Attached files
file | filename |
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EX-32.2 - NUGEN HOLDINGS, INC. | v211926_ex32-2.htm |
EX-31.1 - NUGEN HOLDINGS, INC. | v211926_ex31-1.htm |
EX-31.2 - NUGEN HOLDINGS, INC. | v211926_ex31-2.htm |
EX-32.1 - NUGEN HOLDINGS, INC. | v211926_ex32-1.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 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 December 31, 2010
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from _____________
Commission
File No.
000-52865
NUGEN
HOLDINGS, INC.
(Exact
name of Registrant as specified in its charter)
Delaware
|
26-1946130
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
44645
Guilford Drive, Suite 201
Ashburn,
VA
|
20147
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(703)
858-0036
|
(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 Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
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
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Common
stock outstanding ($.001 par value) as of February 17, 2011: 56,294,064
shares.
TABLE
OF CONTENTS
PART
I – FINANCIAL INFORMATION
|
|
Item
1. Financial Statements
|
3
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
4
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
8
|
Item
4. Controls and Procedures
|
8
|
PART
II -OTHER INFORMATION
|
9
|
Item
1. Legal Proceedings.
|
9
|
Item
1A. Risk Factors
|
9
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
9
|
Item
3. Defaults Upon Senior Securities.
|
9
|
Item
4. Removed and Reserved
|
9
|
Item
5. Other Information
|
9
|
Item
6. Exhibits
|
9
|
SIGNATURES
|
10
|
2
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
NUGEN
HOLDINGS, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
As of
December 31, 2010
(UNAUDITED)
Table of
Contents
Page #
|
||
FINANCIAL
STATEMENTS
|
||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
F-1
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
F-2
|
|
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
F-3
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
F-4
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
F-
5
|
3
PART I.
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
NUGEN
HOLDINGS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
December 31,
|
September 30,
|
|||||||
2010
|
2010
|
|||||||
(UNAUDITED)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 276,097 | $ | 863,876 | ||||
Accounts
receivable, net
|
466,977 | 253,754 | ||||||
Prepaid
expenses
|
14,668 | 11,309 | ||||||
Inventory
|
152,833 | 222,915 | ||||||
Total
current assets
|
910,575 | 1,351,854 | ||||||
Machiney
& Equipment, Net
|
57,111 | 43,325 | ||||||
Other
Assets
|
7,365 | 7,365 | ||||||
$ | 975,051 | $ | 1,402,544 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities
|
||||||||
Current
portion of long term liabilities
|
$ | 12,987 | $ | 13,428 | ||||
Convertible
notes
|
70,000 | - | ||||||
Accounts
payable and accrued expenses
|
452,585 | 479,951 | ||||||
Customer
deposits
|
26,960 | 150,000 | ||||||
Total
current liabilities
|
562,532 | 643,379 | ||||||
Long-Term
Notes Payable
|
602,576 | 603,916 | ||||||
Total
liabilities
|
1,165,108 | 1,247,295 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity (deficit)
|
||||||||
Preferred
stock - $0.001 par value; 50,000,000 shares authorized, none issued and
outstanding
|
- | - | ||||||
Common
stock - $0.001 par value; 200,000,000 shares authorized, 56,294,064 and
55,881,564 shares issued and outstanding
|
56,295 | 55,882 | ||||||
Additional
paid-in capital
|
4,707,198 | 4,631,656 | ||||||
Accumulated
deficit
|
(4,953,550 | ) | (4,532,289 | ) | ||||
Total
stockholders' equity (deficit)
|
(190,057 | ) | 155,249 | |||||
$ | 975,051 | $ | 1,402,544 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-1
NUGEN
HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Revenues
|
$ | 690,482 | $ | 150,141 | ||||
Direct
costs
|
419,751 | 8,100 | ||||||
Direct
labor
|
289,178 | 160,148 | ||||||
Gross
loss
|
(18,447 | ) | (18,107 | ) | ||||
Operating
expenses
|
||||||||
Compensation
|
218,841 | 58,481 | ||||||
Rent
& office
|
41,921 | 22,738 | ||||||
Professional
fees
|
20,462 | 3,499 | ||||||
Travel
expenses
|
79,191 | 7,384 | ||||||
Other
general and administrative expenses
|
31,637 | 8,079 | ||||||
Total
operating expenses
|
392,052 | 100,181 | ||||||
Net
loss from operations
|
(410,499 | ) | (118,288 | ) | ||||
Other
income and (expense)
|
||||||||
Interest
income
|
154 | - | ||||||
Interest
expense
|
(10,916 | ) | (26,727 | ) | ||||
Total
other income and (expense)
|
(10,762 | ) | (26,727 | ) | ||||
Net
loss
|
$ | (421,261 | ) | $ | (145,015 | ) | ||
Net
loss per share - basic and diluted
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
Weighted
average number of shares outstanding during the period - basic and
diluted
|
55,998,140 | 27,133,384 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-2
NUGEN
HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
From
October 1, 2010 to December 31, 2010
Preferred Stock
|
Common Stock
|
Additional
|
||||||||||||||||||||||||||
Number of
|
Par
|
Number of
|
Par
|
Paid-in
|
Accumulated
|
|||||||||||||||||||||||
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance
at October 1, 2010
|
- | $ | - | 55,881,564 | $ | 55,882 | $ | 4,631,656 | $ | (4,532,289 | ) | $ | 155,249 | |||||||||||||||
Issuance
of common stock for cash
|
- | - | 412,500 | 413 | 65,587 | - | 66,000 | |||||||||||||||||||||
Vesting
of stock options
|
- | - | - | - | 9,955 | - | 9,955 | |||||||||||||||||||||
Net
loss from October 1, 2010 to December 31, 2010
|
- | - | - | - | - | (421,261 | ) | (421,261 | ) | |||||||||||||||||||
Balance
at December 31, 2010
|
- | $ | - | 56,294,064 | $ | 56,295 | $ | 4,707,198 | $ | (4,953,550 | ) | $ | (190,057 | ) |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-3
NUGEN
HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (421,261 | ) | $ | (145,015 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Contributed
services
|
- | 37,500 | ||||||
Vesting
of stock options
|
9,955 | - | ||||||
Depreciation
expense
|
2,891 | 466 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(213,223 | ) | 56,005 | |||||
Prepaid
expenses
|
(3,359 | ) | (10,833 | ) | ||||
Inventory
|
70,082 | - | ||||||
Customer
deposits
|
(123,040 | ) | - | |||||
Due
to related parties
|
- | (26,455 | ) | |||||
Accounts
payable and accrued expenses
|
(27,366 | ) | 50,970 | |||||
Net
cash used in operating activities
|
(705,321 | ) | (37,362 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(16,677 | ) | - | |||||
Net
cash used in investing activities
|
(16,677 | ) | - | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of common stock, net
|
66,000 | - | ||||||
Proceeds
from issuance of notes payable
|
70,000 | 50,000 | ||||||
Principal
payments on debt
|
(1,781 | ) | (689 | ) | ||||
Net
cash provided by financing activities
|
134,219 | 49,311 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
(587,779 | ) | 11,949 | |||||
Cash
and cash equivalents at beginning of period
|
863,876 | 58,929 | ||||||
Cash
and cash equivalents at end of period
|
$ | 276,097 | $ | 70,878 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the period for interest
|
$ | 7,638 | $ | 9,743 | ||||
Cash
paid during the period for taxes
|
$ | - | $ | - |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
F-4
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merger
On
January 29, 2010, InovaChem, Inc., a Delaware corporation, completed the
acquisition of NuGen Mobility, Inc., a Delaware corporation (“NuGen” or “NuGen
Mobility”), pursuant to the Merger Agreement dated January 29, 2010(the “Merger
Agreement”), by and among InovaChem, Inc., NuGen and InovaChem Mergerco II,
Inc., a wholly-owned subsidiary of InovaChem, Inc. Pursuant to the terms of the
Merger Agreement, NuGen merged (the “Merger”) with and into InovaChem Mergerco
II, and NuGen, as the surviving corporation, became a wholly-owned subsidiary of
InovaChem, Inc. On February 26, 2010, the board of directors and stockholders
approved an amendment to the Company’s Certificate of Incorporation changing the
Company’s name from InovaChem, Inc. to NuGen Holdings, Inc. (the “Company” or
“NuGen Holdings”). The Certificate of Amendment to the Certificate of
Incorporation became effective on March 4, 2010.
