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EVCC.OB > SEC Filings for EVCC.OB > Form 10-Q on 14-Nov-2008All Recent SEC Filings

Show all filings for ENVIRONMENTAL CONTROL CORP. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ENVIRONMENTAL CONTROL CORP.


14-Nov-2008

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited financial statements are stated in Canadian Dollars (Cdn$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars. All references to "US$" refer to United States dollars and all references to "common shares" refer to the common shares in our capital stock.

As used in this quarterly report, the terms "we", "us", "our", "our company" and "EVCC" mean Environmental Control Corp., unless otherwise indicated.

General Overview

We were incorporated under the laws of the State of Nevada on February 17, 2004 under the name "Boss Minerals, Inc.". From inception to March 20, 2006, we were an exploration stage company engaged in the exploration of minerals properties.

By an agreement dated March 20, 2006, we agreed to acquire the principal assets of Environmental Control Corporation ("ECC"), a Newfoundland, Canada based company, involved in the development of emission control devices for small spark ignition combustion engines. Effective February 26, 2007, we completed the acquisition of the principal assets of ECC. The asset acquisition is deemed to be a reverse acquisition for accounting purposes. ECC, whose principal assets were acquired, is regarded as the predecessor entity as of February 26, 2007.

Our plan for the twelve months following the date of this report is to continue establishing new relationships with potential clients, and to translate both new and existing relationships into sales for our company. We will also be completing a durability test on a two-stroke engine in accordance with US and Canadian regulations. Upon completion of this test, we intend to partner with engine manufacturers and apply for certification with various regulatory bodies worldwide. We will continue marketing activities on an international scale.

Our catalytic muffler technology is registered for two patents in the United States under the titles of "Combined Catalytic Muffler" and "Reverse Flow Catalytic Muffler". We also hold two patents in Canada under the title "Combined Catalytic Muffler" and "Reverse Flow Catalytic Muffler" and one patent in Europe under the title of "Reverse Flow Catalytic Muffler". The filing numbers are located below:

Environmental Control Corp.

U.S.A. 6,622,482
7,018,590

Canada 2,448,742
2,448,648

Europe 02742591.7


Numerous tests, including tests at Carnot Emission Services in Texas, U.S.A., Bombardier Inc. in Quebec, Canada and Environment Canada's Emissions Research and Measurement Division in Ontario, Canada, have proven this technology to be extremely effective in the reduction of harmful emissions.

We currently target small spark-ignition engines, including personal transportation devices, off road recreational vehicles, personal watercrafts, water pumps and in particular the lawn and garden industry. Included under the lawn and garden segment are: walk behind rotary mowers, rear engine riding mowers, front engine lawn tractors, riding garden tractors, walk-behind rotary tillers, snow throwers, commercial turf intermediate walk-behind rotary mowers, commercial turf riding rotary mowers, gasoline powered chainsaws, gasoline powered hand-held blowers, gasoline powered backpack blowers, gasoline powered trimmers/brushcutters and gasoline powered hedge trimmers. We are currently focused on the North American market and we are targeting Original Engine Manufacturers (OEM's). The aftermarket parts segment represents a secondary market.

On July 30, 2008, we entered into a convertible loan agreement with 51644 Newfoundland and Labrador Inc., a company of which a director and officer of our company holds a controlling interest. Under the terms of the convertible loan agreement, 51644 Newfoundland has agreed to loan our company up to $36,376. The loan is convertible into shares of common stock at a conversion price of $0.17 per share. The loan will bear interest at 10% per annum. The principal amount of the loan is due and payable five years from the advancement date. Proceeds of the loan are to be used to acquire certain patents and intellectual property rights and the loan amount is to be secured against such intellectual property.

Effective September 5, 2008, we entered into a loan agreement with 51644 Newfoundland and Labrador Inc., a company of which a director and officer of our company holds a controlling interest. Under the terms of the loan agreement, 51644 Newfoundland has agreed to loan our company up to $25,000. The loan is non-intererst bearing. The principal amount of the loan is due and payable five years from the advancement date. Proceeds of the loan are to be used to further business development and research and development activities.

Effective October 16, 2008, we entered into a convertible loan agreement with Albert E. Hickman, a director and officer of our company. Under the terms of the convertible loan agreement, Mr. Hickman has agreed to loan our company up to $ 50,000. The loan is convertible into shares of common stock at a conversion price of $0.07 per share. The loan will bear interest at a rate of 10% per annum. The principal amount of the loan is due and payable five years from the advancement date. Proceeds of the loan are to be used to repay an outstanding loan of $25,000 owing to 51644 Newfoundland and Labrador Inc., and to further business development and research and development activities.

