resources
necessary for construction of an ethanol plant having the capacity to produce
100 million gallons per year in Barrie, Ontario, Canada (the "Plant"). We paid
Delta the sum of $100,000 for their services. This amount has been capitalized
under leasehold improvements.
In September 2006, we entered into a similar agreement with Delta relating
to our proposed Sarnia ethanol plant and paid Delta an initial amount of
$70,000, with the balance of $30,000 due upon issuance of an air permit by the
Province of Ontario.
The Agreement provides for Delta to assist us in the development and
analysis of the feasibility of the Plant, including location, operating costs,
Plant specifications, compliance with environmental issues, product marketing,
industry economics, technical and other assistance. The relationship between
Delta and us is deemed exclusive during the term of the Agreement and
anticipates that the parties shall enter into a definitive, turnkey,
engineering, procurement
18
and construction agreement for the entire Plant. We have granted Delta a right
of first refusal in this regard. The term of the Agreement is five (5) years.
We will begin construction at each location as soon as we are able to
secure all the necessary financing and permits to complete construction of this
facility. We expect this financing to take the form of both debt and equity. It
is our intention to use leverage to the greatest extent feasible as is typical
with larger energy infrastructure projects. To date, we have not obtained this
required financing. However as of the date of this report, we have completed a
private offering whereby we sold 3,921,500 shares of our Common Stock to 47
"accredited investors" (as that term is defined in both the Canadian and U.S.
securities laws) at a price of $1.00 per share and received aggregate net
proceeds of $3,846,500 therefrom. . See "Liquidity and Capital Resources" and
"Risk Factors."
During the three months ended September 30, 2006, we engaged in
negotiations to acquire an existing ethanol plant in the Province of Quebec,
Canada. However, these negotiations did not prove successful. We made a fully
refundable deposit to the prospective sellers in the amount of $750,000 (US) and
as a result of the termination of negotiations we have requested that this
deposit be returned. As of the date of this report we have not received this
deposit returned but we are confident that the same will be returned shortly.
We are implementing a growth strategy by:
o Building state of the art processing plants on brown field and green
field sites;
o Negotiating stable long term contracts with key suppliers;
o Securing long term sales agreements;
o Pursuing acquisitions of existing ethanol producers
o Pursuing acquisitions and/or strategic alliances with ethanol
technology companies.
We are committed to investing in the latest technology to ensure that the
processing costs are as low as possible, and the outputs are of the highest
quality. The initial locations have been chosen due to proximity to supply of
corn, natural gas, and water and are well located for the transportation of
inputs and products.
We have also entered into a letter of intent with a privately held grain
merchant's corporation (the "Grain Merchant"), which owns and operates grain
elevators and has extensive domestic and international experience in
international grain origination and co-product merchandizing. We expect to
engage them to source all of the corn required for the operation of the Barrie
and Sarnia ethanol facilities at competitive prices. We expect they will assist
us in negotiations with major corn suppliers to guarantee supply and price by
committing to long-term purchase agreements or opportunistic purchases on the
spot market when this can be done at favorable rates.
19
We have also been in discussion with a privately held corporation that
provides ethanol marketing capability across North America. The ethanol
marketing company is a fully integrated marketing company supported by an
experienced sales force, a knowledgeable logistics and scheduling department,
customer service, and an online computer system that we will be able to access
to streamline all necessary correspondence for daily shipments and
transportation transactions. We expect to engage this marketing company to
handle the sales of our ethanol production. We expect that the Grain Merchant
would assist us with the sale of our dried distillers grain by-product through
spot sales or long-term contracts to major purchasers.
The manner in which we intend to develop future sites beyond the initial
aforementioned locations will depend upon the nature of the opportunity, the
respective needs of the parties involved, and ourselves. We have set up a
separate subsidiary to own each ethanol plant. We may purchase assets outright,
acquire an ownership interest in companies controlling key assets, or issue
shares in the subsidiary company that controls the site to outside parties who
control key assets.
It is likely that we will finance our participation in a business
opportunity through the issuance of common stock or other securities and through
the issuance of senior debt secured against the assets of each operating
location.
In the case of cash acquisition, the transaction may be accomplished upon
the sole determination of management without any vote or approval by
stockholders. In the case of a statutory merger or consolidation directly
involving us, it will likely be necessary to call a stockholders' meeting or
otherwise obtain the approval of the holders of a majority of our outstanding
shares. The necessity to obtain such stockholder approval may result in delay
and additional expense in the consummation of any proposed transaction and may
also give rise to certain appraisal rights to dissenting stockholders.
