Attached files
file | filename |
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EX-32.1 - New Generation Biofuels Holdings, Inc | v185272_ex32-1.htm |
EX-32.2 - New Generation Biofuels Holdings, Inc | v185272_ex32-2.htm |
EX-31.2 - New Generation Biofuels Holdings, Inc | v185272_ex31-2.htm |
EX-31.1 - New Generation Biofuels Holdings, Inc | v185272_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
x Quarterly report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended March 31, 2010
¨ Transition report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from ___________ to _____________
Commission
File No. 1-34022
NEW
GENERATION BIOFUELS HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Florida
|
26-0067474
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
5850
Waterloo Road, Suite 140
Columbia,
MD 21045
(Address
of principal executive offices)
(410)
480-8084
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-K (§232.405 of this
chapter) during the preceeding 12 months (or for such shorter period that the
registrant was required to submit and post such files.) Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
At May
14, 2010, the registrant had 35,773,286 shares of common stock, $0.001 par
value, issued and outstanding.
INDEX
Page
|
||
PART
I. FINANCIAL INFORMATION
|
||
Cautionary
Note Regarding Forward-Looking Statements
|
i
|
|
Item
1.
|
Financial
Statements
|
1
|
Consolidated
Balance Sheets as of March 31, 2010 (Unaudited) and December 31,
2009
|
1
|
|
Consolidated
Statements of Operations for the three months ended March 31, 2010
(Unaudited), and for the three months ended March 31, 2009
(Unaudited)
|
2
|
|
Consolidated
Statement of Changes in Stockholders’ Equity for the three months ended
March 31, 2010(Unaudited)
|
3
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31, 2010
(Unaudited), and for the three months ended March 31, 2009
(Unaudited)
|
4
|
|
Notes
to Consolidated Financial Statements
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
23
|
Item
3.
|
Qualitative
and Quantitative Disclosures About Market Risk
|
29
|
Item
4T.
|
Controls
and Procedures
|
29
|
PART
II. OTHER INFORMATION
|
||
Item
1A.
|
Risk
Factors
|
30
|
Item
6.
|
Exhibits
|
31
|
Signatures
|
32
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve numerous assumptions, risks and uncertainties, many of
which are beyond our control. Our actual results could differ materially
from anticipated results. Important factors that may cause actual results
to differ from projections include without limitation:
·
|
our
lack of operating history;
|
|
·
|
our
dependence on additional financing to continue as a going
concern;
|
|
·
|
our
inability to generate revenues or profits from sales of our biofuel and to
establish commercial scale production facilities;
|
|
·
|
the
disproportionally higher cost of production relative to units
sold;
|
|
·
|
our
ability to fully realize the value of our technology license agreement,
which is our principal asset;
|
|
·
|
our
inability to enter into acceptable sublicensing agreements with respect to
our technology or the inability of any sublicensee to successfully
manufacture, market or sell biofuel utilizing our licensed
technology;
|
|
·
|
market
acceptance of our biofuel;
|
|
·
|
our
inability to compete effectively in the renewable fuels
market;
|
|
·
|
governmental
regulation and oversight, including our ability to qualify our biofuel for
certain tax credits and renewable portfolio standards;
|
|
·
|
our
ability to protect our technology through intellectual property
rights;
|
|
·
|
unexpected
costs and operating deficits;
|
|
·
|
adverse
results of any material legal proceedings; and
|
|
·
|
other
specific risks set forth under the heading “Risk Factors” beginning on
page 30 of this report.
|
All statements that are not clearly
historical in nature regarding our strategy, future operations, financial
position, prospects, plans and management objectives are forward-looking
statements. When used in this report, the words “will,” “may,” “believe,”
“anticipate,” “intend,” “estimate,” “expect,” “project,” “plan” and similar
expressions generally are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements are based on information available at the time the
statement was made. We undertake no obligation to update any forward-looking
statements or other information contained in this report as a result of new
information, future events or otherwise. You should not place undue reliance on
these forward-looking statements. Although we believe that our plans, intentions
and expectations reflected in or suggested by the forward-looking statements are
reasonable, these plans, intentions or expectations may not be
achieved.
i
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Consolidated
Balance Sheets
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
239,660
|
$
|
567,647
|
||||
Restricted
cash
|
14,700
|
-
|
||||||
Accounts
receivable
|
23,108
|
63,900
|
||||||
Other
receivables
|
41,406
|
41,406
|
||||||
Inventory
|
11,708
|
11,708
|
||||||
Prepaid
expenses and other current assets
|
118,950
|
237,635
|
||||||
Total
current assets
|
449,532
|
922,296
|
||||||
Property
and equipment - net
|
1,113,278
|
1,120,911
|
||||||
Other
assets
|
343,525
|
346,073
|
||||||
License
agreement
|
5,496,871
|
5,650,988
|
||||||
TOTAL ASSETS
|
$
|
7,403,206
|
$
|
8,040,268
|
||||
LIABILITIES AND STOCKHOLDER'S
EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$
|
2,352,150
|
$
|
1,472,519
|
||||
Loan
payable
|
50,000
|
50,000
|
||||||
License
agreement payable, current portion
|
||||||||
(net
of unamortized discount of $359,961 and $375,467)
|
640,039
|
624,533
|
||||||
Accrued
dividend on preferred stock
|
1,226,695
|
1,078,003
|
||||||
Common
stock warrant liability and antidilution obligation
|
85,319
|
110,874
|
||||||
Total
current liabilities
|
4,354,203
|
3,335,929
|
||||||
License
agreement payable
|
||||||||
(net
of unamortized discount of $535,796 and $622,274)
|
2,464,204
|
3,377,726
|
||||||
Deferred
rent
|
304,273
|
324,409
|
||||||
Total
liabilities
|
7,122,680
|
7,038,064
|
||||||
Stockholders'
equity:
|
||||||||
Preferred
stock; $0.001 par value; 9,450,000 shares authorized; no shares issued and
outstanding at March 31, 2010 and December 31, 2009
|
-
|
-
|
||||||
Series
A Cumulative Convertible Preferred Stock: $0.001 par value; $100 stated
value, 300,000 shares authorized, 18,400 shares
issued and outstanding as of March 31, 2010 and December 31, 2009;
aggregate liquidation preference of $2,309,008
|
710,970
|
710,970
|
||||||
Series
B Cumulative Convertible Preferred Stock: $0.001 par value; $100 stated
value, 250,000 shares authorized, 45,785 shares
issued and outstanding as of March 31, 2010 and December 31, 2009;
aggregate liquidation preference of $5,336,247
|
3,094,872
|
3,094,872
|
||||||
Common
stock, $0.001 par value, 100,000,000 shares authorized; 35,773,286 and
31,711,578 shares issued and outstanding as of March 31, 2010 and December
31, 2009, respectively
|
35,774
|
31,712
|
||||||
Additional
paid-in-capital
|
49,957,333
|
47,593,489
|
||||||
Accumulated
deficit
|
(53,518,423
|
)
|
(50,428,839
|
)
|
||||
Total
stockholders' equity
|
280,526
|
1,002,204
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
|
$
|
7,403,206
|
$
|
8,040,268
|
The
accompanying notes are an integral part of these consolidated financial
statements.
-1-
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Consolidated
Statements of Operations
(Unaudited)
Three
|
Three
|
|||||||
Months Ended
|
Months Ended
|
|||||||
March 31,
|
March 31,
|
|||||||
2010
|
2009
|
|||||||
Revenues:
|
||||||||
Product
|
$ | 6,477 | $ | - | ||||
Total
revenue
|
6,477 | - | ||||||
Operating
expenses:
|
||||||||
Cost
of product revenue (including depreciation and amortization of $179,453
and $160,853 respectively)
|
580,948 | 208,655 | ||||||
Research
and development expenses
|
80,858 | 194,266 | ||||||
General
and administrative expenses
|
2,344,998 | 1,894,599 | ||||||
Total
operating expenses
|
3,006,804 | 2,297,520 | ||||||
Loss
from operations
|
(3,000,327 | ) | (2,297,520 | ) | ||||
Interest
income
|
314 | 719 | ||||||
Interest
expense
|
(101,985 | ) | (109,084 | ) | ||||
Gain
on debt extinguishment
|
154,000 | 241,500 | ||||||
Gain
(loss) on net change in fair value of derivative
liabilities
|
7,106 | (205,609 | ) | |||||
Net
loss
|
(2,940,892 | ) | (2,369,994 | ) | ||||
Dividends
to preferred stockholders
|
(148,692 | ) | (4,211,804 | ) | ||||
Net
loss attributable to common stockholders
|
$ | (3,089,584 | ) | $ | (6,581,798 | ) | ||
Basic
and diluted net loss per share
|
$ | (0.09 | ) | $ | (0.31 | ) | ||
Weighted
average number of shares outstanding
|
33,614,160 | 20,900,675 |
The
accompanying notes are an integral part of these consolidated financial
statements.
-2-
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Consolidated
Statement of Changes in Stockholders’ Equity
Three
Months ended March 30, 2010
(Unaudited)
Common Stock
|
Preferred Stock
Series A
|
Preferred Stock
Series B
|
Additional
Paid-In-
Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||
Balance
at December 31, 2009
|
31,711,578
|
$ |
31,712
|
18,400
|
$ |
710,970
|
45,785
|
$ |
3,094,872
|
$
|
47,593,489
|
$
|
(50,428,839
|
)
|
$
|
1,002,204
|
|||||||||||||
Issuance
of stock options and restricted stock to employees
|
988,528
|
989
|
-
|
-
|
-
|
-
|
482,762
|
-
|
483,751
|
||||||||||||||||||||
Issuance
of stock options to non-employees
|
-
|
-
|
-
|
-
|
-
|
-
|
3,318
|
-
|
3,318
|
||||||||||||||||||||
Issuance
of common stock for settlement of license agreement
payable
|
1,100,000
|
1,100
|
-
|
-
|
-
|
-
|
724,900
|
-
|
726,000
|
||||||||||||||||||||
Proceeds
from the issuance of common stock and warrants, net of offering
costs
|
1,890,858
|
1,891
|
-
|
-
|
-
|
-
|
1,134,497
|
-
|
1,136,388
|
||||||||||||||||||||
Antidilution
obligation associated with issuance of common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
(40,000
|
) |
-
|
(40,000)
|
|||||||||||||||||||
Issuance
of common stock for settlement of anti-dilution obligation associated with
issuance of common stock
|
82,322
|
82
|
-
|
-
|
-
|
-
|
58,367
|
-
|
58,449
|
||||||||||||||||||||
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(148,692
|
)
|
(148,692
|
)
|
||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,940,892
|
)
|
(2,940,892
|
)
|
||||||||||||||||||
Balance
at March 31, 2010
|
35,773,286
|
$
|
35,774
|
18,400
|
$
|
710,970
|
45,785
|
$
|
3,094,872
|
$
|
49,957,333
|
$
|
(53,518,423
|
)
|
$
|
280,526
|
The
accompanying notes are an integral part of these consolidated financial
statements.
