ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
For the three months ended July 31, 2006 and since the date of inception, we have generated no revenues.
We incurred operating expenses of $114,495 for the three months ended July 31, 2006, as compared to $87,432 for the three months ended July 31, 2005. The increase for the period ended July 31, 2006 was mainly attributed to approximately $57,000 spent on investor and public relations. The balance of the expenses consisted of general operating expenses, including research and development expenses, and accounting and professional fees incurred in connection with the day-to-day operation of our business and the preparation and filing of our periodic reports.
Our total comprehensive loss for the three month period ended July 31, 2006 was $114,495, or $0.00 per share, as compared to a total comprehensive loss of $89,335, or $0.00 per share, for the three month period ended July 31, 2005. We have incurred a total comprehensive loss of $3,300,643 from the date of incorporation on September 2, 2003 to July 31, 2006.
There was no cash provided by investing activities for the three month period ended July 31, 2006.
Cash provided by financing activities for the three month period ended July 31, 2006 was $23,993, consisting of $24,000 received in connection with a private placement sale of 114,286 shares of restricted common stock to an unrelated third party.
During the period, we entered into a three-month marketing consulting agreement with an unrelated third party and issued 150,000 shares of restricted common stock, valued at $28,500, as compensation for the services.
During the period, we also entered into a one-year consulting agreement with an unrelated third party for assistance in locating real estate properties for lease and/or purchase. We issued a total of 24,513 shares of our restricted common stock, valued at $4,658, as compensation for these services.
At July 31, 2006, there were no common stock purchase options outstanding.
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At July 31, 2006, the following share purchase warrants were fully vested, issued and outstanding:
Warrants Number Price per Share Expiration Date
5,000,000 $0.50 November 26, 2006
2,000,000 $0.50 August 11, 2007
1,125,000 $0.50 August 23, 2007
3,000,000 $0.50 August 24, 2007
250,000 $0.50 September 28, 2007
1,154 $0.50 November 29, 2007
125,000 $0.50 December 5, 2007
1,006 $0.50 December 23, 2007
2,960,000 $0.25 January 12, 2011
14,462,160
At July 31, 2006, we had a total of 28,906,137 shares of common stock issued and outstanding, 18,669,565 of which were restricted securities, as defined under Rule 144 of the Securities Act of 1933, as amended.
Subsequent to the period ended July 31, 2006, we provided a legal retainer to an unrelated third party for securities counsel services by issuing 33,333 shares of restricted common stock, valued at $5,000.
Liquidity and Capital Resources
We expect our current cash in the bank of $14,216, plus monies we expect to receive from exercise of warrants during the ensuing year to satisfy our cash requirements until we complete our engine technology and are able to generate revenues. We expect to be able to satisfy our cash requirements for at least the next twelve months without having to raise additional funds or seek bank loans; however, there we cannot guarantee that the funds will be sufficient. We may have to raise additional monies through sales of our equity securities or through loans from banks or third parties to continue our business plans; however, no such plans have yet been implemented.
Our total stockholders' equity at July 31, 2006, was $280,740.
We do not intend to purchase any significant property or equipment, nor incur any significant changes in employees during the next nine months.
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Plan of Operation
We are a development stage company formed to develop and market a new type of patented oscillating piston engine. The oscillating piston engine (OPE) weighs only a fraction of a conventional engine and requires no valves or valve train, nor a cumbersome water cooling system. However, despite its lighter weight, to date we have not yet perfected the technology or proven that the oscillating piston engine can function as well as a conventional engine.
We have acquired the prototype engine and certain rights to the patents from the inventor and engineering team through an Option Agreement that gives us the rights to further develop the engine to the point where it can successfully be marketed and sold. We do not currently own all of the intellectual property or patents related to the OPE and the underlying technology and the proceeds of our current offering will not provide us with enough capital to buy these intellectual property and patent rights. However, the Option Agreement also grants us the right to purchase the patents underlying the technology at any time on or before 18 or 36 months from the date of the initial payment of the $100,000 deposit (May 31, 2004) for $1,000,000, if within 18 months, or $1,500,000 if within 36 months. In addition, the option may be assigned or transferred to another party without the prior approval of the Optionor. During the term of the option, we have the exclusive right to manufacture and market all products covered by the patents. We are in the process of testing and improving on the patented design. However, the engine, which has not had a test run since 1995, has not been tested in a vehicle or other device; has experienced critical mechanical failures in the past; and may experience more failures in the future.
On July 18, 2006, we entered into an Engine Development and License Agreement ("Agreement") with Obvio! Automotoveiculos S.A. , a Brazilian corporation with headquarters in Rio de Janeiro ("Obvio!"). Obvio! is a developer and manufacturer of high-safety and high performance microsports automobiles. Obvio! is in the process of manufacturing two automobile models, the Obvio!828 and the Obvio!012 for which it is considering using our Oscillating Piston Engine ("OPE") technology.
The Agreement provides for a non-exclusive joint venture for the purpose of developing a new generation of OPE suitable for hybrid vehicle applications. Under the Agreement, we granted Obvio! with a non-exclusive license for the OPE technology in consideration of the payment by Obvio! of $5,000,000, payable in $500 installments for each OPE installed or sold. Upon completion of the payment of the full $5,000,000, Obvio! will then pay a royalty to us in the amount of $100 for each Obvio! vehicle sold with incorporates the OPE technology.
We are in the development stage; have not yet generated any revenues and have sustained net losses of $3,300,643 since inception. Our business plans are to develop the technology and build a prototype engine that can be sublicensed or sold to third party manufacturers for amounts sufficient to generate the funds to purchase the patent rights subject of the option agreement; however, if we are unable to do so prior to the expiration date of the option, we would need to raise additional capital through loans or equity sales, or rely on receipt of the cash we would receive from exercise of any warrants sold in our current offering to exercise the option. In addition, based on our current development plans, we will not generate any revenues or profits over the next 12 months while we are completing and testing the engine and technology. Our auditors have expressed substantial doubt about our ability to continue as a going concern.
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Critical Accounting Policies
The unaudited financial statements as of July 31, 2006 included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. It is suggested that these financial statements be read in conjunction with our April 30, 2006 audited financial statements and notes thereto, which can be found in our Form 10K-SB Annual Report, filed on the SEC website at www.sec.gov under our SEC File No. 333-116324.
We have accounted for patent costs in accordance with Statement of Financial Accounting Standards (SFAS) 142 - "Goodwill and Other Intangible Assets". In accordance with that statement, intangible assets with estimatable lives, such as a patent, are amortized on a straight-line basis over the estimated useful lives and are reviewed for impairment in accordance with SFAS 144 - "Accounting for the Impairment of Long-Lived Assets". The patent costs will be amortized over their estimated useful lives upon exercise of the option.
We have also adopted SFAS No. 52, Foreign Currency Translation, which requires that the translation of the applicable foreign currency into U.S. dollars be performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses resulting from such translation are included in the consolidated statements of stockholders' equity and comprehensive income.