We plan to identify and exploit new technologies for reduced costs and
greater manufacturing yields. For example, we are examining new technologies
enabling the conversion of cellulose, which is generated predominantly from wood
waste, paper waste and agricultural waste, into ethanol which would reduce or
eliminate our dependency on corn as a primary feedstock, while also helping
local municipalities deal with ever increasing demands on their garbage disposal
sites.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2006, we had $1,386,322 in cash and cash equivalents.
In July 2006, we engaged in a forward split of our Common Stock whereby we
issued ten (10) shares of our Common Stock for every one (1) share then issued
and outstanding.
20
Following the aforesaid forward stock split, we commenced a private
offering of our Common Stock. As of the date of this report, we have sold an
aggregate of 3,921,500 shares of our Common Stock to 47 "accredited investors"
(as that term is defined in both the Canadian and U.S. securities laws) at a
price of $1.00 per share and received aggregate net proceeds of $3,846,500
therefrom. We intend to utilize the proceeds of this offering on preliminary
engineering studies relating to our proposed ethanol plants, other costs
associated with the development of these plants, including due diligence,
preparation of specifications for construction, and on general and
administrative expenses, as well as for general working capital.
Two of these investors are residents of the United States, with the balance
residents of Canada. The proceeds derived from this offering are to be utilized
for the preliminary work relating to development of two ethanol plants to be
located in Canada and one in Upper New York State, as well as for working
capital. We will require significant additional funds in order to implement our
business plan described herein.
As a result of our obtaining equity capital in the aforesaid private
offering, we believe that we currently have sufficient funds available for us to
continue to implement our business plan for the next 12 months. However, we
estimate that we will require an additional $372.5 million in additional debt or
equity capital to fully implement our initial business plan in the future and
there are no assurances that we will be able to raise this capital when needed.
However, while there are no definitive agreements in place as of the date of
this Report, we are currently engaged in various discussions with interested
parties to provide these funds or otherwise enter into a strategic alliance to
provide such funding. The inability to obtain sufficient funds from external
sources when needed will have a material adverse affect on our implementation of
our plan of operation, results of operations and financial condition.
INFLATION
Although our operations are influenced by general economic conditions, we
do not believe that inflation had a material affect on our results of operations
during the nine-month period ended September 30, 2006.
RISK FACTORS
An investment in our Common Stock is a risky investment. Prospective investors
should carefully consider the following risk factors before purchasing shares of
our Common Stock.
RISKS RELATED TO OUR PROPOSED OPERATIONS
We have incurred losses in the past and expect to incur greater losses until our
- --------------------------------------------------------------------------------
ethanol production begins.
- --------------------------
As of September 30, 2006 and December 31, 2005, we had an accumulated
deficit of $2,234,967 and $31,473, respectively. For the nine months ended
September 30, 2006 and for
21
the year ended December 31, 2005, we incurred net losses of $2,203,494 and
$27,765, respectively. We expect to incur significantly greater losses at least
until the completion of our initial ethanol production facility in Barrie,
Ontario. We estimate that the earliest completion date of this facility and, as
a result, our earliest date of ethanol production will not occur until the first
quarter of 2008. Until then, we expect to rely on cash from debt and equity
financing to fund all of the cash requirements of our business. Until we
successfully build and begin operating of our proposed ethanol plants we will
experience negative cash flow. Once our ethanol plants are built and become
operational, there are no assurances that we will be able to attain, sustain or
increase profitability on a quarterly or annual basis.
A downturn in the demand for ethanol would significantly and adversely affect
- --------------------------------------------------------------------------------
our sales and profitability.
- ----------------------------
Our revenue will be derived primarily from sales of ethanol. Ethanol
competes with other existing products and other alternative products could also
be developed for use as fuel additives. We expect to be completely focused on
the production and marketing of ethanol and its co-products, dried distillers
grains and CO2 for the foreseeable future. We may be unable to shift our
business focus away from the production and marketing of ethanol to other
renewable fuels or competing products. Accordingly, an industry shift away from
ethanol or the emergence of new competing products may reduce the demand for
ethanol.
In order to complete the construction of our planned ethanol production
- --------------------------------------------------------------------------------
facilities, we will require significant additional funding.
- -----------------------------------------------------------
We anticipate that we will need to raise approximately $372.5 million in
equity and/or debt financing to complete construction of our first ethanol
production facilities in Barrie and Sarnia, Ontario. The proceeds we derived
from our recently completed private offering are insufficient to allow us to
commence construction of our proposed ethanol plants. As of the date of this
report we have been engaged in discussions with various banks and investment
banking firms to obtain the funds we believe are necessary to allow us to
commence construction of these ethanol plants. However, as of the date of this
report we have no contracts with, or binding commitments from, any investment
banker, bank, lender or financial institution for the required capital. There
can be no assurances that we will be able to obtain any funding from one or more
investors or lenders, or if funding is obtained, that it will be on terms that
we have anticipated or that are otherwise acceptable to us. If we are unable to
secure adequate financing, or financing on acceptable terms is unavailable for
any reason, we may be forced to abandon our construction of one or more, or even
all, of our planned ethanol production facilities.