-3-
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Consolidated
Statements of Cash Flows
(Unaudited)
Three Months
Ended March 31,
2010
|
Three Months
Ended March 31,
2009
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$
|
(2,940,892
|
)
|
$
|
(2,369,994
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization expense
|
28,371
|
11,859
|
||||||
Amortization
of license agreement
|
154,117
|
155,392
|
||||||
Amortization
of discount
|
101,984
|
109,084
|
||||||
Compensation
expense associated with stock options and restricted stock to
employees
|
483,751
|
432,682
|
||||||
Stock
options issued to non-employees for services
|
3,318
|
100,154
|
||||||
(Gain)
loss on change in fair value of warrant liability
|
(7,106)
|
205,609
|
||||||
Gain
on extinguishment of debt
|
(154,000
|
)
|
(241,500)
|
|||||
Amortization
of prepaid consulting fee
|
64,539
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
40,792
|
22,943
|
||||||
Prepaid
expenses and other current assets
|
54,146
|
(1,328
|
)
|
|||||
Other
assets
|
(1,104
|
)
|
34,089
|
|||||
Accounts
payable and accrued expenses
|
879,631
|
175,915
|
||||||
Deferred
rent
|
(20,136)
|
|||||||
Net
cash used in operating activities
|
(1,312,589
|
)
|
(1,365,095
|
)
|
||||
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||
Net
increase in restricted cash
|
(14,700
|
)
|
-
|
|||||
Purchase
of property and equipment
|
(13,198
|
)
|
(440,549)
|
|||||
Payment
for patents
|
(3,888
|
)
|
(67,869)
|
|||||
Net
cash used in investing activities
|
(31,786
|
)
|
(508,418
|
)
|
||||
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||
Payments
for license agreement payable
|
(120,000
|
)
|
-
|
|||||
Proceeds
from issuance of common stock, net
|
1,136,388
|
2,997,655
|
||||||
Net
cash provided by financing activities
|
1,016,388
|
2,997,655
|
||||||
Net
(decrease) increase in cash and cash equivalents
|
(327,987
|
)
|
1,124,142
|
|||||
Cash
and cash equivalents - beginning of period
|
567,647
|
1,476,246
|
||||||
Cash
and cash equivalents - end of period
|
$
|
239,660
|
$
|
2,600,388
|
||||
Supplemental
Disclosure of Non-Cash Operating and Financing Activities
|
||||||||
Accrued
dividends on preferred stock
|
$
|
148,692
|
$
|
206,643
|
||||
Common
stock issued for payment of license agreement payable
|
$
|
726,000
|
$
|
1,000,000
|
||||
Issuance
of common stock for settlement of antidilution obligation associated with
issuance of common stock
|
$
|
58,449
|
$
|
-
|
||||
Antidilution
obligation associated with issuance of common stock
|
$
|
40,000
|
$
|
102,500
|
||||
Common
stock warrant liability
|
$
|
-
|
$
|
2,214,371
|
||||
Reclassification
of warrant liability in connection with antidilution triggering
event
|
$
|
-
|
$
|
158,451
|
||||
Cumulative
effect of reclassification of warrants (ASC Topic 815)
|
$
|
-
|
$
|
260,115
|
The
accompanying notes are an integral part of these consolidated financial
statements.
-4-
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Company
New
Generation Biofuels Holdings, Inc. (the “Company”), a Florida corporation,
through its wholly owned subsidiary, New Generation Biofuels, Inc., a Delaware
corporation, holds an exclusive license for North America, Central America and
the Caribbean to commercialize proprietary technology (the “Technology”) to
manufacture alternative biofuels from vegetable oils and animal fats that the
Company intends to market as a new class of renewable fuel for power generation,
commercial and industrial heating and marine transportation.
Basis of Presentation and
Going Concern
The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles in the
United States of America (“GAAP”) and the rules and regulations of the
Securities and Exchange Commission (“SEC”) for interim financial information.
Accordingly, they do not include all of the information and footnotes required
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, which are necessary
for a fair presentation of the results of the interim periods presented, have
been included. The results of the operations for the interim periods are not
necessarily indicative of results to be expected for any other interim period or
for the year as a whole. These unaudited consolidated financial statements and
footnotes thereto should be read in conjunction with the audited financial
statements and footnotes thereto contained in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009, filed with the SEC on March 26,
2010.
The
Company has incurred a net loss of $2.9 million for the three months ended March
31, 2010 and has an accumulated deficit of $54 million as of March 31, 2010. The
Company is obligated to pay $4.0 million in additional payments under the Master
License, of which $1.0 million is due in March 2011.
These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. This basis
of accounting contemplates the recovery of the Company’s assets and the
satisfaction of liabilities in the normal course of business.
The
Company is seeking to raise additional capital through public and/or private
placement offerings and targeting strategic partners in an effort to increase
revenues. The ability of the Company to continue as a going concern is
dependent upon the success of capital offerings or alternative financing
arrangements and expansion of its operations. If the Company is
unsuccessful in raising additional capital from any of these sources, it will
defer, reduce, or eliminate certain planned expenditures. The Company will
continue to consider other financing alternatives. There can be no assurance
that the Company will be able to obtain any sources of financing on acceptable
terms, or at all.
If the
Company cannot obtain sufficient additional financing in the short-term, it may
be forced to restructure or significantly curtail its operations, file for
bankruptcy or cease operations. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be necessary
should the Company be forced to take any such actions.
Material
subsequent events have been considered for disclosure and recognition through
the filing date of these consolidated financial statements.
5
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
Basis of
Consolidation
The
consolidated financial statements include the Company and its wholly owned
subsidiaries New Generation Biofuels, Inc. and NGB Marketing LLC. All
intercompany accounts and transactions have been eliminated in
consolidation.
Use of
Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. The most significant estimates and assumptions
relate to the recoverability of the purchased license intangible asset,
realization of deferred income taxes, accrued liabilities, common stock warrant
liability and antidilution obligation, and the valuation of stock-based
transactions. These estimates generally involve complex issues and require
the Company to make judgments, involve analysis of historical and the prediction
of future trends, and are subject to change from period to period. Actual
results could differ from those estimates.
Restricted
Cash
As of
March 31, 2010 and December 31, 2009, the Company had restricted cash of $14,700
and $-0-, respectively, which serves as collateral for a surety
bond.
Other
Receivables
As of
March 31, 2010 and December 31, 2009, other receivables were comprised of
non-trade receivables in connection with the 50 cent per gallon U.S. federal
alternative fuel excise tax credit. The Company records its alternative
fuel tax credits as revenue in its consolidated statements of operations as the
credits are fully refundable and do not need to offset income tax liabilities to
be received. No fuel tax credits were earned during the three months ended March
31, 2010 and 2009.
Property, Plant and
Equipment
Property,
plant and equipment are stated at cost and depreciated over the estimated useful
lives of the assets (generally three to fifteen years) using the straight-line
method. Amortization of leasehold improvements is computed over the
shorter of the lease term or the estimated useful life of the related
assets. Depreciation expense for the three months ended March 31, 2010 and
2009 was $20,831 and $10,232, respectively.
Property
and equipment consists of the following at March 31, 2010 and December 31,
2009:
2010
|
2009
|
|||||||
Property
and equipment
|
$
|
1,120,092
|
$
|
1,109,571
|
||||
Construction
in progress
|
75,220
|
72,542
|
||||||
1,195,312
|
1,182,113
|
|||||||
Less:
accumulated depreciation
|
(82,034
|
)
|
(61,202
|
)
|
||||
Property
and equipment – net
|
$
|
1,113,278
|
$
|
1,120,911
|
6
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
Long-Lived
Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets might not be recoverable.
Conditions that would necessitate an impairment assessment include a significant
decline in the observable market value of an asset, a significant change in the
extent or manner in which an asset is used, or a significant adverse change that
would indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and fair value. Various factors including
estimated future sales growth and estimated profit margins are included in this
analysis. Management believes at this time that carrying values and useful lives
continue to be appropriate. The Company believes that as of March 31, 2010
no impairment of long-lived assets existed.
Revenue
Recognition
The
Company recognizes revenue when the following criteria have been met: i)
persuasive evidence of an arrangement exists; ii) services have been rendered or
product has been delivered; iii) price to the customer is fixed and
determinable; and iv) collection of the underlying receivable is reasonably
assured.
The
Company recognizes product revenue at the time of shipment to the customer,
provided all other revenue recognition criteria have been met. The Company
recognizes product revenues upon shipment to distributors, provided that (i) the
price is substantially fixed and determinable at the time of sale; (ii) the
distributor’s obligation to pay the Company is not contingent upon resale of the
products; (iii) title and risk of loss passes to the distributor at time of
shipment; (iv) the distributor has economic substance apart from that provided
by the Company; (v) the Company has no significant obligation to the distributor
to bring about resale of the products; and (vi) future returns can be reasonably
estimated. For any sales that do not meet all of the above criteria, revenue is
deferred until all such criteria have been met.
The
Company recognizes alternative fuel tax credits as revenue in its consolidated
statements of operations as the credits are fully refundable and do not need to
offset income tax liabilities to be received. The Company classified the
tax credits as revenue because (i) the tax credit enables the Company to reduce
the price it charges its customers for the Company's products without an actual
reduction in revenue associated with the lower prices and (ii) under current tax
law, the tax credit expired on December 31, 2009 and the Company believes
classifying the tax credit as a reduction in operating expenses would be
potentially misleading.
Computation of Net Loss per
Share
Basic
loss per share is computed by dividing net loss attributable to common
shareholders by the weighted average number of common shares outstanding for all
periods. Diluted earnings per share is computed by dividing net loss
attributable to common shareholders by the weighted average number of shares
outstanding, increased by common stock equivalents. Common stock equivalents
represent incremental shares issuable upon exercise of outstanding options and
warrants, the conversion of preferred stock and the vesting of restricted stock.
However, potential common shares are not included in the denominator of the
diluted loss per share calculation when inclusion of such shares would be
anti-dilutive, such as in a period in which a net loss is
recorded.
7
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
As of
March 31, 2010 and 2009, there were 22,835,434 and 16,045,176, respectively,
shares of common stock equivalents including options (convertible into 8,720,059
shares of common stock as of March 31, 2010 and 5,966,289 shares of common stock
as of March 31, 2009), non-employee options (convertible into 1,741,000 shares
of common stock as of March 31, 2010 and 1,641,000 shares of common stock as of
March 31, 2009), warrants (convertible into 12,374,375 shares of common stock as
of March 31, 2010 and 8,405,898 shares of common stock as of March 31, 2009) and
restricted stock (31,989 shares of common stock as of March 31, 2009), all of
which were excluded from the computation of diluted earnings per share because
the inclusion of such shares would have been anti-dilutive. As of March 31, 2010
and 2009, there were 18,400 shares of Series A Convertible Preferred Stock
outstanding which are convertible into 577,252 and 460,000, respectively, shares
of common stock that were excluded from the computation of diluted earnings per
share because the inclusion of such shares would have been anti-dilutive. As of
March 31, 2010 and 2009, there were 45,785 and 62,069, respectively, shares of
Series B Convertible Preferred Stock outstanding which are convertible into
1,778,749 and 2,068,967, respectively, shares of common stock that were excluded
from the computation of diluted earnings per share because the inclusion of such
shares would have been anti-dilutive.
Fair Value
Measurements
Effective
January 1, 2009, the Company adopted authoritative guidance for fair value
measurements and the fair value option for financial assets and financial
liabilities. The Company did not record an adjustment to accumulated deficit as
a result of the adoption of the guidance for fair value measurements, and the
adoption did not have a material effect on the Company’s consolidated results of
operations. The guidance for the fair value option for financial assets and
financial liabilities provides companies the irrevocable option to measure many
financial assets and liabilities at fair value with changes in fair value
recognized in earnings. The Company has not elected to measure any financial
assets or liabilities at fair value that were not previously required to be
measured at fair value.