Upon the
closing of the Merger contemplated by the Merger Agreement, each issued and
outstanding share of NuGen’s common stock was converted into 24,422.48 shares of
NuGen Holdings’ common stock. As a result, an aggregate of 27,133,384 shares of
NuGen Holdings’ common stock, par value $0.001 per share (“Common Stock”) were
issued to the two shareholders of NuGen. Simultaneous with the closing of the
Merger, 15,236,667 shares of Common Stock were redeemed by NuGen Holdings for a
cash payment of $152. Following the redemption of these shares, the two
shareholders of NuGen owned approximately 81% of NuGen Holdings.
The
Merger is being accounted for as a reverse acquisition and recapitalization.
NuGen is the acquirer for accounting purposes and NuGen Holdings is the
acquiree. Accordingly, NuGen’s historical financial statements for periods prior
to the acquisition become those of the acquirer retroactively restated for the
equivalent number of shares received in the Merger. The accumulated deficit of
NuGen is carried forward after the acquisition. Operations prior to the Merger
are those of NuGen. Earnings per share for the period prior to the Merger are
restated to reflect the equivalent number of shares outstanding.
Description of
Business
The
Company is engaged, through its wholly-owned subsidiary NuGen, in the research,
development and sale of permanent magnet electric motors and the electronic
controls for such motors. Our facility is located in Ashburn, Virginia. Our
revenue is derived primarily from contract research and development engineering
services. Our technology relates to specialty electric drive engines and related
components. This technology is currently being sold directly to original
equipment manufacturers (“OEMs”) pursuant to technical assistance agreements.
The agreements generally provide for us to engineer our technology to run in
various platforms (e.g. vehicles, electric generators and motors) and to be
adapted to a customer’s particular application. We offer these services from our
facility located in Virginia, to customers that require high-efficiency,
reliable, compact permanent magnet electrical motor systems, controllers,
vehicle interface modules (including energy storage, management and monitoring
systems) and related software. Our technology is used primarily to convert
electrical power into mechanical power so that mechanical power can be used to
propel a vehicle or run a generator and may be used in markets ranging from
electric/hybrid electric vehicles to materials handling equipment, distributive
power, ground support equipment, motion control, and military
systems.
Basis of
Presentation
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and the rules and regulations of the United States Securities and
Exchange Commission for interim financial information. Accordingly, they do not
include all the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations. It is management's
opinion, however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statement
presentation. The results for the interim period are not necessarily indicative
of the results to be expected for the year.
For
further information, refer to the audited financial statements and footnotes of
the Company for the years ended September 30, 2010 and 2009, included in the
Company's Form 10-K filed with the Securities and Exchange Commission on January
13, 2011.
Principles of
Consolidation
The
consolidated financial statements include the accounts of NuGen Holdings, Inc,
and its wholly owned subsidiaries, NuGen Mobility, Inc., and Trinterprise, LLC.
All significant inter-company balances and transactions have been eliminated in
consolidation.
F-5
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
Cash and Cash
Equivalents
We
consider cash on hand and investments with original maturities of three months
or less to be cash and cash equivalents. The Company at times has cash in banks
in excess of FDIC insurance limits. The Company did not have deposits in excess
of FDIC insurance limits as of December 31, 2010.
Accounts
Receivable
We extend
unsecured credit to most of our customers following a review of the customers'
financial condition and credit history. We establish an allowance for doubtful
accounts based upon a number of factors including the length of time accounts
receivables are past due, the customer's ability to pay its obligation to us,
the condition of the general economy, estimates of credit risk, historical
trends and other information. Accounts receivable are deemed to be past due when
they have not been paid by their contractual due date. We write off accounts
receivable when they become uncollectible against our allowance for doubtful
accounts. At December 31, 2010, no allowance for doubtful accounts was deemed
necessary.
Inventory
Inventory
is stated at the lower of cost (first-in, first-out basis) or market (net
realizable value). At December 31, 2010 and September 30, 2010 the Company had
$17,839 and $120,317 respectively, of work in process inventory. At December 31,
2010 and September 30, 2010 the Company had $134,994 and $102,598 respectively,
of raw materials inventory.
Machinery and
Equipment
Machinery
and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, computer
equipment, which is 5 years. Maintenance and repairs are charged to expense as
incurred. Depreciation expense for the quarters ended December 31, 2010 and 2009
was $2,891 and $466, respectively.
Revenue and Cost
Recognition
We
currently generate revenue primarily from contract research and development
services and may derive additional revenues in the future from the sale of our
products to customers. Our products are specialty electric drive engines and
related components. These products are a direct result of the services to design
and build each unit, which are built to each customer’s specifications. We
account for the products sold as one unit. We intend in the future to derive
revenue from sales of products and will recognize the sale at the time title to
the goods and the benefits and risks of ownership passes to the customer which
is typically when products are shipped based on the terms of the customer
purchase agreement.
Some
customers are asked to provide deposits prior to the Company accepting their
orders. Customer deposits are reflected on the balance sheet as a current
liability and are reclassified to revenue at the time when title to the goods
and the benefits and risks of ownership passes to the customer.
Revenue
relating to long-term fixed price contracts is recognized using the percentage
of completion method. Under the percentage of completion method, contract
revenues and related costs are recognized based on the percentage that costs
incurred to date bear to total estimated costs.
The
Company recently entered into Small Business Innovation Research contracts with
both the US Army and the US Navy, the revenue under these contracts will be
recognized in the same period as allowable and billable costs are
incurred.
Changes
in job performance, estimated profitability and final contract settlements may
result in revisions to cost and revenue, and are recognized in the period in
which the revisions are determined. Contract costs include all direct materials,
subcontract and labor costs. Selling, general and administrative costs are
charged to expense as incurred. At the time a loss on a contract becomes known,
the entire amount of the estimated loss is accrued.
F-6
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740, Income Tax. Under
the asset and liability method of ASC 740, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The valuation of deferred tax assets may be reduced if future
realization is not assured.
The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment
date.
Research and
Development
Costs of
researching and developing new technology, or significantly altering existing
technology, are expensed as incurred.
Stock-Based
Compensation
In
December 2004, the FASB issued FASB Accounting Standards Codification No. 718,
Compensation – Stock
Compensation . Under FASB Accounting Standards Codification No. 718,
companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements include
stock options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. As such, compensation
cost is measured on the date of grant at their fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods of the option
grant.
Equity
instruments (“instruments”) issued to other than employees are recorded on the
basis of the fair value of the instruments, as required by FASB Accounting
Standards Codification No. 718. FASB Accounting Standards Codification No. 505,
Equity Based Payments to
Non-Employees defines the measurement date and recognition period for
such instruments. In general, the measurement date is when either a (a)
performance commitment, as defined, is reached or (b) the earlier of (i) the
non-employee performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a period based on
the facts and circumstances of each particular grant as defined in the FASB
Accounting Standards Codification.
