Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (date of earliest event reported): July
15,
2008
HYDROGEN
ENGINE CENTER, INC.
(Exact
name of registrant as specified in its charter)
NEVADA
|
000-50542
|
82-0497807
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
of
incorporation)
|
File
Number)
|
Identification
No.)
|
2502
East Poplar Street, Algona, Iowa 50511
(Address
of principal executive offices)
Registrant's
telephone number, including area code: (515) 295-3178
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
*Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
SECTION
4 - MATTERS RELATED TO ACCOUNTANTS AND FINANCIAL
STATEMENTS
Item
4.02(a) Non-reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review
Management
has determined that we are required to make certain adjustments to our financial
statements for the year ended December 31, 2007 and for the quarter ended March
31, 2008. The adjustments referred to in this Item 4.02 will not materially
affect our current cash position and will not have any effect on the amount
of
net loss or loss per share as previously reported.
Losses
related to inventory.
On
July
15, 2008, and in response to comments from the Commission, management concluded
that a portion of “losses related to inventory” previously reported as operating
expense should instead have been recorded as a component of cost of goods sold
based on guidance from EITF 96-9. This will require an amendment to our
financial statements for the year ended December 31, 2007 and for the quarter
ended March 31, 2008.
The
facts
underlying this conclusion are as follows:
Our
Consolidated Statements of Operations for the year ended December 31, 2007,
contain a line item “losses related to inventory” as an operating expense. Our
Consolidated Statements of Operations for the quarter ended March 31, 2008,
contain a line item “losses (recovery) related to inventory” as an operating
expense. These entries include inventory write-downs consisting of component
parts, finished goods and purchase commitments, which we have concluded should
have been included as a component of cost of goods sold. The amount of such
inventory write-down from inception (May 19, 2003) through December 31, 2007
was
$628,861. The amount of inventory write-down from inception (May 19, 2003)
through March 31, 2008 was $616,957.
Also
included in these entries is an allowance for loss on engine blocks purchased
from our supplier in China. We have rejected most of the engine blocks received
from this supplier. Based upon the Warranty and Replacement Terms agreement
with
the supplier, dated March 22, 2007, and visits to the factory in China during
the months of October, 2007, and April 2008, the supplier has agreed to replace
the rejected products at no additional cost to us. However, unexpected vendor
delays have caused us to be concerned with the reliability of this vendor and
doubt whether the blocks will be replaced in a timely manner. Therefore, we
established an allowance for the full value of this inventory, which allowance
was $333,162 at December 31, 2007 and $331,170 at March 31, 2008.
Also
included in “losses related to inventory” on the Consolidated Statements of
Operations was an expense recorded for the issuance of warrants to settle a
vendor dispute in the total amount of $577,500 from inception through March
31,
2008. This amount will continue to be recorded as operating expense and will
be
reflected as “vendor settlement” in our future filings.
As
a
result of the above, cost of goods sold will be increased, and gross profit
will
be reduced, by $533,876 for the year ended December 31, 2007. Cost of goods
sold
will be reduced, and gross profit will be increased, by $11,904 for the quarter
ended March 31, 2008. Cost of goods sold will be increased, and gross profit
will be reduced, by $950,119 for the period from inception to March 31, 2008.
Beneficial
conversion feature of the Series A Preferred Stock
On
July
17, 2008, and in response to comments from the Commission, management concluded
that a $1,889,063 beneficial conversion feature accretion previously reported
as
an increase to our accumulated deficit should instead have been recorded as
a
reduction to paid-in capital since this was a quasi dividend and we have no
retained earnings available. This will require an amendment to our financial
statements for the year ended December 31, 2007 and for the quarter ended March
31, 2008.
The
facts
underlying this conclusion are as follows:
In
2006
we issued 930,000 shares of Series A Preferred Stock with certain anti-dilution
rights. As a result of the issuance of the Series B Preferred Stock in 2007,
the
conversion price of the Series A Preferred Stock was reduced from $3.25 per
share to $2.00 per share, resulting in a noncash, quasi dividend to holders
of
the Series A Preferred Stock of $1,889,063. We recorded this quasi dividend
as
an increase to accumulated deficit in our Consolidated Statements of
Stockholders' Equity (Deficit) and Comprehensive Loss and Consolidated Balance
Sheet as of December 31, 2007.
After
further review, management has concluded that this quasi dividend should have
been recorded as additional paid-in capital. As a result of the above,
additional paid-in capital will be adjusted by the amount of $(1,889,063),
and
“deficit accumulated during the development stage” will be adjusted by the
amount of $1,889,063 as of December 31, 2007 and March 31, 2008. Total
stockholders’ equity will be unchanged.
Our
Chief
Financial Officer and our Audit Committee discussed with our independent
accountants, the matters disclosed in this current report. Accordingly, the
Company's Consolidated Statements of Operations, Consolidated Statements of
Stockholders' Equity (Deficit) and Comprehensive Loss and Consolidated Balance
Sheets included in the Company's annual report on Form 10-KSB for the year
ended
December 31, 2007 and the quarterly report on Form 10-Q for the quarter ended
March 31, 2008 should no longer be relied upon.
The
adjustments referred to in this Item 4.02 will not materially affect our current
cash position and will not have any effect on the amount of net loss or loss
per
share as previously reported. We expect to file our amended 10-KSB report for
the year ended December 31, 2007 and our amended 10-Q for the period ended
March
31, 2008 as soon as practicable.
This
report contains forward-looking statements. Such forward-looking statements
may
include statements regarding, among other things, our future financial position.
Forward-looking statements, which involve assumptions and describe our future
plans, strategies, and expectations, are generally identifiable by use of the
words “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “believe”,
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology. This information may involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from the future
results, performance, or achievements expressed or implied by any
forward-looking statements. In light of these risks and uncertainties, there
can
be no assurance that the forward-looking statements contained in this filing
will in fact occur. When considering forward-looking statements, readers are
urged to carefully review and consider the various disclosures, including risk
factors and their cautionary statements, made by us in this document and in
our
other reports filed with the Securities and Exchange
Commission.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
HYDROGEN
ENGINE CENTER, INC.
(Registrant)
By:
/s/
Sandra Batt
-----------------------
Name:
Sandra Batt
Title:
Chief Financial Officer
Date:
July 18, 2008