Fair
value is defined as the exit price, or the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants as of the measurement date. The guidance also establishes a
hierarchy for inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs
market participants would use in valuing the asset or liability and are
developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s assumptions about the
factors market participants would use in valuing the asset or liability. The
guidance establishes three levels of inputs that may be used to measure fair
value:
|
·
|
Level
1 - Quoted prices in active markets for identical assets and
liabilities.
|
|
·
|
Level
2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities.
|
|
·
|
Level
3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
Assets
and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurements. The Company reviews
the fair value hierarchy classification on a quarterly basis. Changes in the
observability of valuation inputs may result in a reclassification of levels for
certain securities within the fair value hierarchy.
8
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
The
following table presents the Company’s fair value hierarchy for assets and
liabilities measured at fair value on a recurring basis as follows:
Description
|
March 31,
2010
|
Quoted Prices
in
Active Markets
Level 1
|
Significant
Other
Observable
Inputs
Level 2
|
Significant
Unobservable
Inputs
Level 3
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 239,660 | $ | 239,660 | $ | – | $ | – | ||||||||
Total
assets
|
$ | 239,660 | $ | 239,660 | $ | – | $ | – | ||||||||
Liabilities:
|
||||||||||||||||
Derivative
- warrants
|
$ | 45,319 | $ | – | $ | – | $ | 45,319 | ||||||||
Antidilution
obligation
|
$ | 40,000 | $ | – | $ | – | $ | 40,000 | ||||||||
Total
liabilities
|
$ | 85,319 | $ | – | $ | – | $ | 85,319 |
Description
|
December 31,
2009
|
Quoted Prices
in
Active Markets
Level 1
|
Significant
Other
Observable
Inputs
Level 2
|
Significant
Unobservable
Inputs
Level 3
|
||||||||||||
Assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 567,647 | $ | 567,647 | $ | – | $ | – | ||||||||
Total
assets
|
$ | 567,647 | $ | 567,647 | $ | – | $ | – | ||||||||
Liabilities:
|
||||||||||||||||
Derivative
- warrants
|
$ | 52,425 | $ | – | $ | – | $ | 52,425 | ||||||||
Antidilution
obligation
|
$ | 58,449 | $ | – | $ | – | $ | 58,449 | ||||||||
Total
liabilities
|
$ | 110,874 | $ | – | $ | – | $ | 110,874 |
The
following table presents a reconciliation of the assets and liabilities measured
at fair value on a quarterly basis using significant unobservable inputs (Level
3):
|
Derivative –
warrants and
antidilution
obligation
|
|||
Balance
at January 1, 2010
|
$
|
110,874
|
||
Transfers
to (from) Level 3 (1)
|
(18,449)
|
|||
Adjustment
to fair value included in earnings (2)
|
(7,106)
|
|||
Balance
March 31, 2010
|
$
|
85,319
|
(1)
|
Represents
increase in antidilution obligation of $40,000 in connection with the
February 2010 Private Placement offset by $58,449 for the settlement of
the March 2009 Private Placement antidilution obligation. The
fair value of the antidilution obligation is calculated using an estimate
of the number of shares to be issued to all investors in the March 2009
Private Placement pursuant to the antidilution provisions times an
estimated fair market value of the Company’s common
stock.
|
9
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
(2)
|
The
carrying value of the common stock warrant liability is calculated using
the Black-Scholes option pricing model, which requires the input of highly
subjective assumptions. These assumptions include the risk-free rate of
interest, expected dividend yield, expected volatility, and the remaining
contractual term of the award. The risk-free rate of interest is based on
the U.S. Treasury rates appropriate for the expected term of the award.
Expected dividend yield is projected at 0%, as the Company has not paid
any dividends on its common stock since its inception and does not
anticipate paying dividends on its common stock in the foreseeable future.
Expected volatility is based on the Company’s historical
volatility. The fair value of the antidilution obligation is
calculated using an estimate of the number of shares to be issued to all
investors in the March 2009 Private Placement pursuant to the antidilution
provisions times an estimated fair market value of the Company’s common
stock. For the three months ended March 31, 2010, the net
adjustment to fair value resulted in a gain of $7,106 and is included in
gain (loss) on net change in fair value of derivative liabilities on the
accompanying consolidated statements of
operations.
|
|
Derivative –
warrants and
antidilution
obligation
|
|||
Balance
at January 1, 2009
|
$
|
260,115
|
||
Transfers
to (from) Level 3(1)
|
2,158,420
|
|||
Adjustment
to fair value included in earnings (2)
|
205,609
|
|||
Balance
March 31, 2009
|
$
|
2,624,144
|
(1)
|
Represents
increase in derivative liability of $2,214,371 related to the detachable
warrants issued to investors in connection with the March 2009 Private
Placement, increase in antidilution obligation of $102,500 in connection
with the March 2009 Private Placement, offset by $158,451 reclassification
of derivative liability in association with Series B Preferred Stock
antidilution triggering event related to the detachable warrants issued to
Series B Preferred Stock investors.
|
(2)
|
The
carrying value of the common stock warrant liability is calculated using
the Black-Scholes option pricing model, which requires the input of highly
subjective assumptions. These assumptions include the risk-free rate of
interest, expected dividend yield, expected volatility, and the remaining
contractual term of the award. The risk-free rate of interest is based on
the U.S. Treasury rates appropriate for the expected term of the award.
Expected dividend yield is projected at 0%, as the Company has not paid
any dividends on its common stock since its inception and does not
anticipate paying dividends on its common stock in the foreseeable future.
Expected volatility is based on the Company’s historical volatility and
the historical. The fair value of the antidilution obligation is
calculated using an estimate of the number of shares to be issued to all
investors in the March 2009 Private Placement pursuant to the antidilution
provisions times an estimated fair market value of the Company’s common
stock. The carrying value of the antidilution obligation
requires the input of highly subjective assumptions. For the
three months ended March 31, 2009, the net adjustment to fair value
resulted in a loss of $205,609 and is included in gain (loss) on net
change in fair value of derivative liabilities on the accompanying
consolidated statements of
operations.
|
NOTE
2 – OPTIONS,
RESTRICTED STOCK, STOCK AND WARRANTS
In
October 2007, the Company’s board of directors approved an Omnibus Incentive
Plan (the “Incentive Plan”) to attract, retain and motivate key employees, to
provide an incentive for them to achieve long-range performance goals and to
enable them to participate in the long-term growth of the Company. The Company’s
shareholders approved the Incentive Plan at their annual meeting in November
2007. Options granted under the Incentive Plan may include non-qualified stock
options as well as incentive stock options intended to qualify under Section
422A of the Internal Revenue Code. The aggregate number of shares of common
stock that are reserved for issuance under the Incentive Plan must not exceed
2.7 million shares.
10
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
In April
2009, the Company’s board of directors and shareholders approved an amendment to
the Incentive Plan to increase the number of shares reserved for issuance under
the Incentive Plan from 2.7 million to 6.4 million shares. Other than this
increase in the number of shares reserved for issuance, all other provisions of
the Incentive Plan will remain the same as adopted in October 2007 by the
Company’s board of directors and in November 2007 by the Company’s
shareholders.
Each
stock option agreement specifies when all or any installment of the option
becomes exercisable. Option awards are generally granted with an exercise price
equal to the market price of the Company’s common stock on the grant date,
generally vest immediately or in equal installments over three years of
continuous service and have a ten year contractual term.
Employee
Options
The fair
value of employee stock option awards for the three months ended March 31, 2010
was estimated using Black-Scholes option pricing model on the date of grant
using the assumptions in the following table. The expected volatility in
this model is based on the historical volatility of the Company’s stock. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time awards are granted, based on maturities which approximate the expected
life of the options. The Company uses the “simplified” method for determining
the expected term of its “plain vanilla” stock options. The expected
dividend rate takes into account the absence of any historical dividends paid by
the Company and management’s intention to retain all earnings for future
operations and expansion. There were no options granted to employees
during the three months ended March 31, 2009.
2010
|
||||
Weighted
average grant date fair value
|
$ | 0.58 | ||
Dividend
yield
|
0.0 | % | ||
Risk
free rate of return
|
2.41-2.60 | % | ||
Expected
life in years
|
5.75 | % | ||
Volatility
|
102 | % |
A summary
of the status of the Company’s employee options outstanding as of March 31, 2010
and the changes during the period ending on that date are presented
below:
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
Options
outstanding at December 31, 2009
|
8,954,845
|
$
|
2.35
|
7.98
|
||||||||||||
Granted
|
500,000
|
$
|
0.73
|
9.97
|
||||||||||||
Forfeited
or cancelled
|
(734,786
|
)
|
$
|
2.98
|
8.23
|
|||||||||||
Options
outstanding at March 31, 2010
|
8,720,059
|
$
|
2.24
|
7.79
|
||||||||||||
Vested
and expected to vest at March 31, 2010
|
7,892,955
|
$
|
2.34
|
7.63
|
$
|
–
|
||||||||||
Options
exercisable at March 31, 2010
|
6,306,421
|
$
|
2.50
|
7.29
|
$
|
–
|
11
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
Options
exercisable at March 31, 2010 do not include 827,104 performance based options.
The Company recognizes compensation cost for performance based options once the
performance milestones are probable of achievement. The applicable portion of
the compensation costs earned to date is recognized and the remaining
unrecognized expense attributable to the milestone is recorded over the service
period.
The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company’s closing stock price on March 31,
2010 and the exercise price, multiplied by the number of in-the-money options)
that would have been received by the option holders had vested option holders
exercised their options on March 31, 2010. This amount changes based upon
changes in the fair market value of the Company’s common stock.
The
Company recognized $320,906 and $415,621 in compensation expense for stock
options issued to employees for the three months ended March 31, 2010 and 2009,
respectively, which is included in general and administrative expense in the
consolidated statements of operations. As of March 31, 2010, there was
approximately $608,000 of total unrecognized compensation expense related to
unvested employee stock options. This expense is expected to be recognized
over a weighted-average period of approximately 1.0 year.
Non-Employee
Options
There
were no options granted to non-employees during the three months ended March 31,
2010. The fair value of non-employee stock option awards for the
three months ended March 31, 2010 and 2009 was estimated using Black-Scholes
option pricing model on the date of grant using the assumptions in the following
table. The expected volatility in this model is based on the historical
volatility of the Company’s stock. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time awards are granted, based on
maturities which approximate the contractual life of the options. The Company
uses the contractual term as the expected term of its non-employee stock
options. The expected dividend rate takes into account the absence of any
historical dividends paid by the Company and management’s intention to retain
all earnings for future operations and expansion.
2009
|
||||
Weighted
average grant date fair value
|
$
|
0.78
|
||
Dividend
yield
|
0.0
|
%
|
||
Risk
free rate of return
|
3.7
|
%
|
||
Expected
life in years
|
10
|
|||
Volatility
|
99
|
%
|
A summary
of the status of the Company’s non-employee options outstanding as of March 31,
2010 and the changes during the period ending on that date are presented
below:
12
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
Options
outstanding at December 31, 2009
|
1,741,000
|
$
|
5.59
|
7.50
|
||||||||||||
Granted
|
–
|
$
|
–
|
–
|
||||||||||||
Forfeited
or cancelled
|
–
|
$
|
–
|
–
|
||||||||||||
Options
outstanding at March 31, 2010
|
1,741,000
|
$
|
5.59
|
7.26
|
||||||||||||
Vested
and expected to vest at March 31, 2010
|
191,000
|
$
|
4.87
|
7.86
|
$
|
–
|
||||||||||
Options
exercisable at March 31, 2010
|
191,000
|
$
|
4.87
|
7.86
|
$
|
–
|
Options
exercisable at March 31, 2010 do not include 1,550,000 performance based
options. The Company recognizes compensation cost for performance based
options once the performance milestones are probable of achievement. The
applicable portion of the compensation costs earned to date is recognized and
the remaining unrecognized expense attributable to the milestone is recorded
over the service period.
