Nevada
|
82-0497807
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Title of each class
|
Name of each exchange on which registered
|
SEC
2337 (12-05)
|
Persons
who are to respond to the collection of information contained in
this form
are not
required
to respond unless the form displays a currently valid OMB control
number.
|
Class
|
Outstanding at February 21, 2008
|
|||
Common, par value $.001
|
27,590,164
|
|||
Series B Preferred, par value $.001
|
1,932,846
|
Page
|
||
PART I.
|
||
ITEM 1.
|
DESCRIPTION
OF BUSINESS
|
6
|
Business
Development
|
6
|
|
Corporate
History
|
7
|
|
Principal
Products and Markets
|
8
|
|
Current
Product Offerings
|
9
|
|
Commercial
Applications of our Products
|
9
|
|
Distributed
Power Generation: Use of Integrated Gensets
|
11
|
|
By-product
Gas Power Generation Segment
|
13
|
|
Industrial
Applications
|
13
|
|
Distribution
Methods for our Products and Services
|
14
|
|
Competition
|
14
|
|
Principal
Suppliers
|
15
|
|
Dependence
on One or Few Major Customers
|
15
|
|
Intellectual
Property and Patent Protection
|
15
|
|
Research
and Development
|
19
|
|
Hydrogen
as a Fuel
|
19
|
|
Issues
Related to Government Approvals or Governmental
Regulations
|
20
|
|
Cost
of Compliance with Environmental Laws
|
20
|
|
Employees
|
21
|
|
Risk
Factors
|
21
|
|
ITEM 2.
|
DESCRIPTION
OF PROPERTY
|
30
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
31
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
31
|
PART II.
|
||
ITEM 5.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
32
|
Market
Information
|
32
|
|
Securities
Authorized for Issuance Under Equity Compensation Plans
|
33
|
|
ITEM 6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
|
34
|
Overview
|
34
|
|
Results
of Operations
|
35
|
|
Critical
Accounting Policies
|
38
|
|
Inventories
|
38
|
|
Warranty
Reserve
|
38
|
|
Revenue
Recognition
|
38
|
|
Stock-based
Compensation
|
38
|
|
Liquidity
and Capital Resources
|
38
|
|
Operating
Budget and Financing of Operations
|
38
|
|
Going
Concern
|
39
|
|
Plan
of Operation
|
41
|
|
Grants
and Government Programs
|
42
|
|
Employees
|
43
|
|
Net
Operating Loss
|
43
|
|
Inflation
|
43
|
Off-Balance
Sheet Arrangements
|
43
|
|
ITEM 7.
|
FINANCIAL
STATEMENTS
|
44
|
ITEM 8.
|
CHANGES
IN AND DISAGREEMENT WITH ACCOUNTANTS
|
72
|
ITEM 8A
|
CONTROLS
AND PROCEDURES
|
72
|
PART III.
|
||
ITEM 9.
|
DIRECTORS,
EXECUTIVES, OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(a) OF THE EXCHANGE ACT
|
73
|
ITEM 10.
|
EXECUTIVE
COMPENSATION
|
73
|
|
|
|
ITEM 11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
73
|
ITEM 12.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
74
|
ITEM 13.
|
EXHIBITS
|
74
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
74
|
·
|
cost
effective
|
·
|
sustainable
and therefore capable of ushering in the carbonless fuel
era
|
·
|
competitive
with fossil fuel alternative
|
·
|
reliable
|
·
|
capable
of exceeding customer expectations
|
·
|
market
driven
|
·
|
Distributed
power generation via renewable power
support
|
·
|
Power
generation using clean-burning by-product gases such as
hydrogen
|
·
|
Industrial
applications for our engine controls and fuel distribution
system
|
·
|
Launch
the Oxx Power®
4.9L engine line
|
·
|
Establish
US and India based distribution
|
·
|
Establish
a core line of power generation
products
|
·
|
Hire
the core staff of the organization
|
·
|
Create
a brand presence
|
·
|
Establish
the basis of our IP portfolio
|
·
|
Establish
proof of concept projects throughout the
world
|
·
|
4.9L,
6-cylinder Oxx
Power®
Engine
|
·
|
4.9L,
6 cylinder Oxx
Power®
Hydrogen
engine
|
·
|
Oxx
Power®
Power
Units
|
·
|
50kW
Oxx
Power®
Hydrogen
Genset
|
·
|
250kW
4
+ 1™ Hydrogen
Genset
|
·
|
Oxx
Boxx™ Engine
Controller
|
·
|
We
entered into a strategic alliance with Startech Environmental Corporation,
a Connecticut based firm, on February 19, 2008. Startech designs
and
manufactures plasma conversion waste processing equipment. Startech
believes that it can produce gas from its waste mitigation process
that
can be used to create power from both traditional and non-traditional
power generation systems. We will supply Startech a single genset
to
integrate with its system in order to prove the concept. Assuming
we have
successful trials, we will work together to package and market a
complete
system.
|
·
|
In
September 2007 we entered
into a memorandum of understanding with New Delhi-based Belliss India
Limited to sell, deploy, and service its engines and distributed
generation equipment in India. We believe our new relationship with
Belliss offers us the opportunity to establish broader sales penetration
of carbonless energy products in India while allowing Belliss to
expand
its product and service scope.
|
·
|
In
September 2007 we shipped our first ammonia-fueled power unit for
testing
purposes. The power unit, equipped with an Oxx Power®
4.9L
engine outfitted with our proprietary controls and fuel delivery
system,
was shipped to TGP West in California. The engine is being tested
to run
primarily on anhydrous ammonia, with liquefied petroleum gas (LPG)
as a
catalyst fuel for this test. The clean power supplied by this unit
is used
to irrigate a walnut grove and provide water for a cattle ranch in
the San
Luis Obispo area. We
believe ammonia could be the enabler to the hydrogen economy. There
is an
established manufacturing and distribution infrastructure in place
around
the world for anhydrous ammonia, which is the greatest carrier of
hydrogen, at 17.6% hydrogen by weight. We are developing the means
to
operate engines effectively on this fuel, and intend to continue
to
further optimize the platform.
|
·
|
In
August 2007 we received an order for two hydrogen-fueled, V-8 Oxx
Power®
engines
in support of the International
Centre for Hydrogen Energy Technology/UNIDO (United Nations Industrial
Development Organization) hydrogen development program in Istanbul,
Turkey
which are expected to
be integrated into the water taxi fleet in Istanbul, bringing
emission-free fuel for taxis operating in that busy port. The
engines to be delivered under this purchase order will be specially
outfitted for marine use.
|
·
|
In
January 2007, we shipped one of our 4+1™
250
kW Oxx Power®
generator
systems to a demonstration site in Toronto as part of our contract
to
deliver the generator system to Natural Resources Canada (“NRCan”). The
HEC Oxx Power®
generator
system was successfully tested in Canada for several months, generating
power by burning non-polluting hydrogen fuel. The generator system
is
controlled by our Oxx Boxx™
technology developed by HEC Canada, whereby four engines run in parallel
while one is always in reserve. This design maximizes both output
and
reliability, to become a key part of extending the use of both wind
power
and the power grid.
|
·
|
In
December 2006 we delivered one 4.9L hydrogen-fueled engine to Hidrener
-
Hidrogen Enerji Sistemleri A.S. in Turkey. This order is part of
a United
Nations energy project in Turkey.
|
·
|
On
November 6, 2006, we entered into a Memorandum of Understanding with
ITM
Power plc (“ITM”), one of the UK’s leading innovators within the
alternative energy industry. The parties plan to jointly develop
products
for a non-polluting, grid-independent energy system which can undergo
early field trial testing. We anticipate that ITM can offer an assured
supply of hydrogen using ITM’s low cost electrolyzer technology. ITM
anticipates that HEC will provide an early route to the provision
of a
complete system package using our proven engine technology. The
combination of a hydrogen-fueled internal combustion engine and a
low cost
electrolyzer could provide the essential technology to convert low-value,
intermittent, renewable energy (wind, solar) into a reliable, non-fossil
energy supply. Subject to the production of satisfactory results
from the
field trials, the company and ITM will progress into detailed discussions
with the intention of entering into a more formal commercial exploitation
arrangement.
|
·
|
In
August 2006, we received an order from Grasim Industries Limited
for one
50 kW hydrogen engine together with a generator and control system.