Our capital structure will be highly leveraged because we plan to fund a
- --------------------------------------------------------------------------------
substantial majority of the construction costs of our planned ethanol production
- --------------------------------------------------------------------------------
facilities through the issuance of a significant amount of debt.
- ----------------------------------------------------------------
Our debt levels and debt service requirements could have important
consequences which could reduce the value of your investment, including:
22
o limiting our ability to borrow additional amounts for operating
capital or other purposes and causing us to be able to borrow
additional funds only on unfavorable terms;
o reducing funds available for operations and distributions because a
substantial portion of our cash flow will be used to pay interest and
principal on our debt;
o making us vulnerable to increases in prevailing interest rates;
o placing us at a competitive disadvantage because we may be
substantially more leveraged than some of our competitors;
o subjecting all or substantially all of our assets to liens, which
means that there may be no assets left for our stockholders in the
event of a liquidation; and
o limiting our ability to adjust to changing market conditions, which
could increase our vulnerability to a downturn in our business or
general economic conditions.
If cash flow from operations are insufficient to pay our debt service
obligations it is possible that we could be forced to sell assets, seek to
obtain additional equity capital or refinance or restructure all or a portion of
our debt on substantially less favorable terms. In the event that we are unable
to refinance all or a portion of our debt or raise funds through asset sales,
sales of equity or otherwise, we may be forced to liquidate and you could lose
your entire investment. However, while no assurances can be provided, based upon
our discussions and negotiations with financing entities as of the date of this
report, we do believe that our proposed business plan is viable and that we will
obtain the additional financing necessary to develop our ethanol plants.
Our success depends, to a significant extent, upon the continued services of
- --------------------------------------------------------------------------------
Gord Laschinger, who is our President and Chief Executive Officer, who has no
- --------------------------------------------------------------------------------
prior experience in the ethanol industry.
- -----------------------------------------
While Mr. Laschinger has developed key personal relationships with our
expected suppliers and customers, most of these individuals have significantly
more experience than Mr. Laschinger in the ethanol industry. This may place us
at a competitive disadvantage becausewe will greatly rely on these relationships
in the conduct of our proposed operations and the execution of our business
strategies. The loss of Mr. Laschinger could also result in the loss of our
favorable relationships with one or more of our suppliers and customers.
Although we have entered into an employment agreement with Mr. Laschinger, that
agreement is of limited duration and is subject to early termination by Mr.
Laschinger under certain circumstances. In addition, we do not maintain "key
person" life insurance covering Mr. Laschinger or any other executive officer.
The loss of Mr. Laschinger could also significantly delay or prevent the
achievement of our business objectives.
The ethanol production and marketing industry is extremely competitive.
- -----------------------------------------------------------------------
23
We intend to initially construct ethanol plants in Ontario, Canada and
market our end product in those locations, as well as in the Northeastern United
States. Many of our significant competitors in the ethanol production and
marketing industry located in and around these geographic areas, such as ADM,
located in the midwestern US, but which ships throughout North America, and
Conoco Oil Company, which has an ethanol plant in Sarnia, and other, all of whom
have substantially greater production, financial, research and development,
personnel and marketing resources than we currently do. We are not currently
producing any ethanol. Our competitors, including but not limited to the
aforesaid companies, are presently producing ethanol. As a result, our
competitors may be able to compete more aggressively in obtaining the feedstock
necessary to produce ethanol, as well as utilizing their established
relationships with prospective end users and sustain that competition over a
long period of time. Our lack of resources relative to many of our significant
competitors may cause us to fail to anticipate or respond adequately to new
developments and other competitive pressures. This failure could reduce our
competitiveness and cause a decline in our market share, sales and
profitability.
Managing the construction of our proposed ethanol plants and commencement of
- --------------------------------------------------------------------------------
operations may impose a significant burden on our administrative and operational
- --------------------------------------------------------------------------------
resources.
- ----------
The growth of our business, and in particular, the completion of
construction of our planned ethanol production facilities, will require
significant investments of capital and management's close attention. Our ability
to effectively manage our growth will require us to substantially expand the
capabilities of our administrative and operational resources and to attract,
train, manage and retain qualified management, technicians and other personnel.
We may be unable to do so. In addition, our failure to successfully manage our
growth could result in our sales not increasing commensurately with our capital
investments. If we are unable to successfully manage our growth, we may be
unable to achieve our goals.