The
Company recognized $3,318 and $6,488 in compensation expense for stock options
issued to non-employees for the three months ended March 31, 2010 and 2009,
respectively, which is included in general and administrative expense in the
consolidated statements of operations. As of March 31, 2010, there was $0 of
total unrecognized compensation expense related to unvested employee stock
options.
Restricted Stock
Grants
In May
2008, the Compensation Committee of the Company’s board of directors approved a
Management Equity Compensation Plan (the “Equity Compensation Plan”) to ensure
that equity remains a significant component of management compensation, to align
employee and shareholder interests, by providing opportunities for employees to
own the Company’s common stock and to motivate and retain key employees with
multi-year equity incentives. The Equity Compensation Plan generally
contemplates annual restricted stock grants based on achieving certain
performance targets and vesting annually over three years. The amount of each
award is relative to an employee’s total compensation and based on the
individual’s ability to affect the Company’s results, with higher level
positions generally receiving grants equal to a greater percentage of their
compensation than lower level positions. All shares and options issued under the
Equity Compensation Plan are issued pursuant to the Company’s Omnibus Incentive
Plan that has been approved by the
Company's shareholders.
In March
2010, the Company granted and issued under the Equity Compensation Plan 477,452
restricted shares to certain employees based on achieving certain 2009
performance targets as determined by the Compensation Committee. The grant was
approved by the Compensation Committee. The number of restricted shares issued
was calculated based on the dollar value of the award divided by the closing
price of the Company’s common stock on the date the grant was approved by the
Compensation Committee. The restricted stock was granted at $0.73 per
share.
In March
2010, the Company granted and issued under the Equity Compensation Plan 522,547
restricted shares to certain employees as a special employment retainer
incentive. The grant was approved by the Compensation Committee. The number of
restricted shares issued was also determined by the Compensation Committee with
input from management. The restricted stock was granted at $0.73 per
share.
13
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
The
Company recognized $162,845 and $17,061 in compensation expense for restricted
stock awards issued to employees for the three months ended March 31, 2010 and
2009, respectively, which is included in general and administrative expense in
the consolidated statements of operations. As of March 31, 2010, there was
approximately $1,900,000 of total unrecognized compensation expense related to
unvested employee restricted stock awards. This expense is expected to be
recognized over a weighted-average period of approximately 1.2
years.
The
Company recognized $9,792 in compensation expense for restricted stock awards
issued to non-employees for the three months ended March 31, 2010, which is
included in general and administrative expense in the consolidated statements of
operations. As of March 31, 2010, there was no unrecognized compensation expense
related to unvested non-employee restricted stock awards.
NOTE 3 – COMMON
STOCK
March 2009 Private
Placement
In March
2009, the Company completed a private placement (the “March 2009 Private
Placement”) of 3,957,500 shares of common stock, at a price of $0.80 per share
to “accredited investors” as defined under the Securities Act of 1933, as
amended (the “Securities Act”). The gross proceeds from the March 2009
Private Placement were $3.2 million and net proceeds, after deducting placement
agent’s fees and estimated offering expenses payable by the Company, were
approximately $3.1 million. Each investor in the March 2009 Private
Placement also received a warrant exercisable for a number of shares of common
stock equal to the number of shares of common stock purchased by each investor.
The exercise price of the warrants is $0.90 per share (the “$0.90 warrants”).
The warrants are exercisable at any time after the six month anniversary of the
issue date but prior to the fifth anniversary of the issue date. The $0.90
warrants and the March 2009 Placement Agent Warrants had a fair value of
$2,163,943 on the date of issuance based on the Black-Scholes options pricing
method.
In
addition, the Company exchanged new warrants at an exercise price of $1.00 per
share with investors that participated in the Company’s 2008 Series B Private
Placement (see Note 5) and invested a specified amount in the March 2009 Private
Placement (the “$1.00 warrants”). Under this exchange, the Company
canceled and reissued warrants to purchase a total of 97,792 shares. The
warrants are exercisable at any time after the six month anniversary but prior
to the fifth anniversary of the issue date, either for cash or by means of a
“cashless exercise.” The $1.00 warrants had a fair value of $50,428 on the date
of issuance based on the Black-Scholes options pricing method.
The $1.00
warrants are considered to be a derivative liability to be marked to market at
each reporting date due to their exercise price reset feature. As of
December 31, 2009 the warrant liability related to the $1.00 warrants was
$52,426. At March 31, 2010 after being marked to market the balance
was $45,320 with a gain of $7,106 being recognized and recorded. The
Company recognized a loss of $6,554 after being marked to market during the
three months ended March 31, 2009.
The March
2009 Private Placement contains certain antidilution provisions. If the
Company issues additional shares of common stock or convertible securities in a
financing transaction in the succeeding fifteen (15) months from the March 2009
Private Placement with a purchase price or conversion price less than $0.80 per
share, the Company will issue additional shares of its common stock to the
investors in the March 2009 Private Placement, up to a maximum cap of 82,322
additional shares. This cap ensures that the number of shares issued to
all investors in the March 2009 Private Placement and pursuant to the
antidilution provisions in the aggregate will not exceed the maximum number of
shares that the Company can issue under NASDAQ rules without shareholder
approval, which is slightly less than 20% of the Company’s common stock
outstanding prior to the March 2009 Private Placement. Similarly, if the
Company issues additional warrants in a financing transaction in the succeeding
fifteen (15) months from the March 2009 Private Placement with an exercise price
less than $0.90 per share, the Company will reduce the exercise price of the
warrants issued in the March 2009 Private Placement to the price of the warrants
in the subsequent financing transaction (but the number of shares underlying the
warrants will not change). The antidilution adjustments do not apply to
certain excluded issuances of equity securities or warrants, such as securities
not issued in capital raising transactions (for example, to customers,
suppliers, joint venture partners or the Company's Technology Licensor) or in
connection with equity awards that the Company grants to employees, consultants
and directors under employee benefit plans approved by the Company's board of
directors.
14
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
The
Company has determined that the antidilution provisions in the March 2009
Private Placement are, in effect, a net share settled written put option and
that the valuation of the antidilution obligation should be classified as a
liability and marked-to-market at each balance sheet date with the change in
liability being recorded as gain/loss on fair value adjustment. The
Company estimated the fair value of the antidilution obligation to be $102,500
at the issuance date. At December 31, 2009, the fair value of the
antidilution obligation of $58,449 was calculated using an estimate of the
number of shares (82,322 shares) to be issued to all investors in the March 2009
Private Placement pursuant to the antidilution provisions times an estimated
fair market value ($0.71) of the Company’s common stock. The carrying
value of the antidilution obligation requires the input of highly subjective
assumptions. For the three months ended March 31, 2010, no gain or loss
was recorded because shares were issued to settle the obligation of $58,449 on
March 31, 2010 at a fair market value of $0.71.
The
Company agreed to take steps to allow investors to sell their shares under Rule
144 but did not enter into any registration rights agreements in connection with
the March 2009 Private Placement.
The $0.90
warrants are considered to be a derivative liability to be marked to market at
each reporting date due to their exercise price reset feature. The
Company recorded a $2,063,562 common stock warrant liability at the issuance
date related to the $0.90 warrants and a $300,719 loss on fair value adjustment
for the three months ended March 31, 2009.
For
services rendered in connection with the March 2009 Private Placement, the
Company paid the March 2009 Placement Agent cash commissions of $122,080 and
issued warrants to purchase 190,750 shares of common stock (the “March 2009
Placement Agent Warrants”). The March 2009 Placement Agent Warrants had a fair
value of $100,381 on the date of issuance based on the Black-Scholes option
pricing model. The March 2009 Placement Agent Warrants are considered
to be a derivative liability to be marked to market at each reporting date due
to their exercise price reset feature. The Company recorded a
$100,381 common stock warrant liability at the issuance date related to the
March 2009 Placement Agent Warrants.
On June
29, 2009, the Company entered into a Warrant Waiver Agreement with an investor
in the March 2009 Private Placement. The investor agreed to waive the
exercise price reset feature in the $0.90 warrants. On the effective
date of this amendment, the change in fair value from the most recent reporting
date to the effective date of the amendment was recorded in the consolidated
statements of operations and the then-current fair value of the warrants
$2,648,883 was reclassified from common stock warrant liability to additional
paid-in capital.
On
September 23, 2009, the Company entered into Warrant Waiver Agreements with the
remaining investors and the March 2009 Placement Agent in the March 2009 Private
Placement. The investors and the March 2009 Placement Agent agreed to
waive the exercise price reset feature in the remaining $0.90
warrants. On the effective date of these amendments, the change in
fair value from the most recent reporting date to the effective date of the
amendment was recorded in the consolidated statements of operations and the
then-current fair value of the warrants $1,404,161 was reclassified from common
stock warrant liability to additional paid-in capital.
In
connection with the Warrant Waiver Agreements described in the preceeding
paragraphs, the Company issued new five-year warrants to purchase 414,825 shares
of common stock at $0.90 per share. The warrants had a fair value of
$405,304 on the date of issuance based on the Black-Scholes option pricing
model. The estimated fair value of the warrants is included in
additional paid-in capital.
15
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
February 2010 Private
Placement
In
February 2010, the Company completed a private placement (the “February 2010
Private Placement”) of 1,890,858 shares of Common Stock, at a price of $0.69 per
share to “accredited investors” under the Securities Act. The gross proceeds
from the February 2010 Private Placement were $1.3 million and approximately
$1.1 million in net proceeds, after deducting finders’ fees. Each investor
in the February 2010 Private Placement also received a warrant exercisable for a
number of shares of common stock equal to the number of shares of common stock
purchased by each investor. The exercise price of the warrants is $0.90 per
share. The warrants are exercisable at any time after the six month anniversary
of the issue date but prior to the fifth anniversary of the issue date. The
warrants have a fair value of $1,082,362 on the date of issuance based on the
Black-Scholes options pricing method.
Each
investor who subscribed for units will have an option to purchase additional
units consisting of shares of common stock and warrants during an exercise
period ending 30 days after a registration statement registering shares issued
in the February 2010 Private Placement is declared effective by the SEC.
The option warrants will have the same exercise price, terms and conditions as
the other warrants issued in the February 2010 Private Placement. Subject to
NASDAQ listing approval and determination that shareholder approval is not
required for the issuance of option units, the option will permit purchases of
up to the number of units initially purchased in the 2010 February Private
Placement.