We
shipped that system on March 30, 2007. Grasim Industries, a member
of the
Aditya Birla Group of Indian companies, owns and operates a number
of
chlor-alkali manufacturing factories. Our hydrogen engines and gensets
are
of particular interest to Grasim Industries because hydrogen is a
waste
product of the chlor-alkali manufacturing process. The company and
Grasim
have entered into a Memorandum of Understanding as a first step toward
the
goal of working together to develop and market a complete electrical
generation system for the chlor-alkali manufacturing industry.
|
·
|
On
May 15, 2006, we executed a statement of intent acknowledging our
commitment to provide funding over a three-year period to support
research
by Propulsion Sciences Co. at the United States Merchant Marine Academy,
relating to the use of ammonia emulsions in diesel
fuels.
|
·
|
In
April 2006, we received a purchase order from National Renewable
Energy
Lab and Xcel Energy Services Inc. for the purchase of one 50kW hydrogen
fueled genset. This genset was delivered in December 2006 and is
being
tested in a wind farm setting in Colorado. The following internet
link
provides an animation where the overall process can be
reviewed;
|
·
|
Precision
Hi-speed Generator Alignment Fixture
-
A patent has been filed and is pending covering a method and apparatus
allowing for precise alignment between engines and hi-speed alternators.
The device solves the issue of misalignment, the cause of most failures
associated with using hi-speed engines with 2-pole 3000 or 3600 rpm
alternators. The device’s precise alignment of +/-.004 between engine
crankshaft and alternator rotor shaft greatly reduces vibration and
significantly increases the system’s life span. The device also acts as a
safety hub preventing the destruction of the alternator, should there
be a
catastrophic failure of the
coupler.
|
·
|
Material
Neutral Process–
A
patent has been filed and is pending covering a method and apparatuses
for
the development of a self-sustaining and carbon-free power system.
The
system would utilize renewable electrical power created from wind,
hydro
or solar to power an electrolyzer creating hydrogen “H2”.
The H2
would then be synthesized into anhydrous ammonia “NH3”
by adding nitrogen from the air. The NH3
would then be stored in tanks and later used as fuel in Oxx
Power®
generators.
|
·
|
Permanent
Magnet Generator Cooling
-
A patent has been filed and is pending covering the method and apparatus
for the more efficient transfer of heat away from the permanent magnet
generator. Permanent magnet generators represent a major step forward
in
the evolution of power generation. A stumbling block to the future
widespread implementation of this technology is the increased heat
associated with the design. Our method of reducing this heat represents
a
significant breakthrough in this area. These heat deflection capabilities
will allow us to produce prime power alternators with one-third of
the
footprint of their air-cooled
counterparts.
|
·
|
Dual
Connecting Rod Piston
-
A patent has been filed and is pending covering a large displacement
piston and connecting rod. The piston comprises a large bore piston
and a
plurality of connecting rods. A very large displacement engine is
built
using one piston with the plurality of connecting rods, wherein the
one
piston has the combined diameter of two pistons in a smaller bore
engine.
The connecting rods are spaced to operatively connect with a standard
crankshaft style, where each connecting rod of the two smaller, standard
pistons would connect to the crankshaft.
|
·
|
Indexed
Segmented Crankshaft
-
A patent has been filed and is pending relating to the manufacture
and
assembly of a crankshaft for an internal combustion or diesel engine.
The
invention is comprised of a crankshaft that is made up of pieces
or
segments that are assembled together with the proper segment indexing
to
achieve a design that could not be achieved by casing or machining
as a
single component. Crankshafts are generally made by molding and designing
to fit a specific engine and specific stroke. This design allows
for
changing the crankshaft design without having to make a new mold
or
undertake other associated steps.
|
·
|
Large
Displacement Engine
-
A patent has been filed and is pending covering an engine block with
a
plurality of relatively large piston bores. The engine block is adapted
for use of relatively large bore pistons, and preferably dual connecting
rod pistons. Configured in this manner, the engine block has a relatively
large displacement and is especially suited for use of low-btu fuels,
more
particularly hydrogen.
|
·
|
Laminated
Internal Combustion Engine Design and Fabrication
Technique
-
A patent has been filed and is pending covering an engine block for
an
internal combustion engine that is fabricated from laminated pieces
of
material instead of cast iron or cast aluminum. The advantages of
this
design are several. There is the flexibility of the design. Each
lamination piece can be designed to complex three dimensional structures
and/or passages. The lamination material itself can be changed to
improve
strength, thermal conductivity, reduce cost, or any other parameter
that
one might like to adjust. We believe this engine will have a manufacturing
cost of half, or less, than the cost of a traditional cost engine.
The
laminated engine is illustrated in Figure
2.
|
·
|
Carbon
Free Hydrogen and Ammonia Fueled Internal Combustion
Engine
-
A patent has been filed and is pending covering a spark ignited internal
combustion engine with a dual-fuel system and a special engine control
system, including special software. The engine control system starts
the
engine on either H2
or
on a combination of H2
and NH3
where in the latter case the percentage of H2
is
adjusted to ensure proper starting. Once the engine is running, the
engine
control system adjusts the percentage of hydrogen needed for proper
operation. The percentage of hydrogen can be from about 5% to 100%,
while
the percentage of ammonia can be from 0% to about 95%. NH3
provides greater power and requires less storage space and is therefore
the preferred fuel. The preferred way to operate the engine is to
start
with a hydrogen rich mixture and slowly decrease the percentage of
H2
until
the minimum amount required for proper engine operation is achieved.
This
minimum will be determined by several factors. The most notable is
the
flame velocity. At higher engine speeds (rpms) greater amounts of
hydrogen
will be required.
|
·
|
Gaseous/Liquid
and Ammonia Fueled Internal Combustion Engine
-
A patent has been filed and is pending covering a spark ignited internal
combustion engine with a dual-fuel system and a special engine control
system, including special software. The engine control system starts
the
engine with either 100% of a gaseous or liquid fuel (such as natural
gas,
gasoline or ethanol and referred to as “standard fuel”) or a combination
of standard fuel and NH3.
In the latter case, the percentage of standard fuel is adjusted to
ensure
proper starting. Once the engine is running, the engine control system
adjusts the percentage of standard fuel needed for proper operation.
The
percentage of standard fuel can be from approximately 5% to 100%,
while
the percentage of ammonia can be from 0% to approximately 95%.