Our proposed business of producing and selling ethanol is subject to significant
- --------------------------------------------------------------------------------
supply and demand fluctuations.
- -------------------------------
Should we become involved in reselling ethanol, we anticipate that our
purchases and sales of ethanol may not always match with sales and purchases of
ethanol at prevailing market prices. We may commit from time to time to the sale
of ethanol to our customers without corresponding and commensurate commitments
for the supply of ethanol from our suppliers that subject us to the risk of an
increase in the price of ethanol. We may also commit from time to time to the
purchase of ethanol from our suppliers without corresponding and commensurate
commitments for the purchase of ethanol by our customers, which subjects us to
the risk of a decline in the price of ethanol.
We may increase inventory levels in anticipation of rising ethanol prices
and decrease inventory levels in anticipation of declining ethanol prices. As a
result, we are subject to the risk of ethanol prices moving in unanticipated
directions, which could result in declining or even negative gross profit
margins for this segment of our
24
business. Accordingly, this segment of our business would be subject to
fluctuations in the price of ethanol and these fluctuations may result in lower
or even negative gross margins and which could materially and adversely affect
our profitability.
In addition, there are a number of new plants under construction and
planned for construction, both inside and outside Ontario. We expect existing
ethanol plants to expand by increasing production capacity and actual
production. Increases in the demand for ethanol may not be commensurate with
increasing supplies of ethanol. Thus, increased production of ethanol may lead
to lower ethanol prices. The increased production of ethanol could also have
other adverse effects. For example, increased ethanol production will lead to
increased supplies of co-products from the production of ethanol, such as DDGS
and CO2. Those increased supplies could lead to lower prices for those
co-products. Also, the increased production of ethanol could result in increased
demand for corn. This could result in higher prices for corn and cause higher
ethanol production costs and, in the event that we are unable to pass increases
in the price of corn to our customers, will result in lower profits. We cannot
predict the future price of ethanol or DDGS. Any material decline in the price
of ethanol, DDGS or CO2 will adversely affect our sales and profitability.
We cannot rely on long-term ethanol orders or commitments by our customers for
- --------------------------------------------------------------------------------
protection from the negative financial effects of a decline in the demand for
- --------------------------------------------------------------------------------
ethanol.
- --------
The limited certainty of ethanol orders can make it difficult for us to
forecast our sales and allocate our resources in a manner consistent with our
actual sales. Moreover, our expense levels are based in part on our expectations
of future sales and, if our expectations regarding future sales are inaccurate,
we may be unable to reduce costs in a timely manner to adjust for sales
shortfalls. Furthermore, because we expect to depend on a small number of
customers for the vast majority of our sales, the magnitude of the ramifications
of these risks is greater than if our sales were less concentrated within a
larger number of customers. As a result of our lack of long-term ethanol orders
and commitments, we may experience a rapid decline in our sales and
profitability. Ethanol markets are developing but as of the date of this report,
the market for forward contacts is not mature.
We have not conducted any significant business operations as yet and have been
- --------------------------------------------------------------------------------
unprofitable to date.
- ---------------------
Accordingly, there is no prior operating history by which to evaluate the
likelihood of our success or our contribution to our overall profitability. We
may never complete construction of an ethanol production facility and commence
significant operations or, if we do complete the construction of an ethanol
production facility, it may not be successful in contributing positively to our
profitability.
Fluctuations in the market price of ethanol may cause our profitability to
- --------------------------------------------------------------------------------
fluctuate significantly.
- ------------------------
25
The market price of ethanol is dependent on many factors, including the
price of gasoline, which is in turn dependent on the price of petroleum.
Petroleum prices are highly volatile and difficult to forecast due to frequent
changes in global politics and the world economy. The distribution of petroleum
throughout the world is affected by incidents in unstable political
environments, such as Iraq, Iran, Kuwait, Saudi Arabia, the former U.S.S.R. and
other countries and regions. The industrialized world depends critically on oil
from these areas, and any disruption or other reduction in oil supply can cause
significant fluctuations in the prices of oil and gasoline. We cannot predict
the future price of oil or gasoline and may establish unprofitable prices for
the sale of ethanol due to significant fluctuations in market prices. For
example, the price of ethanol declined by approximately 25% from its 2004
average price per gallon in only five months from January 2005 through May 2005.
In recent years, the prices of gasoline, petroleum and ethanol have all reached
historically unprecedented high levels. If the prices of gasoline and petroleum
decline, we believe that the demand for and price of ethanol may be adversely
affected. Ethanol has become a significant additive to gasoline. As a result,
its price structure generally tracks wholes unleaded gasoline.