The 2010
February Private Placement also included certain antidilution provisions for the
benefit of investors. If at any time prior to six (6) months after the
registration statement is declared effective the Company issues additional
equity securities in a “financing transaction” (as defined in the transaction
documents) with a purchase price less than the unit price or issues convertible
securities with a purchase price less than the unit price, the Company is
obligated to issue additional shares of common stock to investors in the 2010
February Private Placement so that the aggregate number of shares received by
the investor is equal to the number of shares of common stock that the investor
would have received if the same dollar amount had been invested at the purchase
price of the additional equity securities. There are no anti-dilution
provisions in the warrants. The total number of shares issued to all
investors in the 2010 February Private Placement and pursuant to anti-dilution
provisions will not exceed the maximum number of shares that may be issued
without our obtaining shareholder approval under listing rules of the NASDAQ
Capital Market.
The
Company has determined that the antidilution provisions in the February 2010
Private Placement are, in effect, a net share settled written put option and
that the valuation of the antidilution obligation should be classified as a
liability and marked-to-market at each balance sheet date with the change in
liability being recorded as gain/loss on fair value adjustment.
date. The fair value of the antidilution obligation is calculated
using an estimate of the number of shares to be issued to all investors in the
February 2010 Private Placement pursuant to the antidilution provisions times an
estimated fair market value of the Company’s common stock. The
carrying value of the antidilution obligation requires the input of highly
subjective assumptions. The Company estimated the fair value of the
antidilution obligation to be $40,000 at the issuance
The
Company agreed to take steps to allow investors to sell their shares under Rule
144 and has entered into registration rights agreements in connection with the
February 2010 Private Placement.
NOTE 4 – PREFERRED
STOCK
Series A Preferred
Stock
On May 9,
2007, the Company completed the offering (the “Series A Private Placement”) of
27,950 shares of the Company’s newly issued Series A Cumulative Convertible
Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) at
price of $100.00 per share to “accredited investors” as defined under the
Securities Act. The gross proceeds were $2,795,000. Under the terms of the
Series A Private Placement, each investor had the option to purchase additional
securities up to the amount initially purchased on the same terms as those of
the Series A Private Placement (the “Subscriber Option”). On June 8, 2007, the
Company sold an additional 14,600 shares of Series A Preferred Stock at price of
$100.00 per share in connection with exercises of the Subscriber Option. The
gross proceeds were $1,460,000.
16
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
At any
time prior to the third anniversary of the initial date of issuance, any holder
of Series A Preferred Stock may convert all or a portion of their shares into
shares of the Company’s common stock calculated by multiplying the number of
shares to be converted by such shares’ “stated value” ( i.e. , $100 per share
plus the amount of all dividends accumulated thereon) and dividing the result by
the “conversion price” then in effect. The initial conversion price of
each share of Series A Preferred Stock is $4.00, and each share of Series A
Preferred Stock is initially convertible into 25 shares of the Company's common
stock. Upon the third anniversary of the date of issuance, each share of
Series A Preferred Stock shall automatically, and without any action on the part
of the holder, convert into that number of shares of the Company's common stock
computed by dividing such share’s “stated value” by the “conversion price” then
in effect. The “conversion price” is subject to adjustment upon the
occurrence of certain events, including, among others, a stock split, reverse
stock split, stock dividend or combination of the Company's common stock.
The Series A Preferred Stock is not redeemable.
Each
share of Series A Preferred Stock will accrue cumulative dividends on a
quarterly basis at a rate of 8% per annum. All dividends will be paid in shares
of common stock having a fair market value at the time of issuance equal to the
amount of dividends to be paid, provided that to the extent the shares of common
stock to be issued are not then registered under the registration rights
agreements with the Series A Preferred Stock investors, dividends shall
accumulate but shall remain unpaid until such time as the shares are registered
and issued. The Company may elect to pay any dividends in cash in lieu of
issuing shares of common stock, subject to any restrictions on dividends under
Florida law. The Series A Preferred Stock shall also participate on an
as-converted basis with all dividends paid on the shares of common stock. As of
March 31, 2010 and December 31, 2009, accrued dividends for the Series A
Preferred Stock were $468,979 and $424,313, respectively.
Upon any
liquidation of the Company, the holders of the Series A Preferred Stock will be
entitled to be paid, prior to the common stock or any other securities that by
their terms are junior to the Series A Preferred Stock, the original issue price
of the Series A Preferred Stock plus all accrued and unpaid dividends. To the
extent the proceeds of liquidation are insufficient to pay such amounts in full,
the proceeds available will be allocated pro rata among the shares of Series A
Preferred Stock. As of the most recent balance sheet date, March 31, 2010, the
liquidation value of the Series A Preferred Stock was $2,309,008.
Each
investor in the Series A Private Placement also received a warrant exercisable
for a number of shares of common stock equal to 50% of the number of shares of
common stock into which the Series A Preferred Stock purchased by such investor
is initially convertible. The initial exercise price of the warrants is $6.00
per share. At any time following the first anniversary of the closing date and
provided that the shares of common stock issuable upon exercise of the warrants
are not then registered for resale pursuant to an effective registration
statement under the Securities Act, the warrants may also be exercised by means
of a “cashless exercise.” The warrants had a fair value of $2,610,882 on the
date of issuance based on the Black-Scholes options pricing method. The
estimated fair value of the warrants was included in additional paid-in
capital.
Series B Preferred
Stock
On March
31, 2008, the Company completed the offering (the “Series B Private Placement”)
of a total 43,986 shares of the Company’s newly issued Series B Convertible
Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”) at a
price of $100.00 per share to “accredited investors” under the Securities Act.
The gross proceeds from the issuance of 40,768 shares of Series B Preferred
Stock was $4,076,800. In addition, the Company issued 3,218 shares of Series B
Preferred Stock as commission in connection with the Private
Placement.
On May
13, 2008, the Company completed a second closing of the Series B Private
Placement of a total 35,419 shares of the Company’s Series B Preferred Stock.
The gross proceeds from the issuance of 35,123 shares of Series B Preferred
Stock was $3,512,300. In addition, the Company issued 296 shares of Series B
Preferred Stock as commission in connection with the Private Placement. In
summary, in the offering that was closed on March 31, 2008 and May 13, 2008, the
Company sold a total of 75,891 shares of Series B Preferred Stock and warrants
to purchase 446,413 shares of its common stock for total gross proceeds of
$7,589,100.
17
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
The
Series B Preferred Stock ranks junior to the Series A Preferred Stock and senior
to the common stock with respect to the payment of dividends and amounts payable
upon liquidation, dissolution or winding up of the Company. The Series B
Preferred Stock also is not redeemable.
At any
time prior to the third anniversary of the date of issuance, any holder of
Series B Preferred Stock may convert all or a portion of their shares into
shares of the Company’s common stock calculated by dividing the sum of the
stated value and all accrued dividends not previously paid or added to the
stated value to the date of such conversion by the Series B conversion price
then in effect. Upon the third anniversary of the initial issue date of the
Series B Preferred Stock, each share of Series B Preferred Stock will
automatically convert into the number of shares of common stock into which it is
then convertible. The initial conversion price is $4.25 per share, subject to
adjustment upon the occurrence of certain major corporate events such as
reorganizations and stock splits (the “Series B Conversion Price”).
Dividends
will be payable from the date of issuance at a rate of 8% per year when and as
declared by the board of directors. To the extent that dividends are not
declared, or cannot be paid, there will be an increase in the stated value of
the Series B Preferred Stock in the amount of 8% per year. In the event
dividends are declared by the board of directors and paid by the Company on the
common stock, holders of Series B Preferred Stock will either share ratably in
such dividends based on the number of shares of common stock into which the
Series B Preferred Stock may be converted or (to the extent that dividends are
not declared or cannot be paid), there will be a corresponding increase in the
stated value. Dividends will be paid semiannually, at the Company’s election, in
cash, in shares of Series B Preferred Stock (valued at stated value) or in
common stock valued at the market price, on September 30 and March 31 of each
year beginning on September 30, 2008 to holders of record on the 15th day of the
preceding month. If there is an increase in stated value because dividends were
not or could not be paid, that increase will occur semiannually on the dates
that dividends would have been paid. As of March 31, 2010 and December 31, 2009,
accrued dividends on the Series B Preferred Stock were $757,716 and $653,690,
respectively.
The
Series B Preferred Stock was convertible into 1,868,367 shares of common stock,
at the election of the holders, at an initial conversion price of $4.25 per
share. The fair market value the beneficial conversion was calculated based
on the difference between the share price of the common stock, at the time of
issuance, and the initial conversion price. This resulted in a $2,963,995 deemed
dividend related to the beneficial conversion feature during the year ended
December 31, 2008.
Upon any
liquidation of the Company, after the Company has made the required
distributions to the holders of Series A Preferred Stock (and any other
preferred stock then outstanding, if any, ranking in liquidation senior to the
Series B Preferred Stock), and before any distribution is made to the holders of
common stock (and any other stock ranking in liquidation junior to the Series B
Preferred Stock), the holders of Series B Preferred Stock will be entitled to be
paid an amount in cash equal to the aggregate liquidation value of Series B
Preferred Stock, which equals the stated value plus all accrued dividends not
previously paid or added to stated value. As of the most recent balance sheet
date, March 31, 2010, the liquidation value of the Series B Preferred Stock was
$5,336,247.
Each
investor in the Series B Private Placement also received a warrant exercisable
for a number of shares of common stock equal to 25% of the number of shares of
common stock into which the Series B Preferred Stock purchased by such investor
is initially convertible. The initial exercise price of the warrants is $6.25
per share. Both the Series B Preferred Stock and the warrants include
antidilution provisions that, if triggered, could result in a reduction of the
conversion price of the Series B Preferred Stock or the exercise price of the
warrants, but not below $3.00 per share. The warrants have a fair value of
$2,032,739 based on the Black-Scholes option pricing method. The estimated
fair value of the warrants was included in additional paid-in
capital.
18
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
In
connection with the Series B Private Placement, the Company agreed to register
the resale of the shares of common stock issuable (i) upon conversion of the
Series B Preferred Stock, (ii) as dividends on the Series B Preferred Stock, and
(iii) upon exercise of warrants, all in accordance with registration rights
agreements among the Company and each of the investors. Under the registration
rights agreement, the Company was required to file a “resale” registration
statement with the SEC covering such shares on or before the 30th day following
the closing of the Series B Private Placement. The Company filed the
registration statement on May 30, 2008, within the required time period. Since
the registration statement was not declared effective by the SEC within 180 days
of the initial required filing date, during the year ended December 31, 2008 the
Company recorded an expense of $43,986 for 1% of the shares issued in the March
31, 2008 Series B Private Placement. The registration statement was declared
effective by the SEC on November 24, 2008.
If at any
time prior to the first to occur of (i) the first anniversary of the
registration of the common stock underlying the Series B Preferred Stock or (ii)
18 months after the closing , the Company issues any additional shares of common
stock with a purchase price less than the conversion price of the Series B
Preferred Stock, or additional convertible securities with a conversion price
less than the conversion price of the Series B Preferred Stock, the conversion
price of the Series B Preferred Stock will be reduced to the purchase price at
which such common stock has been issued or the conversion price of such
additional convertible securities, but not below a conversion price of $3.00 per
share. The antidilution adjustments in the Series B Preferred Stock and warrants
will not apply to certain issuances of equity securities or warrants, including
those not issued in capital-raising transactions (such as to customers,
suppliers, joint venture partners or in connection with acquisitions of
property) or in connection with equity award or options granted by the Company
to employees, consultants and directors under employee benefit plans approved by
the board of directors under which options generally are granted with exercise
prices at least equal to the Company’s stock price on the grant
dates.