NH3
produces no CO2
emissions and is therefore the preferred fuel. The preferred way
to
operate the engine is to start with a gaseous fuel rich mixture and
slowly
decrease the percentage of standard fuel until the minimum amount
required
for proper engine operation is achieved. This minimum will be determined
by several factors. The most notable is the flame velocity. At higher
engine speeds (rpms) greater amounts of standard fuel will be
required.
|
Mark
|
Status
|
Reg./Serial
No.
|
|||||
TM:
Energy In A Bottle
|
Allowed
|
77/015,544
|
|||||
TM:
4 + 1
|
Pending
Filed
on 2/6/2006
|
78/807,600
|
|||||
TM:
HEC
|
Pending
Filed
on 4/5/2007
|
77/149,385
|
|||||
TM:
Baby Oxx
|
Allowed
|
77/015,515
|
|||||
TM:
No Carbon Design
|
Allowed
|
78/942,318
|
|||||
TM:
OXX & Design
|
Registered
|
78/841,069
|
|||||
TM:
OXX BOXX
|
Pending
Filed
on 3/27/2006
|
78/846,909
|
|||||
TM:
OXX CART
|
Allowed
|
78/812,253
|
|||||
TM:
OXX POWER
|
Registered:
|
78/537,731
|
|||||
TM:
OXX WORKS
|
Allowed
|
78/807,587
|
|||||
TM:
Part of the Solution
|
Allowed
|
77/036,246
|
|||||
TM:
Tangible Technology
|
Pending
Filed
on 6/8/2007
|
77/201,544
|
·
|
Test
data and results;
|
·
|
OEM
part numbers;
|
·
|
Recommended
maintenance;
|
·
|
Service
or repair manuals;
|
·
|
Parts
manuals;
|
·
|
End-user
warranty statement;
|
·
|
Recall
and campaign processes;
|
·
|
Warranty
reporting process;
|
·
|
Record
retention process.
|
· |
timely
receipt of required financing which has to date been delayed beyond
our
initial expectations;
|
· |
successful
pursuit of our research and development efforts;
|
· |
protection
of our intellectual property;
|
·
|
quality
and reliability of our products;
|
·
|
ability
to attract and retain a qualified work force in a small
town;
|
·
|
size
and timing of future customer orders, milestone achievement, product
delivery and customer acceptance;
|
·
|
success
in maintaining and enhancing existing strategic relationships and
developing new strategic relationships with potential customers;
|
·
|
actions
taken by competitors, including suppliers of traditional engines,
hydrogen
fuel cells and new product introductions and pricing changes;
|
·
|
reliability
of our suppliers, which to date have been less reliable than we had
expected;
|
·
|
reasonable
costs of maintaining our facilities and our
operations;
|
·
|
consumer
perception of the safety of hydrogen and ammonia and willingness
to use
engines powered by hydrogen or ammonia;
|
·
|
the
cost competitiveness of hydrogen or ammonia as a fuel relative to
other
fuels;
|
·
|
the
future availability of hydrogen or ammonia as a fuel;
|
·
|
adverse
regulatory developments, including the adoption of onerous regulations
regarding hydrogen, or ammonia, use or storage;
|
·
|
barriers
to entry created by existing energy providers; and
|
·
|
the
emergence of new competitive technologies and products.
|
·
|
we
may be unsuccessful in entering into or maintaining collaborative
agreements for the co-development of our technologies or the
commercialization of products incorporating our
technology;
|
·
|
we
may not be successful in applying our technology to or otherwise
satisfying the needs of our collaborative
partners;
|
·
|
our
collaborators may not be successful in, or may not remain committed
to,
co-developing our technologies or commercializing products incorporating
our technology;
|
·
|
our
collaborators may seek to develop other proprietary
alternatives;
|
·
|
our
collaborators may not commit sufficient resources to incorporating
our
technology into their business;
|
·
|
our
collaborators are not obligated to market or commercialize our
technologies or products incorporating our technology, and they are
not
required to achieve any specific commercialization
schedule;
|
·
|
our
collaborative agreements may be terminated by our partners on short
notice.
|
·
|
Without
prior stockholder approval, the board of directors has the authority
to
issue one or more classes of preferred stock with rights senior to
those
of common stock and to determine the rights, privileges, and preferences
of that preferred stock;
|
·
|
There
is no cumulative voting in the election of directors;
and
|
·
|
Stockholders
cannot call a special meeting of
stockholders.
|
1)
|
To
elect four directors to hold office for the ensuing year and until
their
successors are elected and qualified. Theodore G. Hollinger, Thomas
Trimble, Edward T. Berg and Philip G. Ruggieri were each elected
to the
Board of Directors at the annual meeting. Votes cast for and against
each
of them were as follows:
|
Theodore
G. Hollinger:
|
For:
20,200,299
|
Withheld:
3,625
|
Thomas
Trimble:
|
For:
20,197,299
|
Withheld:
6,625
|
Edward
T. Berg:
|
For:
20,166,049
|
Withheld:
37,875
|
Philip
G. Ruggieri:
|
For:
20,197,299
|
Withheld:
6,625
|
2)
|
To
ratify the appointment of LWBJ, LLP as the company’s independent public
accountants for 2006. The appointment was ratified as follows: For:
20,198,924 Against: 0 Abstain:
5,000.
|
High
Bid
|
Low
Bid
|
||||||
First
Quarter ended March 31, 2006
|
$
|
8.20
|
$
|
5.00
|
|||
Second
Quarter ended June 30, 2006
|
23.25
|
6.50
|
|||||
Third
Quarter ended September 30, 2006
|
14.10
|
3.10
|
|||||
Fourth
Quarter ended December 31, 2006
|
3.60
|
2.30
|
|||||
First
Quarter ended March 31, 2007
|
3.55
|
2.50
|
|||||
Second
Quarter ended June 30, 2007
|
3.08
|
1.35
|
|||||
Third
Quarter ended September 30, 2007
|
1.75
|
0.95
|
|||||
Fourth
Quarter ended December 31, 2007
|
1.85
|
0.65
|
·
|
The
number of securities to be resold must fall within specified volume
limitations;
|
·
|
The
resale must comply with the revised "manner of sale" conditions;
and
|
·
|
The
seller may be required to file a Form 144 reporting the sale (or
proposed
sale), subject to the new reporting threshold.
|
Plan
Category
|
Number of Securities to be
issued upon exercise
of outstanding options, warrants and rights (a)
|
Weighted-average
exercise price of outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for future issuance under equity compensation plans, excluding securities reflected in column (a) (c)
|
|||||||
Equity
compensation plans approved by security holders
|
892,916
|
1 |
$
|
1.16
|
746,084
|
3 | ||||
Equity
compensation plans not approved by security holders
|
782,871
|
2 |
$
|
2.13
|
—
|
|||||
Total
|
1,675,787
|
$
|
1.61
|
746,084
|
3 |
2007
|
2006
|
From Inception
(May 19, 2003) to
December 31, 2007
|
||||||||
Revenues
|
$
|
740,799
|
$
|
278,344
|
$
|
1,062,703
|
||||
Cost
of Sales
|
1,178,393
|
681,870
|
1,883,807
|
|||||||
Gross
Profit (Loss)
|
(437,594
|
)
|
(403,526
|
)
|
(821,104
|
)
|
||||
Operating
Expenses
|
4,828,292
|
5,293,366
|
11,500,447
|
|||||||
Loss
from Operations
|
(5,265,886
|
)
|
(5,696,892
|
)
|
(12,321,551
|
)
|
||||
Other
Income (Expense)
|
(106,835
|
)
|
(55,377
|
)
|
(184,127
|
)
|
||||
Net
Loss
|
$
|
(5,372,721
|
)
|
$
|
(5,752,269
|
)
|
$
|
(12,505,678
|
)
|
|
Series
A Preferred Stock Beneficial Conversion Feature Accreted as a
Dividend
|
(1,889,063
|
)
|
-
|
$
|
(1,889,063
|
)
|
||||
Net
Loss Available to Common Stockholders
|
$
|
(7,261,784
|
)
|
$
|
(5,752,269
|
)
|
$
|
(14,394,741
|
)
|
From Inception
|
||||||||||
Year ended December 31,
|
(May 19, 2003) to
|
|||||||||
2007
|
2006
|
December 31, 2007
|
||||||||
Net
cash used in operating activities
|
$
|
(4,067,546
|
)
|
$
|
(6,136,676
|
)
|
$
|
(11,168,312
|
)
|
|
Net
cash provided by (used in) investing activities
|
89,393
|
(1,841,333
|
)
|
(3,091,336
|
)
|
|||||
Net
cash provided by financing activities
|
3,536,428
|
6,787,980
|
14,976,349
|
· Community
Economic Betterment Account (“CEBA”) Forgivable Loan
|
$
|
250,000
|
||
· Physical
Infrastructure Assistance Program (PIAP) Forgivable Loan
|
$
|
150,000
|
||
· Enterprise
Zone (“EZ”) (estimated value)
|
$
|
142,715
|
·
|
Funding
for training new employees through a supplemental new jobs withholding
credit equal to 3.0% of gross wages of the new jobs created;
|
·
|
A
refund of 100% of the sales, service and use taxes paid to contractors
and
subcontractors during the construction phase of the plant (excluding
local
option taxes);
|
·
|
A
6.5% research activities tax credit based on increasing research
activities within the State of Iowa;
|
· |
An
investment tax credit equal to 10% of our capital investment. This
Iowa
tax credit may be carried forward for up to seven years.