We will be subject to extensive air, water and other environmental regulations
- --------------------------------------------------------------------------------
in connection with the construction and operation of our planned ethanol
- --------------------------------------------------------------------------------
production facilities. We cannot predict in what manner or to what extent
- --------------------------------------------------------------------------------
governmental regulations will harm our business or the ethanol production and
- --------------------------------------------------------------------------------
marketing industry in general.
- ------------------------------
Our business is subject to extensive regulation by federal, state and local
governmental agencies. Our business plan provides for the construction of
ethanol plants in Southeastern Canada and in upstate New York. Once these plants
have been constructed we expect to market ethanol and by products in both the US
and Canada.
The recent energy bill signed into law by President Bush includes a
national renewable fuels standard that requires refiners to blend a percentage
of renewable fuels into gasoline. Similar regulations were recently introduced
in Ontario. If changes in government regulations reduce the demand for ethanol,
our sales and profitability may decline.
The fuel ethanol business benefits significantly from tax incentive
policies and environmental regulations that favor the use of ethanol in motor
fuel blends in the United States. Currently, a gasoline marketer that sells
gasoline without ethanol must pay a federal tax of $0.18 per gallon compared to
$0.13 per gallon for gasoline that is blended with 10% ethanol. Smaller credits
are available for gasoline blended with lesser percentages of ethanol. The
repeal or substantial modification of the federal excise tax exemption for
ethanol-blended gasoline or, to a lesser extent, other federal or state policies
and regulations that encourage the use of ethanol could have a detrimental
effect on the ethanol production and marketing industry and materially and
adversely affect our sales and profitability.
The production of ethanol involves the emission of various airborne
pollutants, including particulates, carbon monoxide, oxides of nitrogen and
volatile organic compounds. We also may be required to obtain various other
water-related permits, such as a water discharge
26
permit and a storm-water discharge permit, a water withdrawal permit and a
public water supply permit. If for any reason we are unable to obtain any of the
required permits, construction costs for our planned ethanol production
facilities are likely to increase. In addition, the facilities may not be fully
constructed at all. It is also likely that operations at the facilities will be
governed by other regulations. Compliance with regulations may be time-consuming
and expensive and may delay or even prevent sales of ethanol in Ontario or in
other jurisdictions.
The production and sale of ethanol is subject to regulation by agencies of
the US Federal Government, including, but not limited to, the Environmental
Protection Agency, or the EPA, in the US as well as other agencies in each
jurisdiction in which ethanol is produced, sold, stored or transported. In
Canada, the production and sale of ethanol is subject to regulation by
Environment Canada, through the Canadian Environmental Protection Act, 1999 and
by the Ontario Ministry of the Environment. As in the United States, applicable
laws and regulations are subject to change, which could be made retroactively.
Environmental laws and regulations that affect our operations, and that are
expected to affect our planned operations, are extensive and have become
progressively more stringent in the United State and Canada. Applicable laws and
regulations are subject to change, which could be made retroactively. Violations
of environmental laws and regulations or permit conditions can result in
substantial penalties, injunctive orders compelling installation of additional
controls, civil and criminal sanctions, permit revocations and/or facility
shutdowns. If significant unforeseen liabilities arise for corrective action or
other compliance, our sales and profitability could be materially and adversely
affected.
Delays in the construction of our planned ethanol production facilities or
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defects in materials and/or workmanship may occur.
- --------------------------------------------------
As of the date of this report, we have not begun construction of our
proposed ethanol plants, nor do we have any commitment for the financing that is
required to commence construction. While we are confident that we will be able
to arrange for financing, no assurances can be provided that we will obtain the
same, or if we do obtain such financing, that we will receive the necessary
funds in a timely manner.
Further, construction projects often involve delays in obtaining permits
and encounter delays due to weather conditions, fire, the provision of materials
or labor or other events. In addition, changes in interest rates or the credit
environment or changes in political administrations at the federal, provincial,
state or local levels that result in policy change towards ethanol or our
project in particular, could cause construction and operation delays. Any of
these events may adversely affect our ability to commence our proposed
operations, which may expose us to additional unknown risks that arise due to
such a delay.
We may also encounter hazardous conditions at or near each of our planned
facility sites, including the Barrie site that may delay or prevent construction
of a particular facility. If we
27
encounter a hazardous condition at or near a site, work may be suspended and we
may be required to correct the condition prior to continuing construction, which
will require us to obtain additional financing. The presence of a hazardous
condition would likely delay construction of a particular facility and may
require significant expenditure of resources to correct the condition. If we
encounter any hazardous condition during construction, our ability to implement
our business plan described herein may be adversely affected.
Any significant increase in the final construction cost of the facility will
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adversely affect our capital resources.