In
conjunction with the March 2009 Private Placement, as noted in Note 3 above, the
antidilution provisions were triggered. The conversion price of the Series B
Preferred Stock and the exercise price of the warrants were reset to $3.00 per
share. The Company recorded $4,005,161 as an additional deemed dividend related
to the beneficial conversion feature during the three months ended March 31,
2009. The additional beneficial conversion feature was calculated based on the
number of shares that would be received upon conversion based on the adjusted
conversion price. The Company then compared the number of shares that
would be received upon conversion based on the adjusted conversion price with
the number that would have been received prior to the occurrence of the
contingent event. The excess number of shares was multiplied by the
commitment date stock price to determine the incremental intrinsic value
resulting from the resolution of the contingency and the corresponding
adjustment to the conversion price.
In
connection with the Series B Private Placement, the Company paid a commission of
$249,288, issued 3,514 shares of Series B Preferred Stock and warrants
exercisable for 197,437 shares of common stock as consideration for investors
introduced to the Company. The warrants had a fair value of $770,858 on the date
of issuance based on the Black-Scholes option pricing model. The estimated fair
value of the warrants was included in additional paid-in capital.
In
conjunction with the March 2009 Private Placement, as noted in Note 3 above, the
antidilution provisions were triggered in the Series B Private Placement common
stock purchase warrants. The exercise price of the warrants was reset to
$3.00 per share. Accordingly, the change in fair value from the most
recent reporting date to the date of March 2009 Private Placement was recorded
in the consolidated statements of operations and the then-current fair value of
the warrants $158,451 was reclassified from common stock warrant liability to
additional paid-in capital.
For the
three months ended March 31, 2009, the net adjustment to fair value related to
the Series B Private Placement common stock purchase warrants resulted in a gain
of $101,664 and is included in loss on net change in fair value of derivative
liabilities on the accompanying consolidated statements of
operations.
19
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
The
ability of the Company to pay dividends in the future is limited by regulatory
requirements, legal availability of funds, recent and projected financial
results, capital levels and liquidity of the Company, general business
conditions and other factors deemed relevant by the Company’s Board of
Directors.
NOTE 5 – EXCLUSIVE LICENSE
AGREEMENT AND PAYABLE
On March
20, 2006 (the “Effective Date”), the Company entered into an Exclusive License
Agreement (the “Perpetual License”) with the inventor of its proprietary
technology (the “Technology”), Ferdinando Petrucci (the “Licensor”), to obtain
an exclusive Perpetual License to manufacture, use and sell the Technology in
North America, Central America and the Caribbean as well as other territories
that may be added by mutual agreement of the parties to the Perpetual
License.
On
February 19, 2010, the Perpetual License, as amended, was further amended, to
allow the Company to pay $120,000 in cash on February 19, 2010 and issue
1,100,000 shares of common stock in lieu of making the $500,000 payments due on
February 20, 2010 and March 20, 2010. The fair value of the shares
issued was $726,000, based on the fair market value on the date of issuance, or
$0.66 per share, resulting in a gain on debt extinguishment of $154,000 for the
three months ended March 31, 2010.
NOTE 6 – COMMITMENTS AND
CONTINGENCIES
On or
about January 4, 2010, the Company was notified that it was in default under the
Lease Agreement and Services Agreement primarily due to its failure to pay rent
in the amount of $320,000. The Company is seeking to negotiate a
settlement of the amounts owed and to restructure the remaining obligations
under the agreements. There can be no assurance that the Company will be
successful in negotiating a settlement with the landlord, and the landlord may
terminate the lease as a result of the Company’s default and, among other
potential remedies, accelerate the Company’s obligations due under the
agreements. As of March 31, 2010 and December 31, 2009, accrued and unpaid
rent under the agreements totaled approximately $532,308 and $362,500,
respectively, and is included in accounts payable and accrued expenses on the
consolidated balance sheets.
NOTE 7 – SUBSEQUENT
EVENTS
April 2010 Private
Placement
On April
30, 2010, the Company completed a private placement of 90-day secured
convertible notes and warrants raising approximately $700,000 in gross proceeds.
The securities were issued pursuant to a Note and Warrant Purchase Agreement,
dated April 30, 2010, between the Company and accredited investors.
In
connection with the Purchase Agreement, the Company executed a Secured
Convertible Promissory Note and Security Agreement with each note purchaser
under the Purchase Agreement (the “Notes”). The Notes will pay
interest at a rate of 10% per annum, will mature ninety (90) calendar days after
their date of issuance (or July 29, 2010) and are convertible into shares of our
common stock at a conversion price of $0.90 per share at any time prior to the
maturity date, at the election of the noteholder. In the aggregate,
the Notes will be convertible into up to 797,222 shares of our common stock if
held to maturity, including interest. The Notes are secured by (1) a
first-priority security interest in Company assets at our leased Baltimore
biofuel production plant and (2) a pledge of a number of shares of the Company’s
common stock held by 2020 Energy LLC, the Company’s largest shareholder, equal
to 120% of the maximum aggregate principal amount of the Notes divided by the
consolidated closing bid price of the Company’s common stock on the Nasdaq
Capital Market immediately prior to entering into binding agreements for this
transaction. Pursuant to a Reimbursement Agreement between the
Company and 2020 Energy (the “Reimbursement Agreement”), if an event of default
occurs under the Notes and remains uncured and the noteholders exercise their
rights against the pledged shares from 2020 Energy, the Company has agreed to
reimburse 2020 Energy by issuing to 2020 Energy a number of shares equal to the
pledged shares, to the extent permissible by Nasdaq rules.
20
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
At any
time at the Company’s option, the Company may prepay without penalty the
outstanding principal amount of the Notes plus unpaid accrued
interest. Upon the occurrence of an event of default, the outstanding
principal and all accrued interest on the Notes will accelerate and
automatically become immediately due and payable. The Note purchasers, at their
option, also have the right to accelerate payment if the Company engages in
certain change of control transactions.
In
connection with the sale of the Notes, the Company also issued warrants to
purchase in the aggregate 388,889 shares of common stock at an exercise price of
$0.90 per share. Each purchaser of the Notes received warrants to
purchase a number of shares of common stock equal to 50% of the note purchase
price (as defined in the Purchase Agreement) divided by $0.90. The
warrants are exercisable at any time after the six-month anniversary of their
date of issuance and will expire on the fifth anniversary of their date of
issuance. The Company does not intend that the warrants will trade on
any exchange or be listed for quotation on any market.
The
Company agreed to pay commissions to certain finders in connection with the
offering based on the proceeds received from the purchasers introduced by each
finder. The Company paid each finder a cash commission of 10% of the total
proceeds received at closing based on proceeds from purchasers introduced
to the Company by such finder and warrants to purchase a number of shares of
common stock equal to 10% of the same total proceeds divided by
$0.90.
Resignation of Lee S. Rosen
as Chairman and Separation Agreement
On May 7,
2010, the Company’s board accepted the resignation of Mr. Rosen as the Chairman
of the Board and as a director. In connection with Mr. Rosen’s
resignation, the board of directors negotiated and executed a Separation
Agreement, dated May 7, 2010, between the Company and Mr. Rosen (the “Separation
Agreement”). Under the Separation Agreement, Mr. Rosen is entitled to the
following:
|
·
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$95,000
in cash, less standard deductions and
withholding;
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·
|
the
right to receive an additional $105,000, at the election of Mr. Rosen, in
the form of (i) a note issued by the Company with a maturity date of three
years from date of issuance and an interest rate equal to the interest
rate of a three-year United States Treasury Note plus 2.0% on the date of
issuance and other customary terms and conditions; or (ii) a number of
shares of the Company’s common stock equal to the amount of the cash
election divided by the closing price of the Company’s common stock on the
Nasdaq Capital Market on the election date. Mr. Rosen may make
this election before one (1) business day following the Release Effective
Date under the Separation Agreement, which will be no earlier than May 14,
2010;
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·
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accelerated
vesting on certain time-based stock options and stock grants under Mr.
Rosen’s previous Amended and Restated Employment Agreement with the
Company, dated July 23, 2009 (the “Employment
Agreement”), consisting of (1) options to purchase 104,353
shares of the Company’s common stock; and (2) 260,833 shares of the
Company’s common stock;
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·
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accelerated
vesting on a certain previously granted three-year restricted stock
grants, consisting of 226,316 shares of the Company’s common
stock;
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upon
receipt of shareholder approval to issue sufficient available shares under
the Company’s Omnibus Incentive Plan, (i) accelerated vesting on
additional time-based options to purchase 208,707 shares of the Company’s
common stock (the “Conditional Options”) and (ii) issuance of additional
common stock grants consisting of 521,677 shares of the Company common
Stock less the number of shares equal to $105,000 divided by the closing
price of the Company’s common stock on the Nasdaq Capital Market on the
election date (the “Conditional Stock Grant”). The Conditional
Options and Conditional Stock Grant were granted under Mr. Rosen’s
previous Employment Agreement;
|
21
NEW
GENERATION BIOFUELS HOLDINGS, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
|
·
|
18
months of reimbursement for COBRA premiums in order to provide health and
life insurance benefits at least equal to those provided at the time of
separation; and
|
|
·
|
other
accrued amounts under the Employment Agreement, as of May 7,
2010.
|
The
Company has not registered, and is under no obligation to register, the stock
grants or the shares underlying the stock options provided under the Separation
Agreement.
Fenix
Energy
On May
12, 2010, the Company issued a termination notice to Fenix Energy to terminate
the Company’s biofuel contract with them as a result of
Fenix’s failure to post the mandatory letter of credit equal to one
month’s projected sales that the Company requested in March 2010. The
termination is effective immediately, although Fenix has a 30 day cure
period. This contract was the Company’s largest single biofuel sales contract,
under which Fenix Energy had agreed to purchase a minimum of 750,000
gallons of our biofuel per month for 12 months. At this point, the
Company has no reason to believe that Fenix will meet the requirement for the
letter of credit or purchase any biofuel and has removed the contract from
the Company’s production plans.
22
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
We are a
renewable biofuels provider that is marketing a new class of “second generation”
biofuels for use in diesel fuel applications, including power generation,
commercial and industrial heating and marine transportation, that began
generating revenues in 2008.
We
produce our biofuels using a proprietary blending technology that we believe is
simpler, cleaner, less expensive, and less energy intensive than the complex
chemical reaction process used to produce traditional biodiesel. We believe that
this technology gives us a competitive advantage by enabling us to produce
biofuels that are cleaner and less expensive than our competitors. Our
technology also gives us the flexibility to produce our biofuel from multiple
feedstocks, which allows us to use non-edible raw materials in our production
process, when desirable. We believe that these fuel characteristics will enable
us to customize our product to specific customer requirements and react more
quickly to trends in the biofuels market.
During
the year ended December 31, 2009, we commenced our principal business operations
and have exited the development stage. Prior to that, from our inception, we
were a development stage entity in accordance with the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
915, “Development
Stage Entities.”
We have
incurred annual operating losses since inception and expect to incur substantial
operating losses in the future in connection with the development of our core
products. As of March 31, 2010, we had an accumulated deficit of $53.5
million. The operation and development of our business will require
substantial additional capital to fund our operations, payments due under
our exclusive license, the acquisition or development of manufacturing plants,
research and development and other initiatives including potentially the
financing of future acquisitions.
Our
near-term business strategy involves the following:
|
·
|
Direct
Sales. We are seeking to develop a revenue stream from
direct sales of our biofuel produced at our Baltimore production facility.