Loss per Common
Share
Basic
earnings per share is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding during
the periods presented. Diluted earnings per share is computed by dividing income
or loss available to common stockholders by all outstanding and potentially
dilutive shares during the periods presented, unless the effect is
anti-dilutive. As of December 31, 2010 and September 30, 2010 there were 360,000
warrants outstanding and 2,400,000 options outstanding to purchase the Company’s
common stock. The Company also has convertible promissory notes outstanding that
can be converted , at the Company’s option, to 388,889 shares of common stock.
These options, warrants and convertible shares have not been included in the
weighted average number of shares as their effect would have been
anti-dilutive.
Use of
Estimates
The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial
Instruments
The
carrying amounts on the Company’s financial instruments including accounts
payable, approximate fair value due to the relatively short period to maturity
for this instrument.
Recent Accounting
Pronouncements
In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value measurements.
This ASU requires additional disclosures regarding significant transfers in and
out of Levels 1 and 2 of fair value measurements, including a description of the
reasons for the transfers. Further, this ASU requires additional disclosures for
the activity in Level 3 fair value measurements, requiring presentation of
information about purchases, sales, issuances, and settlements in the
reconciliation for fair
value measurements. This ASU is effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The
adoption of ASU 2010-06 did not have a material impact on the
Company’s consolidated financial statements.
F-7
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
In
February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU
2010-09”) as amendments to certain recognition and disclosure requirements. The
amendments remove the requirement for an SEC filer to disclose a date in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of U.S. GAAP. Those amendments remove potential
conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were
effective upon issuance for interim and annual periods. The adoption of ASU
2010-09 did not have a material impact on the Company’s consolidated
financial statements.
NOTE
B – GOING CONCERN
As
reflected in the accompanying unaudited condensed financial statements, the
Company has an accumulated deficit of $4,953,550, a net loss of $421,261 for the
quarter ending December 31, 2010 and negative cash flows from operations of
$705,321 for the quarter ending December 31, 2010. This raises substantial doubt
about its ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company’s ability to generate
additional revenues from operations, raise additional funds and implement its
business plan. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional
revenues and funding, and to implement its strategic plans provide the
opportunity for the Company to continue as a going concern. There can be no
assurance that the Company will be able to raise such funds if and when it
wishes to do so or on terms acceptable to us. This raises substantial doubt
about our ability to continue as a going concern. Specifically, in the event
that the Company is not successful at raising capital to a level sufficient to
pay its expenditures, the Company will have to reduce administrative overhead
and reduce marketing and public relations expenditures. If the Company is unable
to cut expenses to earn profits or raise additional debt or equity capital the
Company will have to discontinue operations.
NOTE
C – DEBT
Long-term
debt consists of:
December 31, 2010
|
September 30, 2010
|
|||||||
(UNAUDITED)
|
||||||||
Promissory
note dated August 23, 2007
|
$
|
596,108
|
$
|
596,108
|
||||
Other
|
19,455
|
21,236
|
||||||
615,563
|
617,344
|
|||||||
Less:
current portion
|
12,987
|
13,428
|
||||||
Total
long term debt
|
$
|
602,576
|
$
|
603,916
|
Pursuant
to the Promissory Note dated as of August 23, 2007 the Company accrues interest
on the loan at the rate of 6% per annum. Quarterly payments are made based on a
formula that multiplies the revenue of NuGen’s gross revenues by 2% for calendar
year 2007, 3% for calendar year 2008, 4% for calendar year 2009, 5% for calendar
year 2010 and 6% for calendar year 2011 and for all subsequent years until the
loan is paid in full. In all years NuGen is required to pay a minimum of $7,500
per quarter and any payment made that exceeds the amount that would be due under
the formula shall be treated as an advance against subsequent quarterly amounts
due in excess of the $7,500 minimum payment.
As of
September 30, 2010, no payments of principal have been made as NuGen’s quarterly
revenues, multiplied by the appropriate percentage, have not exceeded the $7,500
minimum payment. The payments made have gone towards accrued interest only.
Additionally, further revenue contingent payments may be owed, in the future
(see Note F – Commitments and Contingencies – below).
In
November 2007, the Company purchased computer equipment and issued a four year
note payable, included in “Other” on the above table, in the amount of $9,326.
The Company accrues interest on this loan at the rate of 18.45% per annum and
makes monthly fixed payments of interest and principal.
In August
2010, the Company purchased computer equipment and issued a three year note
payable, included in “Other” on the above table, in the amount of $12,910. The
Company accrues interest on this loan at the rate of 0.38% per annum and makes
monthly fixed payments of interest and principal.
F-8
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
Convertible promissory
notes
On
October 22, 2010, the Company entered into subscription agreements with two
accredited investors pursuant to which the Company issued 3% convertible
promissory notes (the “Notes”) in the aggregate principal amount of $70,000
which is included on the Company’s Balance Sheet under convertible
notes.
The
Notes were offered and sold in reliance on the exemption from registration
afforded by Rule 506 of Regulation D promulgated under Section 4(2) of the
Securities Act of 1933, as amended. The Notes have a one-year term and are
convertible by the Company into Common Stock at a price of $0.18 per share,
subject to adjustment if the Company effects a stock split or issues a stock
dividend. If the Company effects a merger, sale of all or substantially all of
its assets or any person acquires 50% of its stock, then the Note will be
convertible into such number and kind of shares as would have been issuable on
account of such transaction. The Company may prepay all or a portion of the
outstanding principal and interest under the Notes upon 3 business days’ notice
and may repay any accrued interest in cash or additional shares of Common Stock.
The amount due under the Notes will become immediately due and payable if the
Company fails to pay unpaid principal on the maturity date which failure
continues for 10 days, any representation or warranty made by the Company is
false, incorrect, incomplete or misleading, or the Company dissolves,
liquidates, ceases operations, is unable to pay its debts when due, a receiver
or trustee is appointed or bankruptcy proceeding are instituted
NOTE
D - RELATED PARTY TRANSACTIONS
Related
Parties
On
December 5, 2010, a foreign investor entered into a subscription agreement with
the Company pursuant to which, among other things, the Company issued an
aggregate of 412,500 shares of its common stock at a purchase price of $0.16 per
share, for total cash proceeds of $66,000. The proceeds were received by the
Company in December 2010. Such issuances were made in reliance on an exemption
from registration under Regulation S promulgated under the Securities Act.
Pursuant to the Subscription Agreements the investor executed and delivered to
the Company (i) an irrevocable proxy appointing the Company’s Chief Executive
Officer as her proxy to vote her shares and (ii) a lock-up agreement pursuant to
which the investor agreed not to transfer, dispose of or encumber any of the
Company’s securities for a nine-month period.
NOTE
E - COMMITMENTS AND CONTINGENCIES
In August
2007, our subsidiary, NuGen Mobility entered into an asset purchase agreement
pursuant to which it acquired substantially all of the assets, and specified
liabilities of New Generation Motors Corporation, a Delaware corporation. The
agreement requires the payment to New Generation Motors of $1,000,000 pursuant
to a promissory note, which bears simple interest at the rate of six percent.
The principal amount of this note was reduced to $596,108 by the application of
$403,892 in credits. These credits consist of (i) an aggregate of $273,741 in
operational loans made by our principal shareholders to New Generation Motors to
allow them to continue operations prior to August 2007, (ii) $101,804 in
customer deposits that they retained though we were responsible for fulfilling
such customer orders, and (iii) $29,068 in amounts we agreed to pay to New
Generation Motors’s landlord for back rent.