|
·
|
A
value-added property tax exemption. Our community has approved an
exemption from taxation on a portion of the property in which our
business
is located.
|
Report
of Independent Registered Public Accounting Firm
|
45
|
|||
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
46
|
|||
Consolidated
Statements of Operations for the Years Ended December 31, 2007 and
2006
and the period from inception (May 19, 2003) through December 31,
2007
|
48
|
|||
Consolidated
Statement of Changes in Stockholders’ Equity for the Years Ended December
31, 2007 and 2006 and the period from inception (May 19, 2003) through
December 31, 2007
|
49
|
|||
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007 and
2006
and the period from inception (May 19, 2003) through December 31,
2007
|
51
|
|||
Notes
to Consolidated Financial Statements
|
53
|
LWBJ,
LLP
|
||
April
15, 2008, except
as to the restatement discussed in Note 2 to the financial statements,
which is as of July 21, 2008.
|
December
31,
|
December
31,
|
||||||
ASSETS
|
2007
|
2006
|
|||||
(Restated)
|
|||||||
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents
|
$
|
713,289
|
$
|
1,149,207
|
|||
Restricted
cash
|
115,157
|
352,584
|
|||||
Accounts
receivable
|
134,237
|
203,375
|
|||||
Inventories
|
1,655,359
|
2,001,004
|
|||||
Prepaid
expenses
|
89,901
|
69,882
|
|||||
Total
current assets
|
2,707,943
|
3,776,052
|
|||||
Property,
Plant and Equipment
|
|||||||
Leasehold
improvements
|
-
|
17,156
|
|||||
Building
|
2,271,209
|
2,150,322
|
|||||
Equipment
|
908,999
|
757,217
|
|||||
Land
and improvements
|
472,504
|
467,188
|
|||||
Construction
in progress
|
-
|
64,744
|
|||||
3,652,712
|
3,456,627
|
||||||
Less
accumulated depreciation
|
375,178
|
182,440
|
|||||
Net
property and equipment
|
3,277,534
|
3,274,187
|
|||||
Total
Assets
|
$
|
5,985,477
|
$
|
7,050,239
|
December
31,
|
December
31,
|
||||||
LIABILITIES
AND EQUITY
|
2007
|
2006
|
|||||
(Restated)
|
|||||||
|
|||||||
Current
Liabilities
|
|||||||
Notes
payable, banks
|
$
|
594,677
|
$
|
568,693
|
|||
Current
portion long-term debt
|
30,350
|
48,289
|
|||||
Current
installments of obligation under capital lease
|
45,247
|
8,084
|
|||||
Accounts
payable
|
146,585
|
498,316
|
|||||
Accrued
expenses
|
207,328
|
175,935
|
|||||
Accrued
interest
|
129,965
|
98,045
|
|||||
Unearned
project reimbursements
|
-
|
102,972
|
|||||
Unearned
grants
|
30,977
|
66,663
|
|||||
Accrued
purchase commitment losses
|
-
|
26,458
|
|||||
Total
current liabilities
|
1,185,129
|
1,593,455
|
|||||
Long-term
debt, net of current maturities
|
1,338,235
|
1,369,339
|
|||||
Obligation
under capital lease, excluding current
installments
|
80,955
|
42,275
|
|||||
1,419,190
|
1,411,614
|
||||||
Total
liabilities
|
2,604,319
|
3,005,069
|
|||||
Commitments
and Contingencies
|
|||||||
Stockholders'
Equity
|
|||||||
Preferred
stock - Series A, $0.001 par value; 10,000,000 shares authorized,-0-
and
930,000 shares issued and outstanding, respectively
|
-
|
930
|
|||||
Preferred
stock - Series B, $0.001 par value; 5,000,000 shares authorized,1,932,846
and -0- shares issued and outstanding
|
1,933
|
-
|
|||||
Common
stock, $0.001 par value; 100,000,000 shares authorized,27,590,164
and
26,143,914 shares issued and outstanding
|
27,590
|
26,144
|
|||||
Additional
paid-in capital
|
15,860,725
|
11,160,272
|
|||||
Accumulated
other comprehensive loss - foreign currency
|
(3,412
|
)
|
(9,219
|
)
|
|||
Deficit
accumulated during the development stage
|
(12,505,678
|
)
|
(7,132,957
|
)
|
|||
Total
stockholders' equity
|
3,381,158
|
4,045,170
|
|||||
Total
Liabilities and Stockholders’ Equity
|
$
|
5,985,477
|
$
|
7,050,239
|
From Inception
|
||||||||||
Year Ended
|
Year Ended
|
(May 19, 2003) to
|
||||||||
December 31, 2007
|
December 31, 2006
|
December 31, 2007
|
||||||||
(Restated)
|
(Restated)
|
(Restated)
|
||||||||
Sales
|
$
|
740,799
|
$
|
278,344
|
$
|
1,062,703
|
||||
Cost
of Goods Sold
|
||||||||||
Material,
labor, and overhead
|
644,517
|
253,723
|
921,784
|
|||||||
Inventory
markdowns
|
533,876
|
428,147
|
962,023
|
|||||||
1,178,393
|
681,870
|
1,883,807
|
||||||||
Gross
Profit (Loss)
|
(437,594
|
)
|
(403,526
|
)
|
(821,104
|
)
|
||||
Operating
Expenses
|
||||||||||
Sales
and marketing
|
219,875
|
859,587
|
1,201,036
|
|||||||
General
and administrative
|
2,790,255
|
3,007,139
|
6,471,408
|
|||||||
Research
and development
|
1,370,151
|
1,297,151
|
3,250,503
|
|||||||
Vendor
settlement
|
448,011
|
129,489
|
577,500
|
|||||||
4,828,292
|
5,293,366
|
11,500,447
|
||||||||
Operating
Loss
|
(5,265,886
|
)
|
(5,696,892
|
)
|
(12,321,551
|
)
|
||||
Other
Income (Expense)
|
||||||||||
Interest
income
|
73,057
|
58,972
|
164,052
|
|||||||
Interest
expense
|
(173,158
|
)
|
(114,349
|
)
|
(341,445
|
)
|
||||
Loss
on sale of asset
|
(6,734
|
)
|
-
|
(6,734
|
)
|
|||||
(106,835
|
)
|
(55,377
|
)
|
(184,127
|
)
|
|||||
Net
Loss
|
$
|
(5,372,721
|
)
|
$
|
(5,752,269
|
)
|
$
|
(12,505,678
|
)
|
|
Series
A Preferred stock beneficial conversion feature accreted as a
dividend
|
(1,889,063
|
)
|
-
|
(1,889,063
|
)
|
|||||
Net
Loss Attributable To Common Stockholders
|
$
|
(7,261,784
|
)
|
$
|
(5,752,269
|
)
|
$
|
(14,394,741
|
)
|
|
Weighted-average
shares outstanding
|
26,325,151
|
25,207,950
|
||||||||
Basic
and diluted net loss per share
|
$
|
(0.28
|
)
|
$
|
(0.23
|
)
|
Deficit
|
||||||||||||||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||||||||||||
Preferred
|
Preferred
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Unearned
|
Other
|
During the
|
|||||||||||||||||||||||||
Stock A
|
Stock A
|