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We have based our estimated capital resource needs on a preliminary design
for an ethanol production facility in Barrie Ontario. Based on this preliminary
budget, we estimated that the construction cost of each of our facilities to be
approximately $160 million. The estimated cost of these facilities is based on
preliminary discussions and estimates, but the final construction cost of the
facility may be significantly higher and there can be no assurances that we will
have the ability to raise additional capital, if needed.
Our ability to implement our proposed business plan may be significantly and
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adversely affected by the prices and supplies of raw materials and energy.
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The production of ethanol requires a significant amount of raw materials
and energy, primarily corn, water, electricity and natural gas. In particular,
we estimate that our Barrie and Sarnia ethanol production facilities will
require approximately 78 million bushels of corn each year and significant and
uninterrupted supplies of water, electricity and natural gas. The prices of
corn, electricity and natural gas have fluctuated significantly in the past and
may fluctuate significantly in the future. In addition, droughts, severe winter
weather and other problems may cause delays or interruptions of various
durations in the delivery of corn to our facilities, reduce corn supplies and
increase corn prices. Local water, electricity and gas utilities may not be able
to reliably supply the water, electricity and natural gas that our Barrie and
Sarnia facilities will need or may not be able to supply such resources on
acceptable terms. In addition, if there is an interruption in the supply of
water or energy for any reason, we may be required to halt ethanol production.
We may not be able to successfully anticipate or mitigate fluctuations in the
prices of raw materials and energy through the implementation of hedging and
contracting techniques. Our hedging and contracting activities may not lower our
prices of raw materials and energy, and in a period of declining raw materials
or energy prices, these hedging and contracting strategies may result in our
paying higher prices than our competitors. In addition, we may be unable to pass
increases in the prices of raw materials and energy to our customers. Higher raw
materials and energy prices will generally cause lower profit margins and may
even result in losses.
We have not voluntarily implemented various corporate governance measures, in
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the absence of which, stockholders may have reduced protections against
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interested director transactions, conflicts of interest and other matters.
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28
We are not subject to any law, rule or regulation requiring that we adopt
any of the corporate governance measures that are required by the rules of
national securities exchanges or Nasdaq such as independent directors and audit
committees. It is possible that if we were to adopt some or all of the corporate
governance measures, stockholders would benefit from somewhat greater assurances
that internal corporate decisions were being made by disinterested directors and
that policies had been implemented to define responsible conduct. Prospective
investors should bear in mind our current lack of corporate governance measures
in formulating their investment decisions.
We may be exposed to potential risks relating to our internal controls over
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financial reporting and our ability to have those controls attested to by our
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independent auditors.
- ---------------------
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"),
the Securities and Exchange Commission adopted rules requiring public companies
to include a report of management on the company's internal controls over
financial reporting in their annual reports, including Form 10-KSB. In addition,
the independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting as
well as the operating effectiveness of the company's internal controls. We have
not yet been subject to these requirements. We are evaluating our internal
control systems in order to allow our management to report on, and our
independent auditors attest to, our internal controls, as a required part of our
annual report on Form 10-KSB beginning with our reports for the fiscal year
ended December 31, 2007. A recent release from the SEC has indicated that newly
public companies may be granted an additional year, after becoming public to
demonstrate the effectiveness of their internal controls as required under SOX
404.
While we expect to expend significant resources in developing the necessary
documentation and testing procedures required by SOX 404, there is a risk that
we will not comply with all of the requirements imposed thereby. At present,
there is no precedent available with which to measure compliance adequacy.
Accordingly, there can be no positive assurance that we will receive a positive
attestation from our independent auditors.
In the event we identify significant deficiencies or material weaknesses in
our internal controls that we cannot remediate in a timely manner or we are
unable to receive a positive attestation from our independent auditors with
respect to our internal controls, investors and others may lose confidence in
the reliability of our financial statements and our ability to obtain equity or
debt financing could suffer.
RISKS RELATED TO OUR COMMON STOCK
There is no trading market for our securities and there can be no assurance that
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such a market will develop in the future.
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29
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended,
registering those shares that we issued in our recent private offering. If and
when our registration statement is deemed effective by the SEC, we intend to
undertake efforts to have our common stock listed for trading on the OTC
Electronic Bulletin Board operated by the National Association of Securities
Dealers, Inc. There is no assurance that our application for listing on the
OTCBB will be approved, or if so approved that a market will develop in the
future or, if developed, that it will continue. In the absence of a public
trading market, an investor may be unable to liquidate his investment in our
company.
We do not have significant financial reporting experience, which may lead to
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delays in filing required reports with the Securities and Exchange Commission
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and suspension of quotation of our securities on the OTCBB, which will make it
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more difficult for you to sell your securities.