The
principal and interest on the loan is to be repaid, on a quarterly basis, until
all amounts due thereon have been paid. The amount of each payment is equal to
the greater of (i) $7,500 and (ii) the product obtained by multiplying our Gross
Revenues (as defined) for the quarter by the applicable percentage rate. The
applicable percentage rate increases by one percentage point per year beginning
at 2% for 2007 increasing to 6% for 2011 and all subsequent years. The payment
is first applied to the accrued interest on the loan and the remainder, if any,
to the principal amount owed. As of the date hereof, an aggregate of $82,500 has
been paid (11 quarterly payments of $7,500 per quarter) and all of the payments
have been applied to accrued interest. Accordingly, the principal balance of the
loan has been $596,108 since August 2007.
In
addition, if prior to July 13, 2014 we have paid this note in full, we are also
required to pay until July 13, 2014, on a quarterly basis, the product obtained
by multiplying 2.5% by the Gross Revenues in the applicable quarter. Gross
Revenues is defined as (i) all fees and other revenue that NuGen Mobility
receives from any source, (ii) the then-current fair market value of (x) the
assets purchased from New Generation Motors,
or (y) the business (as a going concern) or portion thereof sold or otherwise
transferred to our affiliate, and (iii) the proceeds from the sale or other
disposition by NuGen Mobility to any other third party of all or any portion of
(x) the assets and/or (y) the business as a going concern. To date, we have not
been required to make any such payments.
F-9
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
In
connection with this transaction, NuGen also agreed to assume the
commitment, entered into by New Generation Motors, for a conditional grant of
$700,000 from an Indian export bank, which will be paid back through a 2%
royalty on the license agreement until $1,400,000 is paid back.
Additionally, the Indian export bank also provided a loan of $500,000 to New
Generation Motors. In connection with this asset purchase agreement, NuGen
Mobility assumed this $500,000 loan on the condition that the loan would be
converted to a conditional grant (similar to the $700,000 conditional grant).
The Company reached such agreement with the Indian export bank but the Company
and such bank never ratified such agreement. As of December 31, 2010 no payments
are owed to the Indian export bank, as the Indian manufacturer is not actively
marketing the product at present and no payments are required until sales from
this product are generated.
Lease
Commitments
On
October 7, 2010, the Company’s wholly owned subsidiary, NuGen Mobility Inc.
entered into a three year lease for a combined office / warehouse space in the
same building complex as the Company’s current space. The rent, which commenced
effective December 1, 2010, is approximately $5,595 per month and increases by
3% on each anniversary date of the lease. We also entered into a one-year lease
commencing October 1, 2010 for our current space of approximately 6,500 square
feet, for a monthly rental of $4,860. Rental expense for the quarters ended
December 31, 2010 and 2009 was $37,053 and $19,766 respectively.
Employment
Agreements
During
the quarter ending March 31, 2010, we entered into employment agreements with
our Executive Chairman and Chief Executive Officer (CEO), our Chief Financial
Officer (CFO) and our Vice President of Engineering and Programs (VP
Engineering). The agreements, for the CEO, VP Engineering and CFO, provide for
annual salaries, of $180,000, $160,000 and $120,000 respectively; signing
bonuses of $30,000, $20,000 and $10,000 respectively; and, grants of options to
purchase 900,000, 400,000 and 150,000 shares of our common stock, respectively.
The shares subject to the options for the CEO and CFO have an exercise price of
$0.45 per share and vest pro ratably in 24 equal monthly installments as of the
last day of each month commencing February 28, 2010. The shares subject to the
options for the VP Engineering are at an exercise price of $0.15 per share and
vest pro ratably in 24 equal monthly installments as of the last day of each
month commencing February 28, 2010, which option may be exercised on a cashless
basis and may be exercised until February 29, 2012. Generally, options to
acquire 100,000 shares may be exercised on a cumulative basis during the two
weeks preceding August 31, 2010, February 28, 2011, August 31, 2011, and
February 29, 2012 subject to accelerated exercise upon a change in control as
provided therein and the right to exercise his remaining option in the event of
the termination of his employment.
As part
of the asset purchase agreement in August 2007, NuGen also agreed to assume the
commitment, entered into by New Generation Motors, for a conditional grant of
$700,000 from an Indian export bank, which is only required to be paid back once
the Indian manufacturer begins paying licensing fees. NuGen does not have a
written assignment from the Indian export bank regarding its assumption of this
commitment. NuGen will then be obligated to pay the Indian export bank a royalty
received from the Indian manufacturer until $1,400,000 is repaid based on a
schedule in the agreement. Since the dates provided for in the schedule to the
agreement have passed, the agreement provides that if the actual sales deviate
substantially, the royalty schedule will have to be changed. To date, the
parties have not updated the schedule of royalty payments. Additionally, the
Indian export bank also provided a loan of $500,000 to New Generation Motors. In
connection with this asset purchase agreement, NuGen assumed this $500,000 loan
on the condition that the loan would be converted to a conditional grant
(similar to the $700,000 conditional grant). In 2006, both New Generation Motors
and the Indian export bank agreed to convert this second $500,000 loan to a
conditional grant under the same terms and conditions as the previous agreement.
However NuGen does not have a signed document indicating such agreement.
Currently, no demand has been made to NuGen for payment; accordingly, it is not
reflected as a liability on the Company’s balance sheet but rather it is
included under “Commitments and Contingencies”. As of December 31, 2010 no
payments are owed to the Indian export bank, as the Indian manufacturer is not
actively marketing the product at present and no payments are required until
sales from this product are generated.
Concentration of Credit
Risk
We have
historically derived significant revenue from a few key customers. Revenue from
one customer totaled $553,585 for the quarter ended December 31, 2010 which was
80 percent of our quarter ending December 31, 2010 revenues. Revenue from a
different customer was $111,081 for the quarter ended December 31, 2009 which
was 74 percent of total revenue.
NOTE
F – STOCKHOLDERS’ EQUITY (DEFICIT)
Private
Offerings
On
December 5, 2010, the Company entered into a subscription agreement (the
“Subscription Agreement”) with an “accredited investor” pursuant to which the
Company issued an aggregate of 412,500 shares of common stock at a purchase
price of $0.16 per share, for aggregate gross proceeds of $66,000. Such
issuances were made in reliance on an exemption from registration under
Regulation D and/or S promulgated under the Securities Act. The investor
also executed and delivered to the Company (i) an irrevocable proxy appointing
Eric Takamura, the Company’s Chief Executive Officer, as her proxy to vote her
shares, and (ii) a lock-up agreement pursuant to which the investor agreed not
to transfer, dispose of or encumber any of the Company’s securities for a
nine-month period.
F-10
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
On
October 22, 2010, the Company entered into subscription agreements with two
accredited investors pursuant to which the Company issued 3% convertible
promissory notes (the “Notes”) in the aggregate principal amount of $70,000. The
Notes were offered and sold in reliance on the exemption from registration
afforded by Rule 506 of Regulation D promulgated under Section 4(2) of the
Securities Act of 1933, as amended.
The Notes
have a one-year term and are convertible by the Company into Common Stock at a
price of $0.18 per share, subject to adjustment if the Company effects a stock
split or issues a stock dividend. If the Company effects a merger, sale of all
or substantially all of its assets or any person acquires 50% of its stock, then
the Note will be convertible into such number and kind of shares as would have
been issuable on account of such transaction. The Company may all or a portion
of the outstanding principal and interest under the Notes upon 3 business days’
notice and may repay any accrued interest in cash or additional shares of Common
Stock. The amount due under the Notes will become immediately due and payable if
the Company fails to pay unpaid principal on the maturity date which failure
continues for 10 days, any representation or warranty made by the Company is
false, incorrect, incomplete or misleading, or the Company dissolves,
liquidates, ceases operations, is unable to pay its debts when due, a receiver
or trustee is appointed or bankruptcy proceeding are instituted.