Based on existing contracts with our customers, we are seeking to expand
our facility over the next several months, if sufficient resources are
available. Our longer term strategy would include construction
of additional plants.
|
|
·
|
Technology
Licensing. As a second potential revenue stream, our
business plan contemplates collecting royalties through sublicensing our
proprietary technology where it is more efficient for manufacturers to
produce our biofuel at their own plants rather than requiring production
at our facilities. We are in the process of exploring various technology
licensing relationships.
|
|
·
|
Government Tax
Credits. We are also pursuing our eligibility and
qualification for tax credits and other government incentives to
strengthen the competitive position of our biofuel and to otherwise
attempt to take advantage of the U.S. government’s encouragement of
“green” technologies.
|
|
·
|
Strategic
Partners. We are seeking arrangements with strategic
partners who would both provide funding and support our efforts to develop
our production capacity and attract
customers.
|
|
·
|
Research and
Development. To the extent permitted by our limited
resources, we are continuing to develop our technology and extend it to
fuels with additional
applications.
|
23
Recent
Developments
Significant
recent developments in the first quarter and to date regarding our company
include the following:
|
·
|
On
May 12, 2010, we issued a termination notice to Fenix Energy to terminate
our biofuel contract with them as a result of Fenix’s failure to
post the mandatory letter of credit equal to one month’s projected sales
that we requested in March 2010. The termination is effective
immediately, although Fenix has a 30 day cure period. This contract
was our largest single biofuel sales contract, under which Fenix
Energy had agreed to purchase a minimum of 750,000 gallons of our biofuel
per month for 12 months. At this point, we have no reason to believe
that Fenix will meet the requirement for the letter of credit or purchase
any of our biofuel and have removed the contract from our production
plans. We are continuing to work to advance several potential customers in
our pipeline from negotiation to executed contracts. We believe that we
will be able to offset the volume lost from the Fenix termination
with some delay relative to when product might have been shipped
under the Fenix contract, although there can be no assurance that we
will be able to do so.
|
|
·
|
On
May 7, 2010, the Company’s board of directors appointed John E. Mack, our
current audit committee chairman, as non-executive Chairman of the Board,
appointed David H. Goebel, our Chief Operating Officer, as a director,
accepted the resignation of Lee S. Rosen as Chairman and as director and
approved and executed a separation agreement with Mr.
Rosen.
|
|
·
|
On
April 30, 2010, the Company completed a private placement of 90-day
secured convertible notes and warrants, raising $700,000 in gross proceeds
and $630,000 in net proceeds, after deducting finders’
fees.
|
|
·
|
In
March 2010, we received the permit to construct approval from the State of
Maryland to expand our Baltimore facility to 25 million
gallons.
|
|
·
|
On
March 12, 2010, we executed a non-binding Memorandum of Understanding, or
MOU, with Regent Trend Investment Ltd (soon to be re-named Milestone
Biofuels Limited, or Milestone), a potential strategic partner from China,
under which Milestone would invest $20 million in our equity securities
and we would collaborate with Milestone to form a joint venture to develop
and operate biofuel production plants in the continental United States
with a total aggregate plant capacity of 250 million gallons per year.
Milestone would fund all of the capital requirements for the joint
venture, and we would provide the technology and operate the
plants. We would earn a minimum royalty on all sales from the joint
venture and would share in a percentage of profits above the minimum
royalty. The MOU remains subject to a due diligence period of up to 75
days and negotiation, execution and delivery of definitive agreements
acceptable to both parties and approved by their respective boards of
directors. The investment also may be subject to shareholder approval
under the NASDAQ listing rules. There is no assurance that definitive
agreements will be signed or that the transaction will
close.
|
|
·
|
In
February 2010, we entered into an agreement with Ferdinando Petrucci, the
inventor of our proprietary technology, to issue 1,100,000 shares of
common stock and $120,000 in cash in lieu of the $1 million license
payment payable in two equal installments in February and March 2010 to
help conserve cash and strengthen our
liquidity.
|
|
·
|
In
February 2010, we closed a private placement of 1,890,858 shares of common
stock and warrants to purchase 1,890,858 shares of common stock for total
gross proceeds of approximately $1.3
million.
|
|
·
|
In
January 2010, Baltimore City Schools named us in their annual heating fuel
request for proposal. This request for proposal by the Baltimore City
Schools is in conjunction with a proposed 1 year contract with the City of
Baltimore. We previously completed a successful test program with the City
of Baltimore and reached an agreement to proceed with a longer contract to
include the Baltimore City Schools.
|
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these consolidated financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosures. On an ongoing basis, we evaluate these
estimates, including those related to revenue recognition, long-lived assets,
accrued liabilities, income taxes, common stock warrant liabilities and
antidultion obligations, and share-based compensation. These estimates are based
on historical experience, information received from third parties, and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
24
For a
description of our critical accounting policies which affect the significant
judgments and estimates used in the preparation of our consolidated financial
statements, please refer to Management’s Discussion and Analysis of Financial
Condition and Results of Operation in our Annual Report on Form 10-K for the
year ended December 31, 2009 under the caption “Critical Accounting
Policies.” No changes have been made to these policies during the
quarter ended March 31, 2010.
Financial
Operations Overview
Revenue
We
recognize revenue when legal title to the product has passed to the customer,
which is generally when the product is shipped from our Baltimore, MD
facilities. We have agreements with our customers that specify the terms of the
sale, including price.
Cost
of Revenues
Cost of
revenues consists primarily of the costs of the raw material feedstocks that go
into the formulation of our biofuel product, direct labor to run the production
plant, utilities and facility costs. We also include in cost of revenues, the
amortization of our license agreement, amortization of patents and depreciation
associated with our production facility.
Research
and Development Expenses
We have
established a research and development group, headed by our Chief Technology
Officer, Andrea Festuccia, which is based in Rome, Italy and in Baltimore,
Maryland. We have conducted additional development of the product, as well as
testing in laboratory conditions of the performance of biofuel made with our
technology.
Our
research and development expenses consist of costs incurred in identifying,
developing and testing our product. These expenses consist primarily of salaries
and related expenses for personnel, fees paid to professional service providers,
costs of consultants and the costs of manufacturing batches of our biofuel for
use in conducting test burns.
General
and Administrative Expenses
General
and administrative expenses consist primarily of the costs associated with our
general management, including salaries, benefits and professional fees such as
legal and accounting expenses. Continued increases will also likely result from
the additional hiring of operational, financial, accounting, marketing and
information systems personnel. We have twelve employees, all of whom are full
time.
Interest
Income (Expense), Net
Interest
income consists of interest earned on our cash and cash equivalents. Interest
expense consists of interest incurred related to the license agreement
payable.
Income
Taxes
We have
not recognized any deferred tax assets or liabilities in our financial
statements since we cannot assure their future realization. Because realization
of deferred tax assets is dependent upon future earnings, a full valuation
allowance has been recorded on the net deferred tax assets, which relate
primarily to net operating loss carry-forwards.
25
Results
of Operations
Comparison of the three
months ended March 31, 2010 and the three months ended March 31,
2009
Net
Loss
We
incurred a net loss of $2.9 million for the three months ended March 31, 2010,
as compared to $2.4 million for the three months ended March 31,
2009.
The
increase in net loss of $0.5 million resulted primarily from:
·
|
a
$0.4 million increase in cost of
revenues.
|
·
|
a
$0.4 million increase in general and administrative
expenses.
|
partially
offset by:
·
|
a
$0.1 million decrease in gain on debt
extinguishment.
|
·
|
a
$0.2 million decrease in fair value adjustment
losses.
|
Revenue
Total
revenues for the three months ended March 31, 2010 were $6,477, versus no total
revenues for the three months ended March 31, 2009. The increase in total
revenues was due to the initiation of biofuel production and sales from our
production plant in Baltimore, Maryland which commenced in the second quarter of
2009.
Our
product revenue was limited by a number of factors, including, losing
approximately four weeks of production time due to the severe snow storms that
occurred in the Baltimore area in January and February, which was also during a
peak usage period for many of our customers, and scaling back our production
efforts to conserve our working capital while we were pursuing additional
financings.
Cost
of Product Revenues
Cost of
product revenues was $0.6 million for the three months ended March 31, 2010,
versus $0.2 million for the three months ended March 31, 2009. Cost of product
revenues is comprised of raw material feedstocks used in production of $0.1
million, direct facility costs of $0.3 million and amortization of license
agreement of $0.2 million.
The cost
of product revenue was driven by a disproportionally higher cost of production
relative to units sold. To date, we have run only small batch processing which
does not allow us to purchase our feedstocks in large enough quantities to
leverage volume discounts and transportation costs. We also amortize our license
agreement on a straight line basis and pay fixed monthly lease costs on the
facility. These non-volume driven items were approximately $0.5 million of the
$0.6 million gross loss. If we ramp up our production, the amortization and
direct facility costs will have a disproportionate impact on our gross profit in
relation to units sold. If our production volume increases, we believe that our
per unit cost of production will decrease as we process much larger volumes,
though there can be no assurance that these cost reductions will
materialize.
Research
and Development Expenses
Research
and development expenses were approximately $81,000 for the three months ended
March 31, 2010, compared to approximately $194,000 for the three months ended
March 31, 2009. The decrease in research and development expenses in 2010 is
primarily the result of the beginning of production of our fuel and conducting
less test burns which were used to evaluate additional customized fuel
formulations using our proprietary blending technology.
26
General
and Administrative Expenses
General
and administrative expenses were $2.3 million for the three months ended March
31, 2010, compared to $1.9 million for the three months ended March 31, 2009.
The increase of $0.4 million in 2010 over the prior period was primarily
attributable to an increase in expenses associated with the issuance of
restricted stock, incentive compensation, legal fees, and consulting expenses
partially offset by decreases in severance pay, board fees, and non cash
compensation associated with the issuance of stock options &
warrants.
Interest Expense
Interest
expense was approximately $102,000 for the three months ended March 31, 2010,
compared to approximately $109,000 for the three months ended March 31, 2009.
The decrease is due to a reduction in the License Agreement payable balance.
Interest expense consists of interest incurred related to the License Agreement
payable.
(Loss)
Gain on Fair Value Adjustment
Gain on
change in fair value of warrant liability was nominal for the three months ended
March 31, 2010, compared to $0.2 million loss for the three months ended March
31, 2009. The carrying value of the common stock warrant liability is
calculated using the Black-Scholes option pricing model, which requires the
input of highly subjective assumptions. These assumptions include the risk-free
rate of interest, expected dividend yield, expected volatility, and the
remaining contractual term of the award. The risk-free rate of interest is based
on the U.S. Treasury rates appropriate for the expected term of the award.
Expected dividend yield is projected at 0%, as the Company has not paid any
dividends on its common stock since its inception and does not anticipate paying
dividends on its common stock in the foreseeable future. Expected volatility is
based on the Company’s historical volatility and the historical volatilities of
the common stock of comparable publicly traded companies.
Liquidity
and Capital Resources
Liquidity
At March
31, 2010, we had $0.2 million in cash, compared to $0.6 million at December 31,
2009.
On April
30, 2010, we received gross proceeds of $0.7 million from the issuance
of secured convertible notes to two investors and in
February we completed a private placement of Common Stock,
receiving gross proceeds of $1.3 million. Although we have
received these funds this year, we will need to reduce costs and raise
additional funding to continue our operations beyond the second
quarter of 2010. We expect that our available cash and interest income will be
sufficient to finance currently planned activities through mid-June 2010.