Stock B
|
Stock B
|
Stock
|
Stock
|
Paid - in
|
Stock-Based
|
Comprehensive
|
Development
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Loss
|
Stage
|
Total
|
||||||||||||||||||||||||
Issuance
of common stock to founder in exchange for equipment and expenses
incurred
by founder
|
-
|
$
|
-
|
-
|
$
|
-
|
2,000,000
|
$
|
2,000
|
$
|
98,165
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
100,165
|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(65,642
|
)
|
(65,642
|
)
|
|||||||||||||||||||||
Balance
at December 31, 2003
|
-
|
-
|
-
|
-
|
2,000,000
|
2,000
|
98,165
|
-
|
-
|
(65,642
|
)
|
34,523
|
||||||||||||||||||||||
Company
- related expenses paid by founder
|
-
|
-
|
-
|
-
|
-
|
-
|
39,187
|
-
|
-
|
-
|
39,187
|
|||||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(192,476
|
)
|
(192,476
|
)
|
|||||||||||||||||||||
Balance
at December 31, 2004
|
-
|
-
|
-
|
-
|
2,000,000
|
2,000
|
137,352
|
-
|
-
|
(258,118
|
)
|
(118,766
|
)
|
|||||||||||||||||||||
Company
- related expenses paid by founder
|
-
|
-
|
-
|
-
|
-
|
-
|
12,135
|
-
|
-
|
-
|
12,135
|
|||||||||||||||||||||||
Exchange
of previous shares by sole shareholder of HEC Iowa
|
-
|
-
|
-
|
-
|
(2,000,000
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
Shares
in Green Mt. Labs acquired in reverse merger
|
-
|
-
|
-
|
-
|
1,006,000
|
1,006
|
(1,006
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
Stock
split of 3.8 to 1 prior to the merger
|
-
|
-
|
-
|
-
|
2,816,804
|
2,817
|
(2,817
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
Issuance
of common stock to the sole shareholder of HEC Iowa
|
-
|
-
|
-
|
-
|
16,297,200
|
14,297
|
(14,297
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
Issuance
of restricted common stock to employees and directors
|
-
|
-
|
-
|
-
|
426,000
|
426
|
425,574
|
(275,332
|
)
|
-
|
-
|
150,668
|
||||||||||||||||||||||
Issuance
of common stock in connection with private placement, net of
expenses
|
-
|
-
|
-
|
-
|
3,948,500
|
3,949
|
3,590,940
|
-
|
-
|
-
|
3,594,889
|
|||||||||||||||||||||||
Issuance
of common stock in connection with conversion of debt
|
-
|
-
|
-
|
-
|
663,401
|
663
|
556,388
|
-
|
-
|
-
|
557,051
|
|||||||||||||||||||||||
Consultant
compensation associated with stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
133,333
|
-
|
-
|
-
|
133,333
|
|||||||||||||||||||||||
4,329,310
|
||||||||||||||||||||||||||||||||||
Comprehensive
Loss
|
||||||||||||||||||||||||||||||||||
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,207
|
)
|
-
|
(2,207
|
)
|
|||||||||||||||||||||
-
|
||||||||||||||||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,122,570
|
)
|
(1,122,570
|
)
|
|||||||||||||||||||||
Total
comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,124,777
|
)
|
||||||||||||||||||||||
Balance
at December 31, 2005
|
-
|
$
|
-
|
-
|
$
|
-
|
25,157,905
|
$
|
25,158
|
$
|
4,837,602
|
$
|
(275,332
|
)
|
$
|
(2,207
|
)
|
$
|
(1,380,688
|
)
|
$
|
3,204,533
|
Deficit
|
||||||||||||||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||||||||||||
Preferred
|
Preferred
|
Preferred
|
Preferred
|
Common
|
Common
|
Additional
|
Unearned
|
Other
|
During the
|
|||||||||||||||||||||||||
Stock A
|
Stock A
|
Stock B
|
Stock B
|
Stock
|
Stock
|
Paid - in
|
Stock-Based
|
Comprehensive
|
Development
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Loss
|
Stage
|
Total
|
||||||||||||||||||||||||
Reclassification
due to implementation of SFAS 123R
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
(275,332
|
)
|
$
|
275,332
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||
Employee/Director
compensation associated with stock options and restricted
stock
|
-
|
-
|
-
|
-
|
-
|
-
|
724,209
|
-
|
-
|
-
|
724,209
|
|||||||||||||||||||||||
Consultant
compensation associated with stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
43,777
|
-
|
-
|
-
|
43,777
|
|||||||||||||||||||||||
Issuance
of preferred stock in connection with private placement, net of
expenses
|
930,000
|
930
|
-
|
-
|
-
|
-
|
2,778,883
|
-
|
-
|
-
|
2,779,813
|
|||||||||||||||||||||||
Issuance
of common stock in connection with private placements, net of
expenses
|
-
|
-
|
-
|
-
|
978,009
|
978
|
3,043,141
|
-
|
-
|
-
|
3,044,119
|
|||||||||||||||||||||||
Issuance
of stock related to option exercises
|
-
|
-
|
-
|
-
|
8,000
|
8
|
7,992
|
-
|
-
|
-
|
8,000
|
|||||||||||||||||||||||
9,804,451
|
||||||||||||||||||||||||||||||||||
Comprehensive
Loss
|
||||||||||||||||||||||||||||||||||
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(7,012
|
)
|
-
|
(7,012
|
)
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,752,269
|
)
|
(5,752,269
|
)
|
|||||||||||||||||||||
Total
comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,759,281
|
)
|
||||||||||||||||||||||
Balance
at December 31, 2006
|
930,000
|
$
|
930
|
-
|
$
|
-
|
26,143,914
|
$
|
26,144
|
$
|
11,160,272
|
$
|
-
|
$
|
(9,219
|
)
|
$
|
(7,132,957
|
)
|
$
|
4,045,170
|
|||||||||||||
Employee/Director
compensation associated with stock options and restricted
stock
|
-
|
-
|
-
|
-
|
-
|
-
|
499,542
|
-
|
-
|
-
|
499,542
|
|||||||||||||||||||||||
Forfeiture
of restricted stock
|
(65,000
|
)
|
(65
|
)
|
65
|
-
|
||||||||||||||||||||||||||||
Consultant
compensation associated with stock options
|
-
|
-
|
-
|
-
|
9,700
|
-
|
-
|
-
|
9,700
|
|||||||||||||||||||||||||
Issuance
of preferred stock in connection with private placement Series
B, net of
expenses
|
-
|
-
|
1,932,846
|
1,933
|
-
|
-
|
3,593,162
|
-
|
-
|
-
|
3,595,095
|
|||||||||||||||||||||||
Issuance
of warrants in vendor dispute
|
577,500
|
577,500