Contributed
Capital
During
the quarter ended December 31, 2009, the Company’s CEO worked for the Company
without compensation. Included in compensation expense is $37,500 of contributed
capital by the CEO. Management believes its estimate of the value of this
contributed service is reasonable.
Preferred
Stock
The
Company entered into an agreement with a representative of eleven accredited
investors confirming that such investors have the right, but not the obligation,
to purchase, in the aggregate, a minimum of $500,000 and a maximum of $700,000
of our Class A Preferred Stock (the “Preferred Stock”) at a price of $0.15 per
share. This right is exercisable beginning on the effective date of our
registration statement until August 10, 2010, subject to a 60 day extension if
the registration statement is not effective by August 10, 2010. The investors
may exercise this right on August 10, 2010 even if the registration statement is
not effective by such date. Although we have not been contacted by these persons
or their representatives, we believe that the investors may have the right to
exercise their right to purchase the Preferred Stock even though the
60 day
period has expired. We also issued the representative of such investors warrants
to acquire until March 16, 2011, 360,000 shares of our common stock at an
exercise price of $0.001 per share. We have not yet filed a certificate of
designation designating this Preferred Stock. Since we have not heard from the
investors or their counsel, negotiations regarding the terms of the certificate
of designation with respect to the Series A Preferred Stock have not commenced.
When authorized, we expect that the preferred stock will be convertible into one
share of common
stock and be subject to adjustment for issuances of securities to third parties
at a price less than $0.15 per share on a “full-ratchet basis” (i.e., so that we
shall issue, free of charge to each holder of such preferred stock, such
additional shares of Preferred Stock so that the total number of shares held by
the such holder equals that number that would have been issued at the lower
price) during the 18 months following a closing with respect to such issuance.
We also expect to provide the holders pre-emptive rights and the right to
designate one person to
serve as a member of our board of directors. Upon exercise of the right to
purchase the Preferred Stock, the investors will also receive options, warrants
or other similar rights to acquire our common stock equal to the total value of
the investors’ investment in the Preferred Stock, based on a share value of
$0.15 per share. Since we have not commenced negotiating the terms of the
certificate of designation, we are unsure as to the form the options, warrants
or similar rights would take. We have not heard from the potential purchasers of
the preferred stock or their counsel regarding this transaction. However, there
will be included in either the terms of the Preferred Stock or pursuant to a
separate convertible security, the right to purchase an additional share of
common stock from the Company’s CEO at $0.15 per share.
We
tentatively agreed that if we would ever grant certain rights to shareholders
holding a prescribed percentage of our stock, the holders of the preferred
shares would have the right to cumulate their shareholdings to determine if they
are entitled to such rights. For example, if we would ever provide that more
than 70% of the holders of our shares could require us to file a registration
statement on their behalf, the holders of the preferred shares could aggregate
their holdings to be part of that group. We also agreed to give these 11
investors an additional 10% of the value of their investment in preferred stock
based on a share value of $0.15 per share. The exact value of such additional
equity and the form of the additional consideration and the method for
determining such value has not yet been negotiated and is presently unknown. If
and when the preferred shares are purchased, each investor will also have the
right for 18 months to purchase shares of common stock from the Company’s CEO
for an exercise price of $0.50 per share.
F-11
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
Valuation of Stock-Based
Awards, Common Stock and Warrants
Stock-Based
Compensation
We
adopted the fair value method of accounting for our stock options granted to
employees which requires us to measure the cost of employee services received in
exchange for the stock options, based on the grant date fair value of the award.
The fair value of the awards is estimated using the Black-Scholes option-pricing
model. The resulting cost is recognized over the period during which an employee
is required to provide service in exchange for the award, usually the vesting
period which is generally two years.
We
amortize the fair value of our stock-based compensation for equity awards
granted on a straight-line basis, which we believe better reflects the level of
service to be provided by our employees over the vesting period of the
awards.
The fair
value of each new employee option awarded was estimated using the Black-Scholes
option-pricing model with the following weighted-average
assumptions.
2010
|
2009
|
|||||||
Risk-free
interest rate
|
2.2
|
%
|
-
|
|||||
Expected
term (in years)
|
2
|
-
|
||||||
Expected
volatility
|
82
|
%
|
-
|
|||||
Dividend
yield
|
0
|
%
|
-
|
The
Black-Scholes option-pricing model requires inputs such as the risk-free
interest rate, expected term and expected volatility. Further, the forfeiture
rate also affects the amount of aggregate compensation. These inputs are
subjective and generally require significant judgment.
The
risk-free interest rate that we use is based on the United States Treasury yield
in effect at the time of grant for zero coupon United States Treasury notes with
maturities approximating each grant’s expected life. Given our limited history
with employee grants, we use the “simplified” method in estimating the expected
term for our employee grants. The “simplified” method, as permitted by the SEC,
is calculated as the average of the time-to-vesting and the contractual life of
the options.
Our
expected volatility is derived from the historical volatilities of several
unrelated public companies within industries related to our business, including
the automotive OEM and battery technology industries, because we have no trading
history on our common stock. When making the selections of our peer companies
within industries related to our business to be used in the volatility
calculation, we also considered the stage of development, size and financial
leverage of potential comparable companies. Our historical volatility is
weighted based on certain qualitative factors and combined to produce a single
volatility factor. We have not estimated our forfeiture rate as these are the
first options granted by us after our merger in January 2010.
We
account for stock options issued to nonemployees also based on their estimated
fair value determined using the Black-Scholes option-pricing model. However, the
fair value of the equity awards granted to nonemployees is re-measured as the
awards vest, and the resulting increase in value, if any, is recognized as
expense during the period the related services are rendered.
Stock-based
compensation expense for the quarters ended December 31, 2010 and 2009 was
$9,955 and $0, respectively.
Common
Stock Valuation
We
granted stock options with exercise prices equal or greater than the fair value
of our common stock as determined at the date of grant by our Board of
Directors. Because there has been no public market for our common stock, our
Board of Directors has determined the fair value of our common stock by
considering a number of objective and subjective factors, including the
following:
• arm’s
length, third-party sales of our stock;
• our
operating and financial performance; and
• the
lack of liquidity of our capital stock;
F-12
NUGEN
HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2010
Equity
Awards
On
February 9, 2010, pursuant to the 2010 Stock Option Plan, the Company granted
options to acquire an aggregate of 2,000,000 shares of the Company’s common
stock to several executive officers and employees. Subject to vesting, these
options are exercisable during the ten years from the grant date at an exercise
price of $0.45 per share. The options vest pro rata in 24 equal monthly
installments as of the last day of each fiscal month, with the first installment
vesting as of January 1, 2010. All of the options vest immediately upon a Change
of Control Event. These options terminate immediately following the termination
of such person’s employment with the Company for “Cause” (as defined in such
employee’s employment agreement described above and other than Cause relating to
the employee’s material uncured breach of his employment agreement in which case
the options terminate in accordance with their stated term) and 180 days after
such person voluntarily terminates his employment other than for “Good Reason”
(as defined in such person’s employment agreement).
On
February 11, 2010, the Company granted an option to acquire an aggregate of
400,000 shares of its common stock to an executive officer of the Company at an
exercise price of $0.15 per share, which option may be exercised on a cashless
basis and may be exercised until February 29, 2012. Generally, options to
acquire 100,000 shares may be exercised on a cumulative basis during the two
weeks preceding August 31, 2010, February 28, 2011, August 31, 2011, and
February 29, 2012, subject to accelerated exercise upon a change in control and
the right to exercise the remaining option in the event of the termination of
employment.