We estimate that we will require an additional $6 million to fund our operations
for the next 12 months. These estimates are based on certain assumptions, which
could be negatively impacted by the matters discussed under “Risk
Factors.”
Several
existing commitments that require significant expenditures will continue to
impact our liquidity and capital resources. We have monthly lease and other
outstanding payment obligations under our production facility site lease and
terminaling service agreement for past production. We also have incurred costs
associated with developing, upgrading and expanding the capacity of our biofuel
production facility in Baltimore, Maryland. Under the license agreement with the
inventor of our proprietary technology, we also are required to pay $1.0 million
per year over the next four years. We will continue incurring costs to test and
optimize our fuels, enhance research and development, pay our employees and
sustain operations.
27
We are
unlikely to be able to continue our operations unless we can obtain additional
financing. We likely will seek such funding through public or private financings
or some combination of them. Additional funding may not be available to us on
acceptable terms, or at all. Even after funding our short term needs, given our
ongoing need for capital, we may raise money on an opportunistic basis when the
market makes such funding available on acceptable terms.
We have
financed our operations to date primarily through the sale of our common and
preferred stock, secured convertible notes and warrants in private placements
with accredited investors and registered direct offerings. In February 2010, we
raised $1,305,000 in gross proceeds from the sale of shares of common stock at a
purchase price of $0.69 per share and warrants with an exercise price of $0.90
per share.
If we
continue to raise capital through the sale of equity securities, or securities
convertible into equity, dilution to our then existing shareholders would
result. If we raise additional capital through the incurrence of debt, we would
likely become subject to covenants restricting our business activities, and
holders of debt instruments would have rights and privileges senior to those of
our equity investors. In addition, servicing the interest and repayment
obligations under these borrowings would divert funds that would otherwise be
available to support research and development or commercialization
activities.
Cash
Flows
Net cash
used in operating activities was approximately $1.3 million for the three months
ended March 31, 2010, also reflected in our net loss of
$2.9 million are approximately $1.0 million of non-cash expenses, $0.2
million non-cash gain on extinguishment of debt and $0.9 million in favorable
changes in operating assets and liabilities. Included in the non-cash
expenses are $0.5 million in stock-based compensation expense, approximately
$0.1 million for stock, options and warrants issued for services rendered, $0.2
million in amortization of our license, $0.1 million amortization expense
associated with our license agreement payable.
Net cash
provided by financing activities was $1.0 million for the three months ended
March 31, 2010, and consisted of net proceeds from the issuance of common
stock offset by payment of $0.1 for license payable.
Capital
Requirements and Resources
Our
future capital requirements will depend on many factors, including:
·
|
the
level of cash flows from product sales or sublicensing;
|
|
·
|
conducting
additional testing with utilities, independent power producers, commercial
boiler operators or others, including product application testing, to gain
market acceptance of our biofuel among customers and equipment
manufacturers;
|
|
·
|
maintaining
and improving our production facility in Baltimore, Maryland under our
terminal lease agreement with Pennington Partners, LLC or with others to
supply our products initially for testing and eventually for the broader
biofuels market;
|
|
·
|
the
scope and results of our research and development
efforts;
|
|
·
|
developing
and executing a sales and marketing plan for the commercial and industrial
heating fuel and marine market segments and a technology plan that
complements the marketing plan;
|
|
·
|
entering
into feedstock supply and transportation logistics agreements to supply
our production facilities;
|
|
·
|
developing
additional strategic relationships to attract potential customers and
sublicensees and to obtain the capital commitments necessary to engineer,
construct and operate biofuel plants in our exclusive
territory;
|
|
·
|
continuing
to pursue favorable tax incentives for our biofuel, particularly efforts
to include our biofuel in the $1 per gallon and $0.50 credit afforded
biodiesel and to have the benefit of such a change extend beyond the
current expiration date of December 31, 2009 and to pursue obtaining EPA
approval;
|
|
·
|
recruiting
additional key employees to expand the capabilities of our existing
management team; and
|
|
·
|
the
costs of maintaining, expanding and protecting our intellectual property
portfolio, including litigation costs and
liabilities.
|
28
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangement or commitment that will have a current
effect on our financial condition, lead to changes in our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to investors.
ITEM
3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable to “smaller reporting companies” under Item 305(e) of Regulation
S-K.
ITEM
4T. CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our reports
filed under the Exchange Act, is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
As
required by Rule 13a-15 under the Exchange Act, we are required to evaluate the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. This evaluation
was carried out under the supervision of our Chief Executive Officer and our
Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer
and our Chief Financial Officer concluded that our disclosure controls and
procedures are effective at the reasonable assurance level such that the
information relating to us and our consolidated subsidiary required to be
disclosed in our Exchange Act reports (i) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and
(ii) is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
(b)
Changes in Internal Control over Financial Reporting
During
the quarter ended March 31, 2010, there were no significant changes in our
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
29
PART
II. OTHER INFORMATION
ITEM
1A. Risk Factors
An
investment in our common stock involves a high degree of risk. In addition
to the risk factors below and other information set forth in this report, you
should carefully consider the factors discussed in Part I, “Item 1A. Risk
Factors” in our Annual Report on Form 10-K for the fiscal year ended December
31, 2009, as filed with the SEC on March 26, 2010, and in subsequent filings
with the SEC. If any of these risks actually occur, our business, results of
operations and financial condition would likely suffer. In these
circumstances, the market price of our common stock could decline, and you may
lose all or part of your investment.
Our
existing financial resources will only provide financing until the middle
of June 2010, and we will need to raise additional capital to continue our
business, which could be particularly challenging in the near term under current
financial market conditions.
The
report of our independent registered public accounting firm for the year ended
December 31, 2009 contains an explanatory paragraph which states that we have
incurred negative cash flows from operations since inception and are dependent
upon future financing and, based on our operating plan and existing working
capital deficit, this raises substantial doubt about our ability to continue as
a going concern. Based on our current estimates, we anticipate that our existing
financial resources will be adequate to permit us to continue to conduct our
business until mid-June 2010, and we will need to control costs and raise
additional capital to continue our business beyond mid-June 2010. Accordingly,
we will need to raise additional capital in the second quarter of 2010. As of
March 31, 2010, we have incurred a net loss of $2.9 million and negative cash
flows from operating activities of $1.3 million. As of March 31, 2010, we had
approximately $0.2 million of available cash and approximately $2.4 million of
accounts payable and accrued expenses. In addition, under the license
agreement with the inventor of our proprietary technology, we are required to
pay $1.0 million per year over the next four years, with the next $1 million due
in March 2011. We also may owe certain lease payments under our site lease and
terminaling services agreement for our Baltimore production facility and are
negotiating to settle various issues by reducing rent payments and modifying
certain terms of the agreements in return for making certain payments. If we are
unable to raise additional capital, we will not be able to continue our
business. We cannot ensure that additional funding will be available or, if
available, that it can be obtained on terms and conditions we will deem
acceptable. Any additional funding derived from the sale of equity securities is
likely to result in significant dilution to our existing shareholders and may
require shareholder approval, which cannot be assured.
If
we do not meet Nasdaq requirements for continued listing, our common stock may
be delisted which could negatively impact our stock’s liquidity.
Under
Nasdaq listing rules, our common stock could be delisted from Nasdaq if we do
not meet certain standards regarding our financial condition and operating
results (including, among other factors, maintaining adequate stockholders’
equity, minimum $1.00 bid price and market capitalization), the distribution of
our publicly held securities and compliance with Nasdaq listing agreements and
SEC rules and regulations. For example, Nasdaq requires a minimum stockholders’
equity of $2.5 million or, alternatively, a market value of listed securities of
at least $35 million. On March 26, 2010, we filed our annual report on Form 10-K
for the year ended December 31, 2009, in which we
reported shareholders equity of $1,002,204. In early April
2010, we received notice from Nasdaq that our shareholders equity did
not meet the minimum continued listing requirement of $2.5 million, based on our
balance sheet as of December 31, 2009. As of March 31, 2010, we also
did not meet the alternative listing requirements of at least $35 million in
market value of listed securities or at least $500,000 in net income from
continuing operations. As provided under the Nasdaq rules, we have 45
days from the date of the notice, or May 17, 2010, to
submit a plan to regain and sustain compliance. We are submitting a plan of
compliance contemporaneously with this filing.
Further,
listed companies whose securities fall below the minimum $1.00 bid requirement
for continued listing for 30 consecutive business days can be subject to
delisting. In December 2009, we received a notice from NASDAQ that we were not
in compliance with the minimum bid requirement for 30 consecutive business days
and have until June 21, 2010 to regain compliance. Our common stock
has not traded above $1.00 on Nasdaq since December 2009.
30
In the
future, however, due to factors such as loses from operations and the volatility
of our stock price, we may not be able to meet the Nasdaq continued listing
requirements. If we are unable to satisfy the Nasdaq criteria for maintaining
listing, our common stock may be subject to delisting. Trading, if any, of our
securities would thereafter be conducted in the over-the-counter market, in the
so-called “pink sheets” or on the OTC Bulletin Board. As a consequence of any
such delisting, our shareholders would likely find it more difficult to dispose
of, or to obtain accurate quotations as to the prices of our common
stock.
ITEM
6. EXHIBITS
The
exhibits required to be filed as part of this Quarterly Report on Form 10-Q are
listed in the Exhibit Index attached hereto and are incorporated herein by
reference.
31
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 thereunto
duly authorized.
Date:
May 17, 2010
|
By:
|
/s/ Cary J. Claiborne
|
Cary
J. Claiborne
|
||
President
& Chief Executive Officer
|
||
(principal
executive officer)
|
||
By:
|
/s/ Dane R. Saglio
|
|
Dane
R. Saglio
|
||
Chief
Financial Officer
|
||
(principal
financial and accounting
officer)
|
32
EXHIBIT
INDEX
Exhibit Number
|
Exhibit Description
|
|
3.1
|
Amended
and Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K, filed March 31,
2008).
|
|
3.2
|
Articles
of Amendment to the Articles of Incorporation relating to our Series B
Cumulative Convertible Preferred Stock (incorporated by reference to
Exhibit 3.2 to the Current Report on Form 8-K, filed March 31,
2008).
|
|
3.3
|
Amended
and Restated Bylaws, dated March 5, 2008 (incorporated by reference to
Exhibit 3.3 to the Annual Report on Form 10-K for the year ended December
31, 2007, filed March 31, 2008).
|
|
4.1
|
Form
of Secured Convertible Promissory Note and Security Agreement
(incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K filed May 6, 2010).
|
|
4.2
|
Form
of Warrant (incorporated by reference to Exhibit 4.2 to the Current
Report on Form 8-K filed May 6, 2010).
|
|
10.1
|
Form
Note and Warrant Purchase Agreement (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed May 6,
2010).
|
|
10.2
|
Reimbursement
Agreement dated as of April 30, 2010 between 2020 Energy LLC and the
Company (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed May 6, 2010).
|
|
10.3
|
Employment
Agreement dated as of March 29, 2010 between Dane R. Saglio and the
Company (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed April 2, 2010).
|
|
31.1
|
Certification
pursuant to Section 302 of Sarbanes-Oxley Act of 2002*
|
|
31.2
|
Certification
pursuant to Section 302 of Sarbanes-Oxley Act of 2002*
|
|
32.1
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
* Filed
herewith.
33