|
||||||||||||||||||||||||||||||||
Issuance
of warrants for inventory
|
-
|
-
|
-
|
-
|
-
|
-
|
21,065
|
-
|
-
|
-
|
21,065
|
|||||||||||||||||||||||
Conversion
of Series A Preferred Stock to Common Stock
|
(930,000
|
)
|
(930
|
)
|
-
|
-
|
1,511,250
|
1,511
|
(581
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
8,748,072
|
||||||||||||||||||||||||||||||||||
Comprehensive
Loss
|
||||||||||||||||||||||||||||||||||
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5,807
|
-
|
5,807
|
|||||||||||||||||||||||
-
|
||||||||||||||||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,372,721
|
)
|
(5,372,721
|
)
|
|||||||||||||||||||||
Total
comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,366,914
|
)
|
||||||||||||||||||||||
Balance
at December 31, 2007 (Restated)
|
-
|
$
|
-
|
1,932,846
|
$
|
1,933
|
27,590,164
|
$
|
27,590
|
$
|
15,860,725
|
$
|
-
|
$
|
(3,412
|
)
|
$
|
(12,505,678
|
)
|
$
|
3,381,158
|
Year Ended
|
Year Ended
|
From Inception
|
||||||||
December 31,
|
December 31,
|
(May 19, 2003) to
|
||||||||
2007
|
2006
|
December 31, 2007
|
||||||||
Operating
Activities
|
||||||||||
Net
loss
|
$
|
(5,372,721
|
)
|
$
|
(5,752,269
|
)
|
$
|
(12,505,678
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operations:
|
||||||||||
Depreciation
|
244,403
|
142,622
|
426,843
|
|||||||
Compensation
to directors and employees of stock options and restricted
stock
|
499,542
|
724,209
|
1,374,419
|
|||||||
Compensation
to consultants of stock options
|
9,700
|
43,777
|
186,810
|
|||||||
Warrants
issued in vendor dispute
|
448,011
|
129,489
|
577,500
|
|||||||
Loss
on sale of assets
|
6,734
|
-
|
6,734
|
|||||||
Change
in assets and liabilities:
|
||||||||||
Accounts
receivable
|
69,138
|
(170,223
|
)
|
(134,237
|
)
|
|||||
Inventories
|
366,710
|
(1,794,913
|
)
|
(1,634,294
|
)
|
|||||
Prepaid
expenses
|
(41,476
|
)
|
7,841
|
(111,358
|
)
|
|||||
Accounts
payable
|
(242,022
|
)
|
132,486
|
230,441
|
||||||
Accrued
expenses
|
51,173
|
148,583
|
253,566
|
|||||||
Accrued
interest
|
31,920
|
82,087
|
129,965
|
|||||||
Unearned
project reimbursements
|
(102,972
|
)
|
102,972
|
-
|
||||||
Unearned
grants
|
(35,686
|
)
|
66,663
|
30,977
|
||||||
Net
cash used in operating activities
|
(4,067,546
|
)
|
(6,136,676
|
)
|
(11,168,312
|
)
|
||||
Investing
Activities
|
||||||||||
Withdrawal/(deposit)
of restricted cash
|
237,427
|
(352,584
|
)
|
(115,157
|
)
|
|||||
Proceeds
from sale of assets
|
36,500
|
-
|
36,500
|
|||||||
Purchases
of property, plant, and equipment
|
(184,534
|
)
|
(1,488,749
|
)
|
(3,012,679
|
)
|
||||
Net
cash provided by (used in) investing activities
|
89,393
|
(1,841,333
|
)
|
(3,091,336
|
)
|
|||||
Financing
Activities
|
||||||||||
Proceeds
from note payable, bank
|
283,374
|
906,046
|
1,839,420
|
|||||||
Payments
on note payable, bank
|
(263,144
|
)
|
-
|
(913,144
|
)
|
|||||
Proceeds
from long-term debt
|
-
|
100,000
|
1,172,052
|
|||||||
Payments
on long-term debt
|
(78,897
|
)
|
(49,998
|
)
|
(143,895
|
)
|
||||
Proceeds
from exercise of stock option
|
-
|
8,000
|
8,000
|
|||||||
Issuance
of preferred stock (Series A) in private placement, net of
expenses
|
-
|
2,779,813
|
2,779,813
|
|||||||
Issuance
of preferred stock (Series B) in private placement, net of
expenses
|
3,595,095
|
-
|
3,595,095
|
|||||||
Issuance
of common stock in private placements, net of expenses
|
-
|
3,044,119
|
6,639,008
|
|||||||
Net
cash provided by financing activities
|
3,536,428
|
6,787,980
|
14,976,349
|
|||||||
Effect
of Exchange Rates on Cash and Cash Equivalents
|
5,807
|
(7,012
|
)
|
(3,412
|
)
|
|||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(435,918
|
)
|
(1,197,041
|
)
|
713,289
|
|||||
Cash
and Cash Equivalents - Beginning of Period
|
1,149,207
|
2,346,248
|
-
|
|||||||
Cash
and Cash Equivalents - End of Period
|
$
|
713,289
|
$
|
1,149,207
|
$
|
713,289
|
Year Ended
|
Year Ended
|
From Inception
|
||||||||
December 31,
|
December 31,
|
(May 19, 2003) to
|
||||||||
2007
|
2006
|
December 31, 2007
|
||||||||
Supplemental
Cash Flow Information
|
||||||||||
Interest
paid
|
$
|
141,081
|
$
|
32,262
|
$
|
211,290
|
||||
Supplemental
Disclosures of Noncash Investing and Financing
Activities
|
||||||||||
Additional
paid-in capital contribution for expenses paid by founder
|
$
|
-
|
$
|
-
|
$
|
103,636
|
||||
Issuance
of common stock for equipment
|
$
|
-
|
$
|
-
|
$
|
47,851
|
||||
Issuance
of common stock for conversion of debt
|
$
|
-
|
$
|
-
|
$
|
557,051
|
||||
Acquistion
of property, plant, equipment, and prepaid expenses through
financing
|
$
|
111,450
|
$
|
101,460
|
$
|
692,081
|
||||
Payables
for construction in progress
|
$
|
-
|
$
|
-
|
$
|
232,208
|
||||
Receivable
for state loan
|
$
|
-
|
$
|
-
|
$
|
100,000
|
||||
Series
A Preferred stock beneficial conversion feature accreted as a
dividend
|
$
|
1,889,063
|
$
|
-
|
$
|
1,889,063
|
Year Ended December 31,
|
|||||||
2007
|
2006
|
||||||
Basic
and diluted net loss per share:
|
|||||||
Numerator:
|
|||||||
Net
loss attributable to common shareholders
|
$
|
(7,261,784
|
)
|
$
|
(5,725,269
|
)
|
|
Denominator:
|
|||||||
Average
common shares outstanding
|
26,417,151
|
25,483,440
|
|||||
Unvested
restricted common shares
|
(92,000
|
)
|
(275,490
|
)
|
|||
Weighted-average
common shares outstanding
|
26,325,151
|
25,207,950
|
|||||
Basic
and diluted net loss per share
|
$
|
(.28
|
)
|
$
|
(.23
|
)
|
a.
|
565,916
shares related to exercisable employee and non-employee incentive
stock
options.
|
b.
|
92,000
unvested restricted shares.
|
c.
|
782,871
warrants.
|
d.
|
1,932,846
shares of preferred stock.