- -----------------------------------------------
If we are successful in listing our common stock for trading on the OTCBB,
of which there can be no assurance, the OTCBB limits quotations to securities of
issuers that are current in their reports filed with the Securities and Exchange
Commission. These limitations may be impediments to our quotation on the OTCBB.
Because we do not have significant financial reporting experience, we may
experience delays in filing required reports with the Securities and Exchange
Commission following the effectiveness of the registration statement to which
this prospectus is a part. Because issuers whose securities are qualified for
quotation on the OTCBB are required to file these reports with the Securities
and Exchange Commission in a timely manner, the failure to do so may result in a
suspension of trading or delisting from the OTCBB.
If we are successful in listing our common stock for trading on the OTCBB, there
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are no automated systems for negotiating trades on the OTCBB and it is possible
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for the price of a stock to go up or down significantly during a lapse of time
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between placing a market order and its execution, which may affect your trades
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in our securities.
- ------------------
Because there are no automated systems for negotiating trades on the OTCBB,
they are conducted via telephone. In times of heavy market volume, the
limitations of this process may result in a significant increase in the time it
takes to execute investor orders. Therefore, when investors place market orders,
an order to buy or sell a specific number of shares at the current market price,
it is possible for the price of a stock to go up or down significantly during
the lapse of time between placing a market order and its execution.
If our stock trades below $5.00 per share, our stock would be considered a
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"penny stock" which can adversely affect its liquidity.
- -------------------------------------------------------
If and when trading commences and the trading price of our Common Stock is
less than $5.00 per share, our Common Stock would be considered a "penny stock,"
and trading in our Common Stock would be subject to the requirements of Rule
15g-9 under the Securities
30
Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements. The broker/dealer must make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to the transaction.
SEC regulations also require additional disclosure in connection with any
trades involving a "penny stock," including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and its associated risks. These requirements severely limit the liquidity of
securities in the secondary market because few broker or dealers are likely to
undertake these compliance activities. In addition to the applicability of the
penny stock rules, other risks associated with trading in penny stocks could
also be price fluctuations and the lack of a liquid market.
"Penny Stock" rules may make buying or selling our securities difficult.
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The Securities and Exchange Commission has adopted regulations that
generally define a penny stock to be any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. These rules require
that any broker-dealer who recommends our securities to persons other than prior
customers and accredited investors must, prior to the sale, make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to execute the transaction. Unless an exception is available,
the regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market. In addition, broker-dealers
must disclose commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities they offer. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from recommending transactions in our securities,
which could severely limit the liquidity of our securities and consequently
adversely affect the market price for our securities.
We do not anticipate payment of dividends, and investors will be wholly
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dependent upon the market for the Common Stock to realize economic benefit from
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their investment.
- -----------------
As holders of our Securities, you will only be entitled to receive those
dividends that are declared by our board of directors out of surplus. We do not
expect to have surplus available for declaration of dividends in the foreseeable
future. Indeed, there is no assurance that such surplus will ever materialize to
permit payment of dividends to you as holders of the Securities. The board of
directors will determine future dividend policy based upon our results of
operations, financial condition, capital requirements, reserve needs and other
circumstances.
31
Any adverse effect on the market price of our common stock could make it
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difficult for us to raise additional capital through sales of equity securities
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at a time and at a price that we deem appropriate.
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If and when our registration statement declared effective, holders of our
shares of common stock that are registered pursuant to our registration
statement will be permitted, subject to few limitations, to freely sell these
shares of common stock. At that time, sales of substantial amounts of common
stock, including shares issued upon the exercise of stock options or warrants,
or in anticipation that such sales could occur, may materially and adversely
affect prevailing market prices for our common stock.
The market price of our common may fluctuate significantly in the future.
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If our Common Stock is approved for trading, of which there can be no
assurance, the market price of our common stock may fluctuate in response to one
or more of the following factors, many of which are beyond our control:
o the volume and timing of the receipt of orders for ethanol from major
customers;
o competitive pricing pressures;
o our ability to produce, sell and deliver ethanol on a cost-effective
and timely basis;
o our inability to obtain construction, acquisition, capital equipment
and/or working capital financing;
o the introduction and announcement of one or more new alternatives to
ethanol by our competitors;
o changing conditions in the ethanol and fuel markets;
o changes in market valuations of similar companies;
o stock market price and volume fluctuations generally;
o regulatory developments;
o fluctuations in our quarterly or annual operating results;
o additions or departures of key personnel; and
o future sales of our common stock or other securities.