The
following tables summarize all stock option and warrant grants to employees and
consultants for the quarters ended December 31, 2010 and 2009, and the related
changes during these periods are presented below.
Number of
Options
|
Weighted
Average
Exercise
Price
|
|||||||
Stock
Options
|
||||||||
Balance
at September 30, 2010
|
2,400,000
|
$
|
0.40
|
|||||
Granted
|
-
|
|||||||
Exercised
|
-
|
|||||||
Forfeited
|
-
|
|||||||
Balance
at December 31, 2010
|
2,400,000
|
$
|
0.40
|
|||||
Options
Exercisable at December 31, 2010
|
1,079,166
|
$
|
$0.40
|
|||||
Weighted
Average Fair Value of Options Granted During 2010
|
$
|
$0.40
|
Of the
total options granted, 1,079,166 are fully vested, exercisable and
non-forfeitable.
The
following table summarizes information about stock options and warrants for the
Company as of December 31, 2010:
2010 Options Outstanding
|
Options Exercisable
|
||||||||||||||||||
Range of
Exercise
Price
|
Number
Outstanding at
December
31, 2010
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
December
31, 2010
|
Weighted
Average Exercise
Price
|
||||||||||||||
$
|
0.15
|
400,000
|
9.25
years
|
$
|
0.15
|
183,333
|
$
|
0.15
|
|||||||||||
$
|
0.45
|
2,000,000
|
9.25
years
|
$
|
0.45
|
895,833
|
$
|
0.45
|
2010 Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||
Range of Exercise
Price
|
Number
Outstanding at
December
31, 2010
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average Exercise
Price
|
Number
Exercisable at
December
31, 2010
|
Weighted
Average Exercise
Price
|
||||||||||||||
$
|
0.001
|
360,000
|
.33
years
|
$
|
0.001
|
360,000
|
$
|
0.001
|
In
February 2010, we issued the representative of eleven investors warrants to
acquire until March 16, 2011, 360,000 shares of our common stock at an exercise
price of $0.001 per share.
F-13
ITEM 2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
We
caution readers that this Prospectus includes “forward-looking statements”
.Forward-looking statements are based on current expectations rather than
historical facts and they are indicated by words or phrases such as
“anticipate,” “could,” “may,” “might,” “potential,” “predict,” “should,”
“estimate,” “expect,” “project,” “believe,” “intend,” “plan,” “envision,”
“continue,” target,” “contemplate,” or “will” and similar words or phrases or
corporate terminology. We have based such forward-looking statements on our
current expectations, assumptions, estimates and projections. While we believe
these expectations, assumptions, estimates and projections are reasonable, such
forward-looking statements are only predictions and involve known and unknown
risks and uncertainties and other factors that may cause actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements, many of which are beyond our control.
Some of
the factors that could affect our financial performance, cause actual results to
differ from our estimates or underlie such forward-looking statements are set
forth in various places in this Prospectus. These factors include, but are not
limited to:
general
economic conditions,
|
¨
|
our
ability to evaluate and predict our future operations and expenses, being
an early stage development company with limited assets and no current
operations,
|
|
¨
|
the
possibility of future product-related liability
claims,
|
|
¨
|
our
future capital needs and our ability to obtain
financing,
|
|
¨
|
our
ability to protect our intellectual property and trade secrets, both
domestically and abroad,
|
|
¨
|
expenses
involved in protecting our intellectual property and trade
secrets,
|
|
¨
|
our
ability to attract and retain key management, technical, and research and
development personnel,
|
|
¨
|
our
ability to research and develop new technology and design and
manufacturing techniques,
|
|
¨
|
technological
advances, technology for new and competing products, and new design and
manufacturing techniques developed by our
competitors,
|
|
¨
|
anticipated
and unanticipated trends and conditions in our
industry,
|
|
¨
|
our
ability to predict consumer
preferences,
|
|
¨
|
changes
in the costs of operation,
|
|
¨
|
our
ability to compete,
|
|
¨
|
our
ability to manage growth and carry out growth strategies, including
international expansion,
|
|
¨
|
possible
necessity of obtaining government approvals for both new and continuing
operations,
|
|
¨
|
risks,
expenses and requirements involved in operating in various foreign
markets, including India and China,
|
|
¨
|
exposure
to foreign currency risk and interest rate
risk,
|
|
¨
|
possible
foreign import controls and United States-imposed
embargoes,
|
|
¨
|
possible
disruption in commercial activities due to terrorist activity, armed
conflict and government instability,
and
|
|
¨
|
other
factors set forth in this
Prospectus.
|
4
You are
cautioned not to place undue reliance on these forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements to
reflect new information or the occurrence of unanticipated events or
otherwise.
Recent
Developments
We
currently generate revenue primarily from contract research and development
services and may derive additional revenues in the future from the sale or
license of our technology to customers. Our technology is related to specialty
electric drive engines and related components. This technology is currently
being sold directly to OEMs pursuant to technical assistance agreements. The
agreements generally provide for us to engineer our products to run in various
platforms (e.g. vehicles, electric generators and motors). Our technology is
used primarily to convert electrical power into mechanical power so that
mechanical power can be used to propel a vehicle or run a generator. As our
technology can be adapted for a particular application, our services utilizing
our technology is customarily included in an engineering service component.
Accordingly, the Company reflects its revenue in one line on its financial
statements.
In the
fiscal quarter ended December 31, 2010 $553,585 of our revenues were sales to
Hefei New Generation Electro-Motor System Co. Ltd. (“Hefei”). $411,106 of that
amount was for the sale of a machine and related components to Heifei, an
additional $142,479 were billed for engineering services. Heifei may be a
supplier of one of our electric motor systems to fulfill a potential order from
Mahindra.
Our
technical support agreement with BSA Motors expired in September 2010 and the
contract work under the agreement was completed. We are in discussions with BSA
Motors regarding entering into a new commercial contract for the next stage of
work required. While we hope to enter into such an agreement with BSA Motors,
there can be no assurances that we will be able to do so or that the terms of
such agreement would be favorable or that BSA would decide to continue to do
business with our company.
Results
of Operations
Comparison
of Quarters ending December 31, 2010 and 2009
Revenues. Our sales increased
by $540,341 to $690,482 for the fiscal quarter ended December 31, 2010 from
$150,141 for the fiscal quarter ended December 31, 2009. For the fiscal quarter
ended December 31, 2010 the Company had $553,585 in sales to Hefei, $79,854 in
sales to the Department of Defense (Navy SBIR) and $57,043 in sales pursuant to
our contract with the Department of Defense (Army SBIR), versus sales for the
fiscal year ended December 31, 2009 of $111,081 to Mahindra, pursuant to our
Technical Assistance Agreements with Mahindra and $39,060 in sales to BSA Motors
which were primarily for engineering services. In the fiscal quarter ending
December 31, 2010, the Company provided various engineering services and
delivered a machine and various components to Hefei for use in their facility in
the Anhui province of China. The machine and related components delivered
accounted for $411,106 of the revenues for the fiscal quarter, and we billed
them $142,479 for engineering services to assist them in setting up their
production facility.
Gross Loss. Our gross loss
was $18,447 for the fiscal quarter ended December 31, 2010 versus $18,107 for
the fiscal quarter ended December 31, 2009. The Company had increased direct
labor expenses in the quarter ending December 31, 2010 due to its providing
engineering services to Hefei.