Results of Operations

Three month Summary ending September 30, 2008 and 2007

                                           Three Months Ended
                                              September 30
                                            2008         2007
                     Revenue            $      Nil   $      Nil
                     Operating Expenses $  116,973   $  266,025
                     Net Loss           $  222,674   $  314,080


Expenses

Our operating expenses for the three month periods ended September 30, 2008 and
September 30, 2007 are outlined in the table below:

                                               Three Months Ended
                                                     June 30
                                                2008         2007
                 Depreciation               $    1,355   $    1,373
                 Foreign exchange gain      $    1,254   $    9,379
                 General and administrative $  114,364   $  255,273
                 Research and development   $      Nil   $      Nil

Operating expenses for the three months ended September 30, 2008, decreased by 41% as compared to the comparative period in 2007 primarily as a result of a decrease in management fees, accounting fees, and legal fees for services relating to both corporate filings as well as intellectual property.

Nine month Summary ending September 30, 2008 and 2007

                                            Nine Months Ended
                                              September 30
                                            2008         2007
                     Revenue            $      Nil   $      Nil
                     Operating Expenses $  331,997   $  405,121
                     Net Loss           $  532,542   $  519,034

Expenses

Our operating expenses for the nine month periods ended September 30, 2008 and
September 30, 2007 are outlined in the table below:

                                                 Nine Months Ended
                                                   September 30
                                                 2008         2007
                Depreciation                 $    4,066   $    3,442
                Foreign exchange loss (gain) $      805   $    9,138
                General and administrative   $  323,371   $  407,411
                Research and development     $    3,755      (14,870 )

Operating expenses for the nine months ended September 30, 2008, decreased by 21% as compared to the comparative period in 2007 primarily as a result of a decrease in management fees, accounting fees, and legal fees for services relating to both corporate filings as well as intellectual property.

Revenue

We have not earned any revenues since our inception and we do not anticipate earning revenues in the upcoming quarter.

Equity Compensation

As of September 30, 2008, we had not adopted any equity compensation plans and no stock, options, or other equity securities were awarded to our executive officers.


Liquidity and Financial Condition

Working Capital

                                         At            At        Percentage
                                      Sept. 30,     Dec. 31,     Increase/
                                        2008          2007        Decrease
          Current Assets            $    24,456   $   50,116         (51.20 ) %
          Current Liabilities       $    59,351   $   53,831          10.25   %
          Working Capital (deficit) $   (34,895 ) $   (3,715 )       839.30   %


Cash Flows

                                                 Nine Months       Nine Months
                                                    Ended             Ended
                                                September 30,     September 30,
                                                    2008              2007
    Net Cash Used in Operating Activities     $       254,882   $       274,797
    Net Cash Provided by Investing Activities $           Nil   $       164,748
    Net Cash Provided by Financing Activities $       228,349   $       240,502
    Increase in Cash During the Period        $       (26,533 ) $       130,453

In the next twelve months we anticipate spending $165,000 on research and development, $80,000 on sales and marketing and $140,000 on administrative expenses. Our cash on hand at September 30, 2008 was $19,659. We plan to raise additional capital required to meet immediate short-term needs and to meet the balance of our estimated funding requirements for the twelve months, primarily through the private placement of our securities.

We are not aware of any known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way.

Future Financings

We will require additional financing in order to enable us to proceed with our plan of operations, as discussed above, including approximately $385,000 over the next 12 months to pay for our ongoing expenses. These expenses include sales and marketing, research and development, manufacturing and engineering, and general and administrative expenses. These cash requirements are in excess of our current cash and working capital resources. Accordingly, we will require additional financing in order to continue operations and to repay our liabilities. There is no assurance that any party will advance additional funds to us in order to enable us to sustain our plan of operations or to repay our liabilities.

We anticipate continuing to rely on equity sales of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities.

We presently do not have any arrangements for additional financing for the expansion of our exploration operations, and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with our plan of operations.

Contractual Obligations

As a "smaller reporting company", we are not required to provide tabular disclosure obligations.

Going Concern

We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. At this time, we cannot provide investors with any assurance that we will be able to raise sufficient funding


from the sale of our common stock or through a loan from our directors to meet our obligations over the next twelve months. We do not have any arrangements in place for any future debt or equity financing.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

Stock-based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R, "Share Based Payments", using the fair value method. The Company has not issued any stock options since its inception. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

Long-lived Assets

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

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