32
Furthermore, adverse economic conditions in Ontario and other jurisdictions
could have a negative impact on our results of operations. Demand for ethanol
could also be adversely affected by a slow-down in overall demand for oxygenate
and gasoline additive products. The levels of our ethanol production and
purchases for resale will be based upon forecasted demand. Accordingly, any
inaccuracy in forecasting anticipated revenues and expenses could adversely
affect our business. Furthermore, we recognize revenues from ethanol sales at
the time of delivery. The failure to receive anticipated orders or to complete
delivery in any quarterly period could adversely affect our results of
operations for that period. Quarterly results are not necessarily indicative of
future performance for any particular period, and we may not experience revenue
growth or profitability on a quarterly or an annual basis.
The price at which you purchase shares of our common stock may not be
indicative of the price that will prevail in the trading market. You may be
unable to sell your shares of common stock at or above your purchase price,
which may result in substantial losses to you and which may include the complete
loss of your investment. In the past, securities class action litigation has
often been brought against a company following periods of stock price
volatility. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert management's attention
and our resources away from our business. Any of the risks described above could
adversely affect our sales and profitability and also the price of our common
stock.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our reports filed pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules, regulations and related forms, and
that such information is accumulated and communicated to the our principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
As of September 30, 2006, we carried out an evaluation, under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures were effective.
CHANGES IN INTERNAL CONTROLS.
There have been no changes in our internal controls or in other factors
that could significantly affect these controls and procedures during the quarter
ended September 30, 2006.
33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES.
During the three month period ended September 30, 2006, we sold an
aggregate of 3,921,500 shares of our Common Stock to 47 "accredited investors"
(as that term is defined in both the Canadian and U.S. securities laws) at a
price of $1.00 per share and received aggregate net proceeds of $3,846,500
therefrom.
We relied upon the exemption from registration provided by Regulation S and
Regulation D promulgated under the Securities Act of 1933, as amended, to issue
these securities.
In September 2006, two of our former officers and/or directors voluntarily
surrendered 150,000 and 50,000 shares, respectively, of our Common Stock that
had been previously issued to them back to us for cancellation. Also in
September 2006, one of these individuals also agreed to surrender an additional
150,000 shares that had been previously issued to him, although he has not
formally executed the documentation to effectuate such surrender but did execute
the consent of the board of directors authorizing the acceptance of the
surrender and cancellation of such shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
34
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On July 21, 2006, as amended August 3 2006, we filed a report on Form 8-K
advising that effective July 19, 2006, the firm of Raich Ende Malter & Co. LLP
("REM"), our independent accountant during the period from November 29, 2004
(inception) through July 18, 2006, was dismissed. Effective July 19, 2006 we
retained the firm of KPMG as our independent accountant, to review our unaudited
financial statements for the interim periods ended June 30, 2006, September 30,
2006, and to audit our financial statement for our fiscal year ending December
31, 2006, and include such report as part of our annual report on Form 10-KSB
for our fiscal year ending December 31, 2006.
On August 7, 2006, we filed a report on Form 8-K advising that effective
July 24, 2006, we entered into a Project Development Agreement (the "Agreement")
with Delta-T Corporation, Williamsburg, Virginia, ("Delta"), wherein Delta shall
provide us professional advice, business and technical information, design and
engineering and related services in order to assist us in assembling all of the
information, permits, agreements and resources necessary for construction of an
ethanol plant having the capacity to produce 100 million gallons per year in
Barrie, Ontario, Canada.
This report also advised that we had retained Steven Reader as our Chief
Operating Officer.
On September 12, 2006, we filed a report on Form 8-K, advising of the sale
of unregistered shares of our common stock relevant to the private offering of
our common stock described above under "Liquidity and Capital Resources," as
well as under Part II, Item 2, "Changes in Securities," above. In addition, this
report disclosed of certain changes in our management wherein we increased the
number of our Board of Directors from three to six members, Mr. Joseph Galda
resigned as a director of our Company and Messrs. Andrew Telsey, Paul Durst,
Robert Richards and Frank F. Klees were appointed as directors, with Mr. Telsey
also assuming the position of our Corporate Secretary.
Subsequent Events
On October 31, 2006, we filed a report on Form 8-K advising that our Chef
Financial Officer, Ciaran Griffin, had resigned.
35
On November 14, 2006, we filed a report on Form 8-K, advising that Mr.
Richard Smith had been appointed to the position of Chief Financial Officer on a
probationary basis, replacing Mr. Griffin. In addition, this report also advised
that (i) we had elected to extend this offering and (ii) the number of shares
and proceeds received by us was incorrectly stated in our previous Form 8-K
report. This offering has been closed and the information contained in this
report relating to our private offering is current and correct.
36
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORTHERN ETHANOL, INC.
(Registrant)
Dated: November 30, 2006
By:s/Gordon Laschinger
------------------------------------------
Gordon Laschinger, Chief Executive Officer
37