Operating Expenses. Our
operating expenses increased by $291,871 for the fiscal quarter December 31,
2010 from $100,181 for the fiscal quarter ended December 31, 2009. Operating
expenses consist primarily of compensation, rent and office, professional fees
and travel expenses. The increase consisted primarily of an increase in our
compensation expense of $160,360; $100,000 of the increase was due primarily to
the increase in the number of executive officers receiving compensation (four in
2010 compared to only one executive in 2009). We currently estimate that the
current compensation rates will remain steady in the short term. Professional
fees and travel expenses were increased due to the increased cost of being a
publicly reporting company as well as additional travel expense associated with
the increased number of executive officers in 2010.
Other Expenses. These
expenses consist of interest expense which for the quarter ended December 31,
2010 decreased by $15,811 from $26,727 in 2009 primarily due to the conversion
of a large portion of our debt to equity in January 2010. Additionally, the
bridge loans made by our Chairman and CEO, Eric Takamura, were forgiven at the
end of our fiscal 2009 year resulting in reduced interest expense in
2010.
5
Liquidity
and Capital Resources
Our
principal source of funds has been equity provided by our stockholders, various
borrowings (including borrowings from a principal stockholder) and sales to our
customers. Our principal use of funds has been for operating expenses and direct
labor costs. We estimate that we have sufficient funds to continue operations
until approximately March 2011 (without giving effect to exercise of options to
acquire our Series A Preferred Stock which if exercised, as to which no
assurance can be given, would raise between $500,000 to $700,000) and we will
require additional funds to continue operations thereafter. There can be no
assurance that we will be able to raise such funds if and when we wish to do
so or on
terms acceptable to us. This raises substantial doubt about our ability to
continue as a going concern. . Specifically, in the event that we are not
successful at raising capital to a level sufficient to pay our expenditures, we
are prepared to reduced our administrative overhead and reduce our marketing and
public relations expenditures. If we are unable to cut expenses to earn profits
or raise additional debt or equity capital we will have to discontinue
operations. The doubt about our ability to continue as a going concern was
reflected in the opinion of our auditors expressed with respect to our financial
statements for the years ended September 30, 2010 and 2009 which opinion was
qualified on a “going concern basis”. The auditors noted that in light of our
negative cash flow from operations, our working capital deficiency and
stockholders’ deficiency, there was substantial doubt about our ability to
continue as a going concern. Management currently intends to attempt to raise
additional capital through public or private offerings, the conversion of its
preferred stock option, the acquisition of a company; or merger with or into
another company.
Our
working capital was $348,043, at December 31, 2010 compared to working capital
of $708,475 at September 30, 2009. Net cash used in operating activities was
$705,321 and $37,362 for the fiscal quarters ended December 31, 2010 and 2009,
respectively. Cash flows from financing activities provided, in the fiscal
quarter ended December 31, 2010, $134,219 and was primarily due to the net
proceeds from the sale of the Company’s equity securities as well the sale of
convertible notes. In the fiscal quarter ended December 31, 2009 cash flows from
financing activities provided $49,311 which was primarily from the proceeds of a
bridge loan, which was converted in the private placement to common stock. At
December 31, 2010, we had $276,097 of cash on hand.
On
December 5, 2010, we entered into a subscription agreement with foreign
accredited investors pursuant to which, among other things, we issued an
aggregate of 412,500 shares of our common stock, par value $0.001 per share, at
a purchase price of $0.16 per share, for aggregate gross proceeds of $66,000. In
connection with the subscription agreements, the investor executed and delivered
(i) an irrevocable proxy appointing, Eric Takamura, our Chief Executive Officer,
as proxy to vote his shares, and (ii) a lock-up agreement pursuant to which each
investor agreed not to transfer, dispose of or encumber any of our securities
for a nine-month period. On October 22, 2010 we entered into subscription
agreements with two investors pursuant to which we issued 3% convertible
promissory notes in the aggregate principal amount of $70,000. The notes have a
one-year term and are convertible by us into common stock at $0.18 per share. We
may prepay all or apportion of the outstanding principal and interest under the
notes and may repay any accrued interest in cash or additional shares of our
common stock.
As of
December 31, 2010, the Company had a total of $685,563 of debt outstanding. The
primary components of this total are $596,108 owed to New Generation Motors and
$70,000 owed to the holders of the Company’s convertible promissory notes. The
Company also has the potential exercise of options to acquire a Series A
Preferred Stock which could raise between $500,000-$700,000. The Company is not
currently in default with respect to any material financing
arrangement.
Critical
Accounting Policies
We have
identified the accounting policies outlined below as critical to our business
operations and an understanding of our results of operations. The list is not
intended to be a comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management's judgment in their application.
Revenue and Cost Recognition
- We
currently generate revenue primarily from contract research and development
services and may derive additional revenues in the future from the sale of our
products to customers. Our products are specialty electric drive engines and
related components. These products are a direct result of the services to design
and build each unit, which each are built to each customer’s specifications. We
account for the products sold as one unit. We intend in the future to derive
revenue from sales of products and will recognize the sale at the time title to
the goods and the benefits and risks of ownership passes to the customer which
is typically when products are shipped based on the terms of the customer
purchase agreement.
Some
customers are asked to provide deposits prior to the Company accepting their
orders. Customer Deposits are reflected on the balance sheet as a current
liability and are reclassified to revenue at the time when title to the goods
and the benefits and risks of ownership passes to the customer.
Revenue
relating to long-term fixed price contracts is recognized using the percentage
of completion method. Under the percentage of completion method, contract
revenues and related costs are recognized based on the percentage that costs
incurred to date bear to total estimated costs.
The
Company recently entered into Small Business Innovation Research contracts with
both the US Army and the US Navy, the revenue under these contracts will be
recognized in the same period as allowable and billable costs are
incurred.
Changes
in job performance, estimated profitability and final contract settlements may
result in revisions to cost and revenue, and are recognized in the period in
which the revisions are determined.
6
Contract
costs include all direct materials, subcontract and labor costs and other
indirect costs. Selling, general and administrative costs are charged to expense
as incurred. At the time a loss on a contract becomes known, the entire amount
of the estimated loss is accrued.
In
accordance with ASC 360, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company reviews the carrying value of intangibles and
other long-lived assets for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value.
At
inception, the Company implemented ASC 718, “Share-Based Payment” which requires
the fair value of all stock-based employee compensation awarded to employees to
be recorded as an expense over the related requisite service period. The
statement also requires the recognition of compensation expense for the fair
value of any unvested stock option awards outstanding at the date of adoption.
The Company values any employee or non-employee stock based compensation at fair
value using the Black-Scholes Option Pricing Model.
Recent
Accounting Pronouncements
In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value measurements.
This ASU requires additional disclosures regarding significant transfers in and
out of Levels 1 and 2 of fair value measurements, including a description of the
reasons for the transfers. Further, this ASU requires additional disclosures for
the activity in Level 3 fair value measurements, requiring presentation of
information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements. This ASU is effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
fiscal years. The adoption of ASU 2010-06 did not have a material
impact on the Company’s consolidated financial statements.
In
February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU
2010-09”) as amendments to certain recognition and disclosure requirements. The
amendments remove the requirement for an SEC filer to disclose a date in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of U.S. GAAP. Those amendments remove potential
conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were
effective upon issuance for interim and annual periods. The adoption of ASU
2010-09 did not have a material impact on the Company’s consolidated
financial statements.