|
Period from Inception
|
||||
(May 19, 2003) to
|
||||
December 31, 2007
|
||||
Net
loss attributable to common shareholders, as reported
|
$
|
(14,394,741
|
)
|
|
Add:
options and restricted stock-based employee compensation expense
included
in reported net loss
|
1,374,419
|
|||
Deduct:
options and restricted stock-based employee compensation expense
determined under fair value based method
|
(1,560,221
|
)
|
||
Pro
forma net loss attributable to common shareholders
|
$
|
(14,580,543
|
)
|
December 31, 2007
As Previously Reported
|
Adjustments
|
December 31, 2007
As Restated
|
||||||||
Sales
|
$
|
740,799
|
$
|
-
|
$
|
740,799
|
||||
Cost
of Goods Sold
|
||||||||||
Material,
labor, and overhead
|
644,517
|
-
|
644,517
|
|||||||
Inventory
markdowns
|
-
|
533,876
|
533,876
|
|||||||
644,517
|
533,876
|
1,178,393
|
||||||||
Gross
Profit (Loss)
|
96,282
|
(533,876
|
)
|
(437,594
|
)
|
|||||
Losses
related to inventory
|
981,887
|
(981,887
|
)
|
-
|
||||||
Vendor
settlement
|
-
|
448,011
|
448,011
|
|||||||
Total
Operating Expenses
|
5,362,168
|
(533,876
|
)
|
4,828,292
|
||||||
Operating
Loss
|
(5,265,886
|
)
|
-
|
(5,265,886
|
)
|
|||||
Net
Loss
|
$
|
(5,372,721
|
)
|
$
|
-
|
$
|
(5,372,721
|
)
|
December 31, 2006
As Previously Reported
|
Adjustments
|
December 31, 2006
As Restated
|
||||||||
Sales
|
$
|
278,344
|
$
|
-
|
$
|
278,344
|
||||
Cost
of Goods Sold
|
||||||||||
Material,
labor, and overhead
|
253,723
|
-
|
253,723
|
|||||||
Inventory
markdowns
|
-
|
428,147
|
428,147
|
|||||||
253,723
|
428,147
|
681,870
|
||||||||
Gross
Profit (Loss)
|
24,621
|
(428,147
|
)
|
(403,526
|
)
|
|||||
Losses
related to inventory
|
557,636
|
(557,636
|
)
|
-
|
||||||
Vendor
settlement
|
-
|
129,489
|
129,489
|
|||||||
Total
Operating Expenses
|
5,721,513
|
(428,147
|
)
|
5,293,366
|
||||||
Operating
Loss
|
(5,696,892
|
)
|
-
|
(5,696,892
|
)
|
|||||
Net
Loss
|
$
|
(5,752,269
|
)
|
$
|
-
|
$
|
(5,752,269
|
)
|
Inception to
December 31, 2007
As Previously Reported
|
Adjustments
|
Inception to
December 31, 2007
As Restated
|
||||||||
Sales
|
$
|
1,062,703
|
$
|
-
|
$
|
1,062,703
|
||||
Cost
of Goods Sold
|
||||||||||
Material,
labor, and overhead
|
921,784
|
-
|
921,784
|
|||||||
Inventory
markdowns
|
-
|
962,023
|
962,023
|
|||||||
921,784
|
962,023
|
1,883,807
|
||||||||
Gross
Profit (Loss)
|
140,919
|
(962,023
|
)
|
(821,104
|
)
|
|||||
Losses
related to inventory
|
1,539,523
|
(1,539,523
|
)
|
-
|
||||||
Vendor
settlement
|
-
|
577,500
|
577,500
|
|||||||
Total
Operating Expenses
|
12,462,470
|
(962,023
|
)
|
11,500,447
|
||||||
Operating
Loss
|
(12,321,551
|
)
|
-
|
(12,321,551
|
)
|
|||||
Net
Loss
|
$
|
(12,505,678
|
)
|
$
|
-
|
$
|
(12,505,678
|
)
|
December 31, 2007
As Previously Reported
|
Adjustments
|
December 31, 2007
As Restated
|
||||||||
Additional
paid-in capital
|
$
|
17,749,788
|
$
|
(1,889,063
|
)
|
$
|
15,860,725
|
|||
Deficit
accumulated during the development stage
|
(14,394,741
|
)
|
1,889,063
|
(12,505,678
|
)
|
|||||
Total
Stockholders’ Equity
|
$
|
3,381,158
|
$
|
-
|
$
|
3,381,158
|
December 31, 2007
As Previously Reported
|
Adjustments
|
December 31, 2007
As Restated
|
||||||||
Additional
paid-in capital
|
$
|
17,749,788
|
$
|
(1,889,063
|
)
|
$
|
15,860,725
|
|||
Deficit
accumulated during the development stage
|
(14,394,741
|
)
|
1,889,063
|
(12,505,678
|
)
|
|||||
Total
Stockholders’ Equity
|
$
|
3,381,158
|
$
|
-
|
$
|
3,381,158
|
December 31,
|
|||||||
2007
|
2006
|
||||||
Component
parts
|
$
|
1,266,612
|
$
|
1,490,676
|
|||
Work
in process
|
10,407
|
119,416
|
|||||
Finished
goods
|
378,340
|
390,912
|
|||||
Total
|
$
|
1,655,359
|
$
|
2,001,004
|
December
31,
|
|||||||
2007
|
2006
|
||||||
Note
payable to City of Algona. See (a)
|
$
|
160,000
|
$
|
175,000
|
|||
Note
payable to Algona Area Economic Development Corporation. See
(b)
|
146,124
|
146,124
|
|||||
Note
payable to Algona Area Economic Development Corporation. See
(c)
|
61,827
|
64,566
|
|||||
Notes
payable to Iowa Department of Economic Development. See
(d)
|
400,000
|
400,000
|
|||||
Note
payable to finance company. See (e)
|
6,388
|
31,938
|
|||||
Note
payable to bank. See (f)
|
594,246
|
600,000
|
|||||
1,368,585
|
1,417,628
|
||||||
Less
amounts due within one year
|
30,350
|
48,289
|
|||||
Totals
|
$
|
1,338,235
|
$
|
1,369,339
|
2009
|
$
|
618,621
|
||
2010
|
169,562
|
|||
2011
|
200,330
|
|||
2012
|
148,800
|
|||
Thereafter
|
200,922
|
|||
Total
long-term debt
|
$
|
1,338,235
|
·
|
$67,650
of principal and interest will be forgiven if we certify that we
have
created 50 new full-time equivalent jobs by June 1, 2010, and continuously
retained those jobs in Algona, Iowa until June 1,
2015.
|
·
|
$67,650
of principal and interest will be forgiven if we certify that we
have
created and continuously retained 50 additional new full-time equivalent
jobs by June 1, 2015.
|
·
|
Balance
of $10,824 due on June 1, 2015, without interest if paid by that
date.
|
·
|
Payment
of a wage for the retained jobs that is equal to or greater than
the
average hourly wage for workers in Kossuth County, Iowa, as determined
annually by Iowa Workforce
Development.
|
(f)
On March 27, 2008, we renewed a note with a bank for $591,956. The
balance
of this note on December 31, 2007 was $594,246. This note matures
on April
1, 2009, and carries a variable interest rate equal to the Wall Street
Journal U.S. Prime Rate. At December 31, 2007, the interest rate
on the
note was 7.25% and requires monthly interest and principal payments
of
$4,340. The loan is secured by real
estate.
|
2008
|
$
|
57,448
|
||
2009
|
57,448
|
|||
2010
|
19,889
|
|||
2011
|
11,586
|
|||
2012
|
635
|
|||
Total
minimum lease payments
|
147,006
|
|||
Less
amount representing interest
|
20,804
|
|||
Present
value of minimum lease payments
|
126,202
|
|||
Less
amounts due within one year
|
45,247
|
|||
Totals
|
$
|
80,955
|
· |
Funding
for training new employees is allowed through the new jobs and
supplemental new jobs withholding credit equal to 3.0% of gross wages
of
the new jobs created;
|
· |
A
refund of 100% of the sales, service and use taxes paid to contractors
and
subcontractors during the construction phase of the plant (excluding
local
option taxes);
|
·
|
A
6.5% research activities tax credit based on increasing research
activities within the State of Iowa;
|
·
|
An
investment tax credit equal to 10% of the capital investment. This
Iowa
tax credit may be carried forward for up to seven
years;
|
·
|
A
value–added property tax exemption. Our community has approved an
exemption from taxation on a portion of the property in which our
business
has located.