Off
Balance Sheet Arrangements
In August
2007, our subsidiary, NuGen Mobility entered into an asset purchase agreement
pursuant to which it acquired substantially all of the assets, and specified
liabilities of New Generation Motors Corporation, a Delaware corporation. The
agreement requires the payment to New Generation Motors of $1,000,000 pursuant
to a promissory note, which bears simple interest at the rate of six percent.
The principal amount of this note was reduced to $596,108 by the application of
$403,892 in credits. These credits consist of:
|
(i)
|
an aggregate of $273,741 in
operational loans made by our principal shareholders to New Generation
Motors to allow them to continue operations prior to August
2007,
|
|
(ii)
|
$101,804 in customer deposits
that they retained though we were responsible for fulfilling such customer
orders, and
|
|
(iii)
|
$29,068 in amounts we agreed to
pay to New Generation Motors’s landlord for back
rent.
|
The
principal and interest on the loan is to be repaid, on a quarterly basis, until
all amounts due thereon have been paid. The amount of each payment is equal to
the greater of:
|
(i)
|
$7,500,
and
|
|
(ii)
|
the
product obtained by multiplying our Gross Revenues (as defined) for the
quarter by the applicable percentage
rate.
|
The
applicable percentage rate increases by one percentage point per year beginning
at 2% for 2007 increasing to 6% for 2011 and all subsequent years. The payment
is first applied to the accrued interest on the loan and the remainder, if any,
to the principal amount owed. As of the date hereof, an aggregate of $ 82,500
has been paid (eleven quarterly payments of $7,500 per quarter) and all of the
payments have been applied to accrued interest. Accordingly, the principal
balance of the loan has been $596,108 since August 2007.
In
addition, if prior to July 13, 2014 we have paid this note in full, we are also
required to pay until July 13, 2014, on a quarterly basis, the product obtained
by multiplying 2.5% by the Gross Revenues in the applicable quarter. Gross
Revenues is defined as:
7
(i)all
fees and other revenue that NuGen Mobility receives from any
source,
(ii) the
then-current fair market value of (x)the assets purchased from New Generation
Motors, or (y)the business (as a going concern) or portion thereof sold or
otherwise transferred to our affiliate, and
(iii)the
proceeds from the sale or other disposition by NuGen Mobility to any other third
party of all or any portion of (x) the assets and/or (y) the business as a going
concern. To date, we have not been required to make any such
payments.
Although
the purchased assets included a license agreement between New Generation Motors
and Bajaj Auto Ltd., an Indian based manufacturer of two and three-wheel
vehicles, pursuant to which Bajaj Auto licensed our technology which is embedded
in Bajaj Auto’s three-wheel Auto-Rickshaw, do not have a
consent from Bajaj Auto to the assignment of this agreement with New Generation
Motors to us nor do we have any other agreement with Bajaj.
As part
of this asset purchase agreement, we agreed to assume New Generation Motor’s
commitment to reimburse a conditional grant of $700,000 that it had received
from ICICI. We do not have a written assignment from ICICI regarding the
assumption of this commitment. This conditional grant is only required to be
paid back once Bajaj begins paying licensing fees on the technology mentioned
above. If we had been assigned this agreement we would then be obligated to pay
ICICI a royalty on the licensing fees received from Bajaj agreement until
$1,400,000 is repaid based upon a schedule in the agreement. Since the dates
provided for in the schedule to the agreement have passed, the agreement
provides that if the actual sales deviate substantially, the royalty schedule
will have to be changed. ICICI also provided a loan of $500,000 to New
Generation Motors. In connection with this asset purchase agreement, NuGen
Mobility assumed this $500,000 loan on the condition that the loan would be
converted to a conditional grant (similar to the conditional grant executed by
New Generation Motors and ICICI in 2001). In 2006, both New Generation Motors
and ICICI agreed to convert this second $500,000 loan to a conditional grant
under the same terms and conditions as the previous 2001 agreement. We have
commenced discussions with ICICI with respect to an agreement for the
conditional grant which we currently expect to enter into by March 2011.
However, we currently do not have a signed document indicating such agreement
and there can be no assurances that our discussions will result in such
conditional grant agreement. Currently, no demand has been made to NuGen
Mobility for payment; accordingly, we do not reflect this as a liability on our
balance sheet but rather we include it under “Commitments and Contingencies” in
our financial statement footnotes.
As
of September 30, 2010, no payments are owed to ICICI, as Bajaj is not
actively marketing its product at present.
Accounting
Treatment
The
Merger is being accounted for as a reverse acquisition and recapitalization.
NuGen is the acquirer for accounting purposes and NuGen Holdings, formerly
InovaChem, is the acquiree. Accordingly, NuGen’s historical financial statements
for periods prior to the acquisition become those of the acquirer retroactively
restated for the equivalent number of shares received in the Merger. The
accumulated deficit of NuGen is carried forward after the acquisition.
Operations prior to the Merger are those of NuGen. Earnings per share for the
period prior to the Merger are restated to reflect the equivalent number of
shares outstanding.
ITEM
3.
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT
REQUIRED
ITEM
4.
CONTROLS
AND PROCEDURES
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, the Company
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31,
2010. Based on this evaluation, our principal executive officer and principal
financial officer have concluded that the Company’s disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in the reports filed or submitted under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms and that the
Company’s disclosure and controls are designed to ensure that information
required to be disclosed by the Company in the reports that we file or submit
under the Exchange Act is accumulated and communicated to management, including
our principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
There
were no changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in the internal controls over financial
reporting during the three months ended December 31, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
8
PART
II – OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS.
We are
currently not a party to any pending legal proceedings and no such actions by,
or to the best of its knowledge, against us have been threatened.
ITEM
1A. RISK
FACTORS.
Not
required.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On
September 29, 2010 and December 5, 2010, the Company entered into subscription
agreements (the “Subscription Agreements”) with “accredited investors” pursuant
to which the Company issued an aggregate of 5,912,500 shares of common stock at
a purchase price of $0.16 per share, for aggregate gross proceeds of $946,000.
Such issuances were made in reliance on an exemption from registration under
Regulation D and/or S promulgated under the Securities Act. In connection with
the purchases made by three of the investors (representing 5,500,000 of the
shares), said investors also executed and delivered to the Company (i) an
irrevocable proxy appointing Eric Takamura, the Company’s Chief Executive
Officer, as his proxy to vote their shares, and (ii) a lock-up agreement
pursuant to which each investor agreed not to transfer, dispose of or encumber
any of the Company’s securities for a nine-month period. The September 29, 2010
investors are affiliates of Hefei.
On
October 22, 2010, the Company entered into subscription agreements with two
accredited investors pursuant to which the Company issued 3% convertible
promissory notes (the “Notes”) in the aggregate principal amount of $70,000. The
Notes were offered and sold in reliance on the exemption from registration
afforded by Rule 506 of Regulation D promulgated under Section 4(2) of the
Securities Act of 1933, as amended.
ITEM.
3. DEFAULTS
UPON SENIOR SECURITIES.
None
ITEM
4. REMOVED
AND RESERVED
ITEM
5. OTHER
INFORMATION.
None
ITEM
6. EXHIBITS
Exhibit No.
|
Description
|
|
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act (filed
herewith)
|
|
31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act (filed
herewith)
|
|
32.1
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act (filed herewith)
|
|
32.2
|
Certification
of Principal Financial and Accounting Officer pursuant to Section 906 of
the Sarbanes-Oxley Act (filed
herewith)
|
9
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.
By:
|
/s/
Eric Takamura
|
Eric
Takamura
|
|
President,
Chief Executive Officer
|
|
February
18, 2011
|
By:
|
/s/Alan
Pritzker
|
Alan
Pritzker
|
|
Chief
Financial Officer
|
|
February
18, 2011
|
10