|
December 31,
|
|||||||
2007
|
2006
|
||||||
Deferred
tax assets:
|
|||||||
Federal
|
$
|
3,840,000
|
$
|
2,250,000
|
|||
State
|
530,000
|
310,000
|
|||||
Foreign
|
450,000
|
240,000
|
|||||
Total
|
4,820,000
|
2,800,000
|
|||||
Valuation
allowance
|
(4,820,000
|
)
|
(2,800,000
|
)
|
|||
Provision
for income taxes, less valuation
|
$
|
-
|
$
|
-
|
December 31,
|
|||||||
2007
|
2006
|
||||||
Rate
Reconciliation:
|
|||||||
Expected
expense/(benefit) at federal statutory rate
|
(35
|
)%
|
(35
|
)%
|
|||
State
tax benefit, net of federal benefit
|
(5
|
)
|
(5
|
)
|
|||
Stock
based compensation
|
7
|
2
|
|||||
Foreign
tax benefit
|
(8
|
)
|
(4
|
)
|
|||
Other
|
1
|
2
|
|||||
Valuation
allowance
|
40
|
40
|
|||||
Expected
tax rate
|
-
|
%
|
-
|
%
|
December 31,
|
|||||||
2007
|
2006
|
||||||
Deferred
tax assets:
|
|||||||
Net
operating loss carryforward
|
$
|
3,840,000
|
$
|
2,290,000
|
|||
Foreign
tax benefit
|
450,000
|
240,000
|
|||||
Unrealized
inventory impairment loss
|
380,000
|
170,000
|
|||||
Warranty
accrual
|
10,000
|
-
|
|||||
Vacation
accrual
|
20,000
|
20,000
|
|||||
Stock
based compensation
|
10,000
|
10,000
|
|||||
Research
and development credit
|
120,000
|
80,000
|
|||||
Total
deferred tax assets
|
4,830,000
|
2,810,000
|
|||||
Deferred
tax liabilities:
|
|||||||
Depreciation
|
(10,000
|
)
|
(10,000
|
)
|
|||
Total
deferred tax liabilities
|
(10,000
|
)
|
(10,000
|
)
|
|||
Gross
deferred tax asset
|
4,820,000
|
2,800,000
|
|||||
Valuation
allowance
|
$
|
(4,820,000
|
)
|
$
|
(2,800,000
|
)
|
Period from Inception
|
||||||||||
Year ended December 31,
|
(May 19, 2003) to
|
|||||||||
2007
|
2006
|
December 31, 2007
|
||||||||
Risk-free
interest rate
|
4.72
|
%
|
4.6
|
%
|
4.21
|
%
|
||||
Expected
volatility
|
96.4
|
%
|
113.5
|
%
|
148.8
|
%
|
||||
Expected
life (in years)
|
4.7
|
5.5
|
7.5
|
|||||||
Dividend
yield
|
-
|
-
|
-
|
|||||||
Weighted-average
estimated fair value of options granted during the period
|
$
|
.99
|
$
|
2.94
|
$
|
.99
|
Options Outstanding
|
|||||||||||||
Number of
Shares |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Term (in years)
|
Aggregate
Intrinsic Value (1)
|
||||||||||
|
|||||||||||||
Balance
at December 31, 2006
|
838,666
|
$
|
1.85
|
||||||||||
Granted
|
195,000
|
$
|
1.34
|
||||||||||
Forfeited
|
(148,750
|
)
|
$
|
1.18
|
|||||||||
Balance
at December 31, 2007
|
884,916
|
$
|
1.16
|
5.22
|
$
|
0
|
|||||||
Vested
and exercisable as of
December 31, 2007
|
565,916
|
$
|
1.08
|
3.31
|
$
|
0
|
|||||||
Vested
and expected to vest as of
December 31, 2007
|
858,369
|
$
|
1.19
|
5.22
|
$
|
0
|
(1)
|
The
aggregate intrinsic value is calculated as approximately the difference
between the weighted-average exercise price of the underlying awards
and
our closing stock price of $.66 on December 31, 2007, the last day
of
trading in December.
|
Unvested Restricted Stock
|
|||||||
Number of
Shares
|
Weighted-
Average Grant Date
Fair Value
|
||||||
Unvested
at December 31, 2006
|
218,000
|
$
|
1.00
|
||||
Vested
|
(61,000
|
)
|
$
|
1.00
|
|||
Forfeited
|
(65,000
|
)
|
$
|
1.00
|
|||
Unvested
at December 31, 2007
|
92,000
|
$
|
1.00
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||
Exercise
Price |
Options
Outstanding |
Weighted-
Average Remaining Contractual Life |
Weighted-
Average Exercise Price |
Shares
Exercisable |
Weighted-
Average Exercise Price |
||||||||||||
$
|
1.00
|
481,666
|
2.97
|
$
|
1.00
|
429,666
|
$
|
1.00
|
|||||||||
$
|
1.34
|
393,250
|
7.87
|
$
|
1.34
|
136,250
|
$
|
1.34
|
|||||||||
$
|
1.40
|
10,000
|
9.66
|
$
|
1.40
|
0
|
$
|
-
|
|||||||||
884,916
|
5.22
|
$
|
1.16
|
565,916
|
$
|
1.08
|
ITEM 9. |
DIRECTORS,
EXECUTIVES, OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
|
Exhibit
No.
|
Description
|
|
2.2
|
Revised
and Amended Agreement and Plan of Merger with Hydrogen Engine Center,
Inc.
and Green Mt. Acquisitions, Inc. (Incorporated by reference to the
preliminary information statement filed with the SEC on July 12,
2005).
|
|
3.1
|
Certificate
of Incorporation (Previously filed as an Exhibit to the Form 10−SB filed
January 8, 2004)
|
|
3.2
|
Bylaws
(Previously filed as an Exhibit to the Form 10−SB filed January 8,
2004)
|
|
3.3
|
Certificate
of Amendment to Articles of Incorporation (Previously filed as an
Exhibit
to the Form 10-QSB filed 11-21-2005)
|
|
3.4
|
Amendment
to Bylaws (Previously filed as an Exhibit to the Form 10-QSB filed
11-21-2005)
|
|
3.5
|
Certificate
of Designation for the Series A Preferred Stock (Previously filed
as an
Exhibit to the Form 10-KSB filed April 17, 2007)
|
|
3.6
|
Certificate
of Designation for the Series B Preferred Stock (Previously filed
as an
Exhibit to the Form 10-KSB filed April 17, 2007)
|
|
4.1
|
Instrument
defining rights of stockholders (See Exhibits No.
3.1-3.6)
|
|
10.1
|
Iowa
State Bank Note dated 3-24-2008. (Previously filed as an Exhibit
to the
Form 10-KSB filed April 15, 2008)
|
|
10.2
|
Farmers
State Bank Note dated 3-27-2008 (Previously
filed as an Exhibit to the Form 10-KSB filed April 15,
2008)
|
|
10.3
|
Standby
Equity Distribution Agreement with YA Global Investments, L.P. dated
April
11, 2008 (Previously
filed as an Exhibit to the Form 10-KSB filed April 15,
2008)
|
|
10.4
|
Registration
Rights Agreement with YA Global Investments, L.P. dated April 11,
2008
(Previously
filed as an Exhibit to the Form 10-KSB filed April 15,
2008)
|
|
21.1
|
List
of subsidiaries of Registrant (Previously
filed as an Exhibit to the Form 10-KSB filed April 15,
2008)
|
|
31.1
|
Certification
pursuant to Item 601 of Regulation S-B, as adopted pursuant to Section
302
of the Sarbanes-Oxley Act of 2002, by Theodore G. Hollinger, the
company's
Chief Executive Officer.
|
|
31.2
|
Certification
pursuant to Item 601 of Regulation S-B, as adopted pursuant to Section
302
of the Sarbanes-Oxley Act of 2002, by Sandra Batt, the Company's
Chief
Financial Officer.
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, by Theodore G. Hollinger, the Company's
Chief Executive Officer.
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, by Sandra Batt, the Company's Chief
Financial Officer.
|
HYDROGEN
ENGINE CENTER., INC.
|
||||
Date:
July 22, 2008
|
By
|
/s/
Theodore G. Hollinger
|
||
Theodore
G. Hollinger
|
||||
Acting
President and Chief Executive Officer
|
||||
(Principal
Executive Officer)
|
||||
Date:
July 22, 2008
|
By
|
/s/
Sandra Batt
|
||
Sandra
Batt
|
||||
Chief
Financial Officer
|
||||
(Principal Financial
Officer)
|
Date:
July 22 , 2008
|
By:
|
/s/
Theodore G. Hollinger
|
|
Theodore
G. Hollinger, Director
|
|||
Acting
President and Chief Executive Officer
|
|||
(Principal
Executive Officer)
|
|||
|
|||
Date:
July 22 , 2008
|
By:
|
/s/
Thomas O. Trimble
|
|
Thomas
O. Trimble, Director
|
|||
Date:
July 22, 2008
|
By:
|
/s/ Stephen
T. Parker
|
|
Stephen
T. Parker, Director
|
|||
Date:
July 22, 2008
|
By:
|
/s/ Philip
G. Ruggieri
|
|
Philip
G. Ruggieri